Martin Lewis Pension Podcast - 8th July

hugheskevi

I found it interesting listening to Martin's podcast on 8th July 2024, in which he discussed pensions with two industry experts.

A podcast can't cover every detail and eventuality, but I thought Martin was good - he knew the extent of his knowledge, the key points, and explained things correctly and clearly in almost every area. However, I was surprised by the expert answers and think they would confuse and mislead listeners in several important areas. 

There was also a recurring problem throughout that all the answers were DC-based, but that was rarely made clear, when it was important to clarify the differences. Some of the key things I noted:

25% tax-free lump sum
Question (at 4m:15s into the podcast):
"My pension payments are ending soon. Recent correspondence confirms 25% of my pension can be received tax-free but I have multiple individual pensions, so would it be 25% of each or just one? One pension provider says they don't then manage part pensions and I should move it."

Expert answer:
"So the 25% is across all of your savings so this is where we need to be careful that if you access it on one pot at 25% that you need to think that actually, you can't then take 25% from another pension pot. It's about what you are allowed to take tax-free so it's typically 25% so you need to look at the whole"

Question (17:00):
"Is it always best to take the 25% tax-free lump sum? Any circumstances where it might be best not to take this option?"

The answers weren't wrong, but there was not a single mention of DB schemes and poor commutation rates in the expert answers, which is surely the most common scenario.

Annual Allowance
Question (19:00):
"If you take money out of your pension you can reduce the annual allowance, the amount you are allowed to continue to contribute to your pension in the future. How does that work - is that with the 25% or is only with income?"

Expert answer: (No mention of the difference between DB and DC at any point)

"If you take just the 25% and you take zero income, there will be no impact to your Annual Allowance. If you start taking income on top of the tax-free cash, whatever method, then your Annual Allowance will drop down to £10,000."

Carry forward
Question (27:10)
"I withdrew a partial payment from one of my pension pots. I've had a letter confirming I am subject to the Annual Allowance limit. I want an answer in plain English"

Setting aside that the question was probably about the Money Purchase Annual Allowance limit rather than the standard limit, again there was no mention of differences between DB and DC at any point, and in particular the common scenario in final salary schemes where a pay increase leads to a Pension Input in excess of an individual's pensionable earnings.

Martin: "The simple answer is you can put in as much as you earn as long as it is not more than £60,000"

Expert answers:
"It is about looking back over what you have earned over the previous 3 years to see if you have maximised it." 

"You are limited to what you are earning as to what you can add in a tax year"

Income Tax
Question (30:25)
"I have a drawdown pension but when I take money out I lose 33% of it. Why is that when I am on the basic tax rate and my only income is the basic State Pension."

Expert answer:
The reason is, I suspect, emergency tax code (best guess). The easiest way to get your money back is to fill in a P55 form and send it to HMRC.

That could be the reason, but there was no mention of a possible K code arising from the State Pension. I guess this is a bit picky as the question did state basic State Pension only, but I wouldn't rely on that description alone.

FIREDreamer

I am not sure if I misheard but I am sure that he mentioned that taking out an annuity invokes the MPAA, which is wrong (assuming he means a lifetime annuity).

Marcon

To add to the above very helpful post, there's another part of the podcast (at approximately 36:30), which has the potential to mislead. Thanks to @pwe who asked for clarification and got the following useful response from Charlotte Jackson at the MPS:

’Thank you for flagging the point on pot access after death. I have listened back to the recording and you are correct I did not articulate this correctly; regardless of whether the post has been accessed prior to death it can be taken tax free.  I am sorry for the confusion and any inconvenience caused from my mis-speak on the podcast. If it helps all our material on the Money Helper website is much clearer.'

https://www.moneyhelper.org.uk/en/pensions-and-retirement

GenX0212

25% tax-free lump sum
Question (at 4m:15s into the podcast):
"My pension payments are ending soon. Recent correspondence confirms 25% of my pension can be received tax-free but I have multiple individual pensions, so would it be 25% of each or just one? One pension provider says they don't then manage part pensions and I should move it."

