Combining company pensions

bjorn_toby_wilde

dont_use_vistaprint said:

eskbanker said:

How small is 'quite small'?  If below £30K then this may open up opportunities for trivial commutation under the small pots provisions....

eskbanker said:

How small is 'quite small'?  If below £30K then this may open up opportunities for trivial commutation under the small pots provisions....

No not that small , the smaller is around 50k, the larger about 350k.

I also confirmed with both that there are no fees whatsoever to access any of the money left as is

There are no fees for setting up the drawdown but it might be looking at the overall charges they take for holding your pension funds. Sometimes these charges are tiered so that the more money you invest with them, the lower the percentage fee. You may be paying more for the smaller Aegon pot. Combining the two would make sense then.

dont_use_vistaprint

Dazed_and_C0nfused said:

dont_use_vistaprint said:

MallyGirl said:

Hi

I think you need to do a bit of reading.
You can just take the 25% tax free and the remaining 75% goes into a drawdown pot where it will be termed 'crystallised'
or
You can take slices out where 25% of each slice is tax free and 75% is taxable. Taking a £16,760 slice would maximise the amount of taxable income that is at 0% tax rate.

No need to do a tax return. Once you take your first income, by any method, then HMRC will issue a tax code.

Thanks I’ve tried reading / researching but none of the articles seem to explain it in any detail, how the tax applies , they just repeat the same lines


for example I’ve found nothing online mentioning the 16,760 amount to maximise tax free amount's or anything explaining when and how tax is deducted or any details of drawing from the taxable and non taxable pots other than saying you can take all the 25% or some of it 

That's probably because it isn't £16,760 that's "tax free".

But it is mentioned in some places, look at the example of Ann here,

https://techzone.abrdn.com/public/pensions/Practical-guide-using-drawdown

It's £4,190 that is tax free.  And £12,570 that is taxable pension income.  But if you don't have any other non savings non dividend income in the same tax year then there would be no tax payable on the £12,570 as you have your Personal Allowance available.

If you have applied for Marriage Allowance then the £16,760 figure is only £15,080 due to your reduced Personal Allowance.

My Aim would be to take £20,000 each year to put into Cash ISA.

So it appears anything over £16,760 could not be taken from the tax free 25% portion and so would be subject to tax. This seems unfair as I could just take the whole 25% tax free but not arbritary amounts? It has to be either all , or 1/4 of the drawdown amount, not all or "some" as just about every article on the subject says. 

Is there no way to take £20K a year and utilise the tax free amount and the personal allowance to avoid paying tax ?

Also it appears even taking £16,760 a year will be taxed at emergency rate and have to be claimed back. That seems very unfair, how difficult is it to ask what other income you expect in a given tax year or wait until a SA is done to pay any tax due ? These are established processes in UK Tax.

How long should it take to get the overpaid tax back ?

Thanks 

dont_use_vistaprint

Silvertabby said:

dont_use_vistaprint said:

Silvertabby said:

dont_use_vistaprint said:

They are not that old Aviva has an app it’s about 7 years old and the other is Aegon about 12 years old. 

I spoke to them both and they confirmed I can access the money in just over a year. They will write to me in about eight months with the information but it seems that every pound I take out they will place £3 into a drawdown pot, which will be invested in exactly exactly the same way as the remaining money left in the pension. Anything I take out of the drawdown pot would be counted on my tax return.

The only other pension I have is an old LGPS that I cannot access until 65 so currently just living on savings

Exactly how old is your LGPS pension?  Do you have any R85/early payment protections?  

It ended in 2013 I have around 12 years contributions so it’s not a lot, not aware of any R85/early payment protections

As you joined before 1 October 2006, you may have R85 protections in respect of your pre April 2008 service.  ie, if taken at age 60 and as long as your service (including deferred service) is 25 years, then your pre 2008 benefits wouldn't be reduced for early payment.  But your benefits from 1 April 2008 onwards would be reduced if taken before age 65.

