BEST WAY TO DO DRAWDOWN FOR A VERY SMALL POT

epsilon4900

Thanks Xylophone,
Much obliged. Will look at those sites for sure. Am on to HL again today seeing if I can get further.
The chap I spoke to on Friday was saying that IF I transferred to HL it would be possible to split the 10 or 11 thousand in all ( before TFLS  taken off ). While this would avoid triggering the MPAA he was insisting that any non TFLS monies would be subject to tax. So in other words yes it needn't trigger MPAA but the downside would be I would probably pay tax I needn't pay IF I do things a different way. I have just had a really good chat with someone else at HL and feel a whole lot clearer on all of this!

xylophone

any non TFLS monies would be subject to tax.

But what did you expect?

25% of a pension pot is tax free - the balance is taxable as income in the tax year of receipt.

epsilon4900

I think I misunderstood a previous posting about ways not to trigger the MPAA? I didn't understand till I was told on the phone that the downside of that method was to be fully taxed so that is a disincentive. So it was pluses and minuses?
Just had another frustrating conversation with Phoenix Life about MVRs. They make no guarantee about there being or not being one just none operating at the moment. So I could go ahead and transfer and suddenly find there is one from nowhere out of a clear blue sky after all. Unless I transfer on my selected retirement date which is my birthday. So I guess that is what I will need to do. 

MallyGirl

whatever method you use you will be taxed as income in the year. Withdrawing as small pots means avoiding the MPAA but the tax will be the same as just withdrawing the same amount not under the small pots rule. You will get 25% tax free and pay tax on 75% of it at the correct rate for you.

ader42

There is no downside to avoiding the MPAA as @Mallygirl said.

It’s important to note the difference between Tax-free and taxable at zero percent.

Let’s assume your wages/other income is £6570.
Let’s assume your pension pot is £10,800.

You split your pot into two pots of £5,400 each to avoid affecting MPAA.
You take 25% TFLS from each of the two ports, so 2 x £1350 = £2,700.
You are then left with two pots each containing £4,050 all of which will be taxable at your marginal rate at the time of withdrawal.

After your wages you have £6,000 of Personal Allowance left.

So this year you decide to empty one pot and that £4,050 is taxable but at zero rate as your total combined income is less than the Personal Allowance.
However, the first time you take taxable income it will affect your tax-code and HMRC will assume it to be the first of monthly withdrawals.
So you should either take it as £337.50 a month (over 12 months) or take at least the first taxable money as a small amount to allow HMRC time to adjust your tax-code. Next year you can do the second pot.

Your other approach could be UFPLS from one pot and then the following year UFPLS from the other pot, where you take £450 per month, with £112.50 being tax-free and £337.50 taxable (at zero rate).

MPAA may of course not be a concern for you… 

epsilon4900

Thanks MallyGirl and Ader42
Very helpful posts and clear. I suppose I would have to see if the charge/s for the various vehicles I would need to use for these methods  are effectively doubled because of two different pots? If so whether that feels a disincentive or not.
On the other hand I can't see me ever now having  £10000 available from work to put into a pension so I am not sure the MPAA really is an issue for me at this time. I am grateful for the clarity though and thanks again for taking the time for doing these posts.

xylophone

As I understand it, you are considering a transfer of around £11,000 to HL Sipp.

If you wanted to avoid triggering MPAA you would request that they split into two pots.

HL do not charge to hold cash or to draw down the pension.

Therefore one pot or two, there would be no charge?

epsilon4900

Thanks Xylophone,

Yes that sounds like what is a strong contender for action. Take the TFLS from both and then slowly empty one
in the most tax efficient way for my circumstances and then do the same with the other. Probably take me a couple of years depending on exactly when I stop my self employment. I am actually wondering now if the Labour Party win if they will do something to affect the TFLS thing as I have two other pension pots to consider over the next few years.

epsilon4900

Xylophone  Just had a conversation with HL where they are saying that there is no way of avoiding triggering the MPAA eg by transferring the policy and splitting it into two sub funds as it were. The woman is very clear on this.
I am sure I had a different conversation a few weeks ago where it did seem to be possible. So I am more confused now than I ever was! Having said that I am unlikely ever to need to deposit more than 10k a year into a pension from this point so there is probably no advantage to be gained by delaying at this point and worrying further about the MPAA. Thanks.

xylophone

Xylophone  Just had a conversation with HL where they are saying that there is no way of avoiding triggering the MPAA 

I am rather puzzled.

Was the idea not to create  "small pots"?

https://moneyforums.citywire.com/yaf_postsm166435_Lifetime-Allowance-and-Small-pot-Exemptions.aspx#:~:text=Hargreaves Lansdown will create a,an extra £30,000 LTA.

https://www.litrg.org.uk/pensions/pension-withdrawals/small-pensions#:~:text=For personal pensions, up to,cannot take it in stages.