Taking some 25% tax free lump sum and impact on ongoing pension contribution

Baggy2000

Any major downside on this approach please by doing it now than say in a year or so time? Let's take a scenario of someone aged 60 drawing a DB of £20k pa from a previous employer, still employed and with say say two DC (one SIPP and one company) of £100k value each. If you take 25% from one (or both DC) and put the remainder into flexi-axis drawdown then that shouldn't trigger any MPAA and you can continue contributing to the company DC from salary as long as you are aware of the pension recycling aspects.

Brie

I believe that taking any lump sum from a DC will decrease the amount you can contribute to your current DC pension on a tax free basis.  Happy to be corrected.

FIREDreamer

Brie said:

I believe that taking any lump sum from a DC will decrease the amount you can contribute to your current DC pension on a tax free basis.  Happy to be corrected.

Not if it’s only tax free cash being taken

Shadyocuk

My understanding is that you are broadly correct. 
To avoid triggering the MPAA you would need to crystallise the whole fund and then just take the 25% tax free amount.
This assumes that the fund allows you to do this (not all allow just taking the 25% tax free).
It also assumes that your employers scheme allows you to crystallise the whole current fund and continue adding future payments.

Obviously one disadvantage of crystallising the whole existing fund or funds is that any future growth will be 100% taxable on withdrawal and your DB of 20K PA already uses up you annual tax free income allowance.

Sarahspangles

Baggy2000 said:

Any major downside on this approach please by doing it now than say in a year or so time? Let's take a scenario of someone aged 60 drawing a DB of £20k pa from a previous employer, still employed and with say say two DC (one SIPP and one company) of £100k value each. If you take 25% from one (or both DC) and put the remainder into flexi-axis drawdown then that shouldn't trigger any MPAA and you can continue contributing to the company DC from salary as long as you are aware of the pension recycling aspects.

The downside of this as shadyocuk says is that you crystallise the funds remaining in your DC pots. Say they are each worth £100k and you take £25k tax free from both. The remaining two pots of £75k could continue to grow due to investment gains but everything you take will be taxable. So if they grew to £200k before you next access them you’re paying 20% tax on £200k.

Only the new contributions will have a potential tax free element going forward.

Baggy2000

Shadyocuk said:

My understanding is that you are broadly correct. 
To avoid triggering the MPAA you would need to crystallise the whole fund and then just take the 25% tax free amount.
This assumes that the fund allows you to do this (not all allow just taking the 25% tax free).
It also assumes that your employers scheme allows you to crystallise the whole current fund and continue adding future payments.

Obviously one disadvantage of crystallising the whole existing fund or funds is that any future growth will be 100% taxable on withdrawal and your DB of 20K PA already uses up you annual tax free income allowance.

Yes it would probably be a case of crystallising the SIPP as the employer DC also has an associated DB scheme which would increase the tax free sum (25% of the overall total) if done once I finish the employment