Rather than wait until 65, you could ask for an estimate at 60, and see if it's worth taking then subject to the total payment reductions. 

I will look into this thanks. 

But it seems that keeping income to my personal allowance is probably the best strategy, topped by by interest from ISA and Savings keping LGPS and State pensions for later years when I need much less and haved spent the bulk of savings/pensions.

dont_use_vistaprint

El_Torro said:

You don't have to take the 25% tax free in one lump sum. Instead you can make regular withdrawals and 25% of that withdrawal will be tax free. So with a Personal Allowance of £12,570 you can withdraw £16,760 in a tax year and not pay tax on any of it. Assuming you have no other income in that tax year. 

This actually makes more sense than the dozens of articles I have read :-)

Its kind of how the pension provider described it initially. They said each £1 I take tax free they put £3 into a drawdown pot. However, what they didnt say is that 1) they will tax the £3's at emergency tax rate and 2)  I have to take the £3 if I want the £1. In my mind I could take £12,570 x Tax Free £1's and then  just take £7,430 from the resulting £37,710 drawdown to keep within my personal allowance and pay no tax, seems this isnt possible,

dont_use_vistaprint

Linton said:

Whether and where you merge pensions depends on the details of the pensions.  Typical relevent details:

1) charges
2) range of funds available.  
3) features - eg some old pensions may have valuable guarantees or they may not support drawdown.

Your options are to merge one with the other, which may not be possible, or to merge both into another existing pension  (eg are you currently a member of an employers scheme?) or a new personal pension such as a SIPP.

Why do you want to take some of the pension now?  It may be better to keep then invested until you need the money.

I assume these pensions are both DC and not DB (eg final salary). 

Hi 

The larger pension has an admin / scheme charge of 0.39% of the overall policy value, calculated monthly and charged annually. The two individual funds have no charges. Does this seem reasonable/competitve - around £1365 per year at current value

MallyGirl

dont_use_vistaprint said:

El_Torro said:

You don't have to take the 25% tax free in one lump sum. Instead you can make regular withdrawals and 25% of that withdrawal will be tax free. So with a Personal Allowance of £12,570 you can withdraw £16,760 in a tax year and not pay tax on any of it. Assuming you have no other income in that tax year. 

This actually makes more sense than the dozens of articles I have read :-)

Its kind of how the pension provider described it initially. They said each £1 I take tax free they put £3 into a drawdown pot. However, what they didnt say is that 1) they will tax the £3's at emergency tax rate and 2)  I have to take the £3 if I want the £1. In my mind I could take £12,570 x Tax Free £1's and then  just take £7,430 from the resulting £37,710 drawdown to keep within my personal allowance and pay no tax, seems this isnt possible,

I think you are getting confused and their description is not helping.
I will use numbers and see if that is better.

Say that you have £100k in the pot today. You can drawdown £25k of that tax free. For every £1 of it that you take out tax free, then £3 (the matching 75% taxable bit) goes into some sort of drawdown pot. This drawdown pot is also called crystallised funds. The act of taking the tax free bit is called crystallisation. You can take any mount of the £25k tax free amount. It is tax free. You don't use the £12570 0% tax band for it, you don't have to declare it as income.

For any amount that you take tax free you can choose to also take none, some, or all, of the matching 75% taxable.
If you take £10k tax free then £30k becomes crystallised and now sits in a drawdown pot. You can take up to £12570 out of this £30k drawdown pot and pay 0% tax on it as long as you have no other income - leaving £17430 in the pot for future drawdown. You will get hit with a tax bill the first time you do this but you can get it back. Anything you take from the crystallised pot above £12570 is taxed at prevailing rate (probably 20%).

You also still have £100k (starting point) minus £10k (tax free) minus £30k (crystallised) = £60k left in your original pot.

