Flexi Access Drawdown (FAD)

Islandguy

I have a question on FAD, sorry if this has been raised before. 

I have 2 pension pots

Scottish Widows (private pension) 
NOW pension (current employee pension)

I am 58 and still work

When I reached 55, I took my full Tax free lump sum entitlement (25%) from Scottish Widows, the other 75% remains invested under the FAD and I believe I can draw on this sum at any time and understand I will be taxed at 40% (I am a higher rate tax payer). I still pay into this pension. 

I also pay into a NOW pension and my employer matches my contributions. I am now 58 and would like to take my tax free lump sum entitlement however NOW pension is saying that they will tax this amount. 

2 questions

1. How will Scottish Widows apply my current contributions? Are they added to my Crystallised FAD fund and therefore fully taxable or kept in a separate uncrystallised fund? 

2. How can I take my full tax free entitlement from my NOW pension without incurring a tax charge? I am not sure they offer FAD, in which case can I transfer that fund to Scottish Widows? 

Thanks

dunstonh

I also pay into a NOW pension and my employer matches my contributions. I am now 58 and would like to take my tax free lump sum entitlement however NOW pension is saying that they will tax this amount. 

That is because NOW does not support drawdown.  They only offer transfer, open market option or UFPLS.

1. How will Scottish Widows apply my current contributions? Are they added to my Crystallised FAD fund and therefore fully taxable or kept in a separate uncrystallised fund? 

If you proceed with UFPLS, then you become subject to the Money Purchase Annual Allowance (MPAA).  This means you are required (and subject to a penalty if you fail) to notify all pension providers that you have triggered the MPAA.   Your annual pension allowance drops from £60k to £10k.  

SW will continue to apply your contributions to the uncrystallised fund.

2. How can I take my full tax free entitlement from my NOW pension without incurring a tax charge? I am not sure they offer FAD, in which case can I transfer that fund to Scottish Widows? 

Transfer it to a pension that supports the option you want to use.

Islandguy

Thank you Dunstonh

What is UFPLS?

So, in summary

1. For my current contributions to SW, Does that mean I can take a further tax free lump sum from that fund ( which has built up since age 55)?
2. If I transfer out my existing uncrystallised fund with NOW to SW, I can then exercise my tax free lump sum option and SW will move that fund into FAD? 
3. My NOW pension fund will stay active albeit from zero? 

dunstonh

What is UFPLS?

It is where your draw is split 25% tax free and 75% taxable.   It doesnt matter if its full value or partial.   It will be split 75/25.

1. For my current contributions to SW, Does that mean I can take a further tax free lump sum from that fund ( which has built up since age 55)?

Growth on crystlalised funds remains crystallised and no further 25% TFC available.  However, new money added to the uncrystallised segment has 25% TFC available.

2. If I transfer out my existing uncrystallised fund with NOW to SW, I can then exercise my tax free lump sum option and SW will move that fund into FAD? 

yes

3. My NOW pension fund will stay active albeit from zero?

You will need to check with NOW and possibly your employer.  With some providers, they don't allow partial transfers and will automatically close the pension when it drops to zero.

Islandguy

Thank you so much, that's really helpful