Accessing 25% tax free lump sum

wavecloud

Hi,

I've done a lot of reading on this and I think I've got this figured out.  Just wanted to confirm with you all.  

I've just turned 55.  I have a few defined contribution pension pots at various pension companies (Aviva, Legal and General, Royal London etc) that I accumulated over the years while working for multiple companies.

I am still working and will probably work for at least another 5 years.  I currently put just over  £20,000 per year into work place pension (adding my and my employer's contribution).  Therefore I do not want MPAA to be triggered.

I want to take 25% tax free lump sum out to do some house improvements.

So it looks like the correct route to do this is to move my pension money to Flexi Access Drawdown (ie. crystallise the pension pot) and take 25% out as tax free lump sum, leaving the remaining 75% in the flexi access drawdown pot.  I won't have any need to touch that 75% until I retire in the future.

Is this the correct way to go about it, to ensure I do not trigger MPAA?

By the way, I had an online chat session at Pension Wise, and that was completely useless.  The person online just gave me links to lots of documents without answering a simple question, as to "Can you confirm that doing this will not trigger MPAA?"

Thanks.

SmokeysTravels

If you only take the tax free cash and nothing else, then you will not trigger the MPAA. Whether this is the correct approach for you is a different question. 

If you are going to combine the DC pensions together, find out if you are giving up any special features such as guaranteed annuity rates or a guaranteed minimum pension, and are there any transfer fees. If ongoing charges are important to you check what your current pots are compared to the new combined product. 

Other things to consider is that by taking the TFC now it means everything left will be assessed for tax when you take it. Some people choose to take money from other sources and leave there pension pots to grow to be used when they retire.

Albermarle

One point to note is that once you have taken the tax free cash out of a DC pension, it is more difficult to transfer it. 
Also if you do not consolidate, and at a later date take taxable income from different pensions you will probably be spending a  lot of time trying to sort your tax out with HMRC.

MetaPhysical

Albermarle said:

One point to note is that once you have taken the tax free cash out of a DC pension, it is more difficult to transfer it. 
Also if you do not consolidate, and at a later date take taxable income from different pensions you will probably be spending a  lot of time trying to sort your tax out with HMRC.

100%.

Without intending to thread hijack from the OP, I'm very wary of that too.  I have done as much DC consolidation as possible and I am now left at aged 57:
1. A deferred Defined Benefit pension I accrued before age 40 - £21k
2. Teachers Pension from my late wife as a widower - £9.4k (and yes, she worked past 2006 so I get to keep this for life which is right and fair considering what she contributed).
3. DC pot of £650k < into this I have done my consolidation.  I will continue to build this pot I hope for 13 more months before i retire.

I can't simplify any more and won't cash out the DB scheme in Number 1 which has a transfer value of about £450k were I to do so. I want to keep the index-linked-for-life payment.

I do a tax return every year so I am familiar with this.