Now you need more money for something and you are in a new tax year with no other income. Assuming no growth has happened to keep it simpler.
You have £60k uncrystallised funds. You could take £15k tax free putting the remaining £45k into your crystallised drawdown pot - or you could take less and still leave a bit left in your original pot. Your choice.

And repeat till all the tax free amount is gone and you only have crystallised funds left.

The amounts you can take are flexible - subject to the 25%/75% rules above. You do not have to take all 25% tax free amount in one go. You do not have to take any taxable income but it would make sense to at least use the £12,570 0% band. You certainly don't have to take it all.
If your provider is constraining what you take then that is likely a limitation of the pension you currently hold and you need to transfer it to a more flexible provider.

dont_use_vistaprint

dunstonh said:

i am retired and have no income other than interest savings currently and dont plan to work again  

Taking some of the 25% but no taxable whilst you have no income is wasteful.   You have £12570 personal allowance you can use from the taxable element until other incomes kick in.

Your way is going to cost you thousands of pounds in tax later on.

I disagree , it’s only wasteful if you pay tax in future years that could have been avoided.

if longer term you intend to live on income maxing  your personal & savings allowance + ISA interest and not pay tax then it’s not wasteful  to utilise the tax free sum in earlier years, even if you have no other income. Designing your life around future tax that may or may not be due is wasteful 

dont_use_vistaprint

Thank you for everyone’s replies, especially regarding the decision process when combining pensions.

I decided to bring the smaller pot into the bigger pot for simplicity, the features and customer support seem far superior and the fees much lower  0.39 vs 0.7 % with no additional charges on the underlying funds whatsoever. 


I think the company that set this up did a very good deal. It is a lifestyle pension which means they automatically shift stuff around for you as you get near pension age, Meaning, I have to invest any time or effort in choosing funds which is perfect as I haven’t got a clue! The growth so far has  been amazing, obviously past performance is no prediction of future performance but looking at the data it has performed better than the other pension every single year

Sarahspangles

dont_use_vistaprint said:

dunstonh said:

i am retired and have no income other than interest savings currently and dont plan to work again  

Taking some of the 25% but no taxable whilst you have no income is wasteful.   You have £12570 personal allowance you can use from the taxable element until other incomes kick in.

Your way is going to cost you thousands of pounds in tax later on.

I disagree , it’s only wasteful if you pay tax in future years that could have been avoided.

if longer term you intend to live on income maxing  your personal & savings allowance + ISA interest and not pay tax then it’s not wasteful  to utilise the tax free sum in earlier years, even if you have no other income. Designing your life around future tax that may or may not be due is wasteful 

Have you factored in that crystallising the 75% remaining in your pension implies that you will pay tax on any investment growth? You referred to this crystallised fund as “the £3” in an earlier post. If £3 becomes £6 by the time you draw it you’re paying tax on all of that. If you hadn’t crystallised it, you’d be able to take £1.50 of it tax free.

bjorn_toby_wilde

dont_use_vistaprint said:

dunstonh said:

i am retired and have no income other than interest savings currently and dont plan to work again  

Taking some of the 25% but no taxable whilst you have no income is wasteful.   You have £12570 personal allowance you can use from the taxable element until other incomes kick in.

Your way is going to cost you thousands of pounds in tax later on.

I disagree , it’s only wasteful if you pay tax in future years that could have been avoided.

if longer term you intend to live on income maxing  your personal & savings allowance + ISA interest and not pay tax then it’s not wasteful  to utilise the tax free sum in earlier years, even if you have no other income. Designing your life around future tax that may or may not be due is wasteful 

Just an example, not advice - You could be withdrawing from that pot, up to the personal allowance, and adding the money to a S&S ISA, possibly into exactly the same funds as the pension if you wish.

Then, when you come to use this money in the future it should be entirely tax free. The same may not apply if you left it in the pension.  As things stand the current state pension will take you almost to the threshold so potentially you pay tax on all of it if you take it after SPA.

That’s the tax that could have been avoided.