Small Pot Pension that provider says is 100% tax free - confused as to what to do

Squasher_2

For context, I am 55 years old and still working full time. I have a small, long-frozen pension from a previous employer, with Aviva. It is a Defined Contributions, With Profits Pension. The current value including final bonus is just over £5K. I think it was only running for about 18 months back in the mid '90s. At first I was just going to transfer this into another pension fund that was performing better, more to tidy things up than anything else. The transfer was flagged/paused by Aviva due to them saying that "The member's tax free cash entitlement is higher" (than the standard 25% tax free entitlement of the receiving pension). I queried this with Aviva and they have confirmed in writing that "the maximum amount of Tax Free Cash available on policy is 100% of the fund." So, that led to two further questions: 

1. If I were to restart contributing additional funds to the Aviva policy (for instance, via a transfer-in or by monthly contributions), would the tax-free status remain at 100% as the fund increased in size or is it frozen at the current fund value? Because if that is the case what's to stop me ploughing money into this pension going forward thereby benefitting from a substantial tax advantage?

2. Depending on the answer of (1.), if I wanted to cash in the entire policy as a lump sum now (as I understand can be done under the less than £10000 total fund value rules) can I do that without any tax liability?

I have asked Aviva both these questions and they will not give me a straight answer, merely an illustration should I wish to cash it in now and some generic 'retirement options' paperwork.

Can anyone on this forum shed any light on this, particularly re. question 1?

xylophone

You mention the mid nineties (so pre 2006) and that this was an employer related scheme.

I wonder does below have a bearing on the case?

See https://techzone.abrdn.com/public/pensions/Tech-guide-tax-free-cash

For both defined contribution and defined benefit schemes, the normal tax-free cash limit of 25% of the crystallised value of the benefits doesn't always apply, as some individuals may be entitled to either more or less than 25%, for example:

• Scheme specific tax-free cash protection - Before 6 April 2006, occupational pension schemes (including section 32 buyout contracts) could provide more than 25% tax-free cash. Under the pre-6 April 2006 rules, tax-free cash entitlement was based on the member's salary and service with the employer linked to the scheme.

New contributions can be made after 5 April 2023 without losing this protection, but they will not generate any new tax-free cash entitlement.

dunstonh

 I have a small, long-frozen pension from a previous employer, with Aviva.

It won't be frozen.   

1. If I were to restart contributing additional funds to the Aviva policy (for instance, via a transfer-in or by monthly contributions), would the tax-free status remain at 100% as the fund increased in size or is it frozen at the current fund value? Because if that is the case what's to stop me ploughing money into this pension going forward thereby benefitting from a substantial tax advantage?

no they wouldn't as these would be post A day contributions

Squasher_2

OK, thanks for both those answers. As I suspected, the idea of gaining a miracle tax advantage was too good to be true