Expert answer:
"So the 25% is across all of your savings so this is where we need to be careful that if you access it on one pot at 25% that you need to think that actually, you can't then take 25% from another pension pot. It's about what you are allowed to take tax-free so it's typically 25% so you need to look at the whole"

I heard this at the time and thought hang on I don't quite understand what they just said - but then I forgot all about it until reading your post. I still don't quite understand the answer. 

I have three different DC pension pots: 1 deferred company pot now managed by Aviva £50k, 1 private pot with L&G £60k and 1 active pot with my current employer £470k. I thought that you could crystallise each of them separately, and even crystallise parts of a particular pot at different times (subject to the scheme rules).

Have I got this wrong, is the expert answer correct and does it mean that if I want to take an element of 25% tax free lump sum I have to take it from all 3 at the same time? Appreciate any clarity someone can provide. 

FIREDreamer

GenX0212 said:

25% tax-free lump sum
Question (at 4m:15s into the podcast):
"My pension payments are ending soon. Recent correspondence confirms 25% of my pension can be received tax-free but I have multiple individual pensions, so would it be 25% of each or just one? One pension provider says they don't then manage part pensions and I should move it."

Expert answer:
"So the 25% is across all of your savings so this is where we need to be careful that if you access it on one pot at 25% that you need to think that actually, you can't then take 25% from another pension pot. It's about what you are allowed to take tax-free so it's typically 25% so you need to look at the whole"

I heard this at the time and thought hang on I don't quite understand what they just said - but then I forgot all about it until reading your post. I still don't quite understand the answer. 

I have three different DC pension pots: 1 deferred company pot now managed by Aviva £50k, 1 private pot with L&G £60k and 1 active pot with my current employer £470k. I thought that you could crystallise each of them separately, and even crystallise parts of a particular pot at different times (subject to the scheme rules).

Have I got this wrong, is the expert answer correct and does it mean that if I want to take an element of 25% tax free lump sum I have to take it from all 3 at the same time? Appreciate any clarity someone can provide. 

You are not wrong, the expert answer is 100% bobbins. Or at best open to misinterpretation.

Bostonerimus1

I listened to a "Pension Confident Podcast" from PensionBee recently all about how to make your money last in retirement and the "experts" had almost no understanding of the 4% rule with one even saying that it meant if your annual gain was 4% you could withdraw 4%. 

SmokeysTravels

A couple of other comments to add onto this thread:

The adviser says regarding annuities:
"But there's also cons to an annuity and the big con is that you can pass it on to future generations, the income ends with you know, if you've selected a spouse's pension after you pass away, then it will end up on the spouse's death and then that's it. You can't pass on anything further to your children." This is not true if you select a guaranteed minimum period (that can be up to 30 years nowadays) or capital protection that pays the remainder of the capital outstanding if the annuitant dies before receiving it back (and has selected full capital protection). So if the annuity was bought for £100000 and over the years the annuitant receives £60000 in payments and then dies, if they had full capital protection the remaining £40000 gets paid to their beneficiaries. In both cases these payments can be paid to any beneficiaries including children. 

The adviser says taking income from an annuity triggers the MPAA. This is not true for a lifetime annuity. It is only true for a fixed term annuity (which given they don't even acknowledge their existence is misleading). 

For the question regarding paying off the mortgage with his tax free cash sum from his pension, the customer admitted to be paying in around £1000 a month into savings. This part is completely ignored by everyone and they just concentrate on whether the returns on the pension are better or worse that the interest rate on the mortgage. It may well be that the money in the savings account is getting a much worse return than the pension, so surely the logical suggestion would be to consider using that money first to pay off the mortgage rather than the pension tax free cash.

Another one:
Cassandra, ‘I withdrew a partial payment from one of my pension pots. I've had a letter confirming I'm subject to the annual allowance limit. I think I know what that means. But I'm trying to find an answer in plain English and that's impossible. Please help.’ The clue here was they have taken a withdrawal from a pension pot, so they can only be talking about the MPAA and not the annual allowance. Here the panel just gave the wrong answer. 

Whilst it's great to have pensions covered on a podcast and the transcript available on MSE, given Martin's reputation and the trust the public have in him, they really need to be accurate.