Tax Free Lump Sum without affecting existing pension

beastyboy

I have an existing company pension that they pay into every month, the current amount is around £370k.
I'm now aged 55.
I want to take £30k as a tax free lump sum, this is obviously not the full 25% I'm allowed but I just want to take the £30k and for my employer to continue to make monthly contributions and effectively have the original pension unaffected.

I was advised by Pensionwise that in order to do this I would need to transfer £120k from my pension into a phased drawdown, which I could then use to take 25% tax free lump sum leaving £90k in that drawdown.
I don't really understand what happens then in terms of:

1. My original pension, does this just carry on as normal with contributions from my employer and investments, etc.?
2. Obviously £30k is not my full 25% allowance tax free, so if I want to take the remaining £60k tax free how does that work?
3. Will this have any impact on if I actually do pay tax on it based on my annual income?
4. The remaining £90k in the drawdown, what happens to this, is it still invested and can I gain on that?

Many thanks for your consideration.

MallyGirl

The first question would be to your company pension administrators to ask if they support this? They might not.
If not then question 2 would be - do they support a partial transfer without having to leave the scheme. If Q1 is no and Q2 is yes then you could transfer the £120 to a different provider and do what Pensionwise suggested from there whilst continuing to contribute to the current one.

dunstonh

I was advised by Pensionwise that in order to do this I would need to transfer £120k from my pension into a phased drawdown, which I could then use to take 25% tax free lump sum leaving £90k in that drawdown.

Phased drawdown is just the terminology used for someone drawing their benefits over a phased period.
The actual transaction is just crystallising £120k. with £30k paid out and £90k placed into the crystallised segment of the pension.  

It is the same crystallised segment whether you were to use phased or full drawdown.  It isn't specifically for phasing, and you don't transfer it first.   That transfer is actually part of the transaction.  

1. My original pension, does this just carry on as normal with contributions from my employer and investments, etc.?

Assuming your current pension allows a mixture of crystallised and uncrystallised funds, then yes.  If it doesn't then you will need to transfer to a provider that does first.  You may or may not be able to partial transfer.  

Many workplace pensions do not allow a mixture of uncrystallised and crystallised funds.

2. Obviously £30k is not my full 25% allowance tax free, so if I want to take the remaining £60k tax free how does that work?

The uncrystallised fund will still have 25% available on it at whatever value that is at the time you do future crystallisation.   

3. Will this have any impact on if I actually do pay tax on it based on my annual income?

tax free cash doesnt have tax payable on it.

4. The remaining £90k in the drawdown, what happens to this, is it still invested and can I gain on that?

Apart from being in the crystallised segment, it works exactly the same as before.
Some providers allow the crystallised segments and uncrystallised segments to have different investment strategies (which can be useful when planning).  Others require both to have the same investment strategy.

beastyboy

Thank you, I have spoken to my pension provider and they say my scheme allows partial transfers and the original pension would carry on receiving contributions, however they also said that I could simply take £30k tax free from the pension directly, which I now know to be incorrect information.
It is the other questions that I am not sure about, I need to know what happens, going forward, if I do move £120k and then take £30k from that as tax free lump sum.

MallyGirl

I think @dunstonh has answered them.

No tax to pay as tax free sum is not treated as income.
The remaining £90k crystallised pot will stay invested and so with grow (and shrink) according to how the investments perform.
The rest of the pension that wasn't part of the £120k crystallisation (or transfer) carries on as before and you can take 25% of that tax free in the future.

Marcon

beastyboy said:

Thank you, I have spoken to my pension provider and they say my scheme allows partial transfers and the original pension would carry on receiving contributions, however they also said that I could simply take £30k tax free from the pension directly, which I now know to be incorrect information.

Why is it incorrect? If the scheme rules permit, then they are giving you correct information.

beastyboy said:

It is the other questions that I am not sure about, I need to know what happens, going forward, if I do move £120k and then take £30k from that as tax free lump sum.

I think you posted this before dunstonh's answer of a minute or two earlier had been posted. That should answer your questions.

bjorn_toby_wilde

Worth stating that the crystallised £90k will be taxable when you eventually draw it and so will any growth on it.

Albermarle

beastyboy said:

Thank you, I have spoken to my pension provider and they say my scheme allows partial transfers and the original pension would carry on receiving contributions, however they also said that I could simply take £30k tax free from the pension directly, which I now know to be incorrect information.
It is the other questions that I am not sure about, I need to know what happens, going forward, if I do move £120k and then take £30k from that as tax free lump sum.

Some misunderstanding here.

It was only suggested that you would have to transfer out £120K, IF your current provider would not facilitate you taking out the £30K tax free cash and still allow future contributions.
As they will, then no need to transfer any money out.