Will taking some private pension now limit me in future ?

optoutDB

In July I will be 57 and will start taking my deferred DB pension. And unless tax rules change drastically I will always be above the personal allowance in future. 

But this current financial year, I have £5k unused allowance. So wondering if I should take this much (plus 25%) out of my private pension. For a tax saving of £1k (compared to taking it out later).  Taking some out now could also provide me some cash that I could make use of before I get the lump sum in July.  

I'm planning to set up a business, and if that goes well I might want to pay into a pension again (assuming that is tax efficient).

Does drawing from the private pension limit any of my options? 

I suppose I should also ask if drawing my DB pension limits me in any way (but not drawing it is not really an option) 
 
Thanks for any input.

QrizB

At the moment, your Annual Allowance (how much you can contribute to a pension) is £60,000 per year.

Drawing from your private pension will replace this with the Money Purchase Annual allowance (MPAA) of £10,000 per year.

Do you expect your future business to be so successful that you will want to contribute more than £10k per year to a pension? If not, it doesn't matter that you'll be under the MPAA.

optoutDB

QrizB said:

Do you expect your future business to be so successful that you will want to contribute more than £10k per year to a pension? If not, it doesn't matter that you'll be under the MPAA.

My most likely estimate is somewhere up to £20k earnings. In which case £10k into pension would be ample.

There's a chance it might scale to say £80k. And my initial plan for that would be to extract as much as I can below the higher tax bracket, and leave the surplus in the company for extraction later. I thought I could worry about that later because let's face it earning £80k would be a nice 'problem' to have. 

I need a crash course in how I would pay myself from a business that's making >£50k

And then I need to estimate the value of leaving the >£10k pension option open. But I'm pretty sure that if there is a pension advantage then it will dwarf the £1k tax saving I can make this year.

Marcon

optoutDB said:

In July I will be 57 and will start taking my deferred DB pension. And unless tax rules change drastically I will always be above the personal allowance in future. 

But this current financial year, I have £5k unused allowance. So wondering if I should take this much (plus 25%) out of my private pension. For a tax saving of £1k (compared to taking it out later).  Taking some out now could also provide me some cash that I could make use of before I get the lump sum in July.  

I'm planning to set up a business, and if that goes well I might want to pay into a pension again (assuming that is tax efficient).

Does drawing from the private pension limit any of my options? 

Yes, unless you have any DC pots of no more than £10K and withdraw them under the 'small pots' regime - you need go specify that to the provider, assuming they offer that facility. That doesn't trigger the Money Purchase Annual Allowance (and the tax free bit doesn't count towards the Lump Sum Allowance).

optoutDB said:

QrizB said:

Do you expect your future business to be so successful that you will want to contribute more than £10k per year to a pension? If not, it doesn't matter that you'll be under the MPAA.

My most likely estimate is somewhere up to £20k earnings. In which case £10k into pension would be ample.

There's a chance it might scale to say £80k. And my initial plan for that would be to extract as much as I can below the higher tax bracket, and leave the surplus in the company for extraction later. I thought I could worry about that later because let's face it earning £80k would be a nice 'problem' to have. 

I need a crash course in how I would pay myself from a business that's making >£50k

And then I need to estimate the value of leaving the >£10k pension option open. But I'm pretty sure that if there is a pension advantage then it will dwarf the £1k tax saving I can make this year.

Which might well include making use of employer pension contributions as you are intending to set up a limited company.

ali_bear

Taking income from a DC scheme limits what you can pay in to any DC scheme after that to 10k per year. 

But it sounds like your affairs are already complicated enough that you need proper advice, possibly even a suitably qualified accountant. 

Albermarle

ali_bear said:

Taking income from a DC scheme limits what you can pay in to any DC scheme after that to 10k per year. 

But it sounds like your affairs are already complicated enough that you need proper advice, possibly even a suitably qualified accountant. 

As seen from some previous threads, accountants are not necessarily very clued up about personal finance, pensions etc and can give poor advice, if it is not their area of knowledge.
If you want financial advice then best to go to an IFA ( or learn about it yourself).

ali_bear

Yes but in this case the OP is planning on setting up a business. They may be in need of an IFA and an accountant. 

Marcon

ali_bear said:

Taking income from a DC scheme limits what you can pay in to any DC scheme after that to 10k per year. 

Not necessarily - only if you 'flexibly access' a DC pot and take taxable cash from it.

The MPAA isn't triggered if you buy a lifetime annuity; or only take tax free cash (and that can be taken in chunks as an income stream); or qualify under the 'small pots' regime - see my post above.