GPPP is it Workplace or Personal - limited to 3 cash-ins?

AlienSurfer

Hi all,

Going through some pension documentation for a friend. We're trying to trace some, update others with correct address and personal details. Basically, get them all registered for online access and see what is what.

As my friend has worked a number of jobs over the years for fairly short periods of time, each employer has auto-enrolled her into a new Workplace pension, and therefor there are a number of pension plans with small amounts of funds in them <£500.

By and large the majority of the pension plans are Group Personal Pension Plans (GPPP).
My friend has never initiated the process of creating her own Personal pension plan, there are only those plans created by her employer.
These are not deferred benefit type basing payout on working salary, but are of the defined contribution type, based on what was paid in and how well they performed.

They would like to close out these odd little plans and take all of the cash out as lump sums.

As far as I am reading the gov uk website and other related documentation, so long as these funds are less than £10k they can be treated as 'small pots'. As these are all workplace pensions, an unlimited number can be closed out with all funds taken as a cash lump sum, am I right? They aren't limited to only cashing out 3 of them in their lifetime as these were not set up by the individual (Personal) but rather were Workplace pension plans.

Obviously there is a 25% tax free amount and the rest pays tax at whatever income tax bracket one is in during the tax year they are taken. The amounts cashed out add to the total taxable earnings and could push one into a higher tax bracket. I get all of this, it's plainly obvious to me. There is a limit to £30k total, but that won't be an issue.

As far as I understand the 3 pension rule thing. That would be to prevent abuse where someone could break a huge pension into an unlimited number of small pensions created by themselves as a means to circumvent tax.

So the TL DR of this:

Are Group Personal Pension Plans that were setup by the employer as the Workplace Pension (many employers are doing this to this day for auto-enrolment) treated as Workplace Pensions (Occupational Pensions ?) and that one can, if they are below £10k and treated as a 'small pot', fully cash-in an unlimited number of these?
-or-
Is the government being as clear as mud and defining things however they feel like and being ambiguous at best with definitions, somehow calling a Workplace Pension not a Workplace Pension ?

Thank you for your input

Marcon

Group personal pensions are just that: personal pensions.

A workplace pension isn't the same thing as an occupational pension, so your friend is limited to 3 'small pot' cash-ins from personal arrangements, whether actually set up as personal pensions or set up as workplace pensions.

But the small pot regime only matters if she's trying to avoid triggering the Money Purchase Annual Allowance, which would limit her to contributions of no more than £10K per annum going forward (including tax relief on personal contributions + any employer contributions). There's no limit to the number of 'little pension pots' she can cash in.

DRS1

Is your friend over 55?

Would it be better for her to consider consolidating all these little pensions into one?

Notepad_Phil

If triggering the Money Purchase Annual Allowance is a concern then your friend could transfer the various small pensions into one bigger one and then take that under the 'small pot' rules - assuming that there's less than £10k in these smaller pensions and you transfer to a platform that allows you to withdraw using the 'small pot' rules e.g. somewhere like Hargreaves Lansdown.

And if there's more than £10k then Hargreaves certainly used to allow you to split a £30k pot into three 'small pot' requests, and probably still does.

MallyGirl

https://forums.moneysavingexpert.com/discussion/comment/81898215#Comment_81898215

they still do - I have my 3rd small pot withdrawal in progress right now.

AlienSurfer

Firstly, thank you for all of your responses.

Just as I feared, GPPP is a Personal Pension. I do wonder how employees are supposed to get a true workplace pension from their employer when so many employers opt to provide their legally obligated auto-enrolment workplace pension via a GPPP?
I understand that it's Personal as the individual has control over the pot, and I have read that many policies continue to allow contributions after an employee has left the employer with whom such a pension was set up. Flexibility

A Pension Wise booklet even said something like "a workplace pension is one your employer set up. A personal pension you set up yourself" I'll have to find it and quote word for word.

She is over 55.
She also still has two workplace pensions that she is making regular contributions to through her wages at each employer.

I fear the fact that she is currently contributing to pensions could cause some problems re. MPAA limit dropping from £60k pa to £10k pa.

The plan was to actually take the entire pot from an older employer, but it is less than £10k. This would be a waste of one of those three allowed. The better option would be to consolidate to the limit.
I knew that all of the pensions of course can be cashed in, but it's just that it would/could trigger certain tax problems MPAA etc.

OK. My question is answered.

I feel the best course of action to follow is this:
1. Firstly to find all existing pensions and their values
2. Look at the terms and costs of each policy in itself
3. Look to consolidate all of the little tiny bits - see what SIPPs there are and compare against existing policy, transfer fees etc.
4. Assess current and expected future pension contribution amounts from earnings - will triggering MPAA £10k drop down limit actually matter?
5. Seek free professional advice

I think getting free advice would be a bit wasted straight away. Much better to have a clue and at least have found all of the existing pension pots and gotten everything somewhat in order.

Thanks again for your contributions.

2hc9kmju

https://forums.moneysavingexpert.com/discussion/comment/81898276#Comment_81898276

AlienSurfer,

This sounds like a very complex history (and I'm a Chartered Accountant, having worked for a time for a pension provider).

I would suggest that you take extra care with this, as a misstep could have dire consequences.

As for MPAA, this may not be triggered if you use the small pots rule, though again a fairly complex area and a misstep could result in paying more tax than necessary or triggering MPAA accidentally.

You do sound like you have done a lot of research and have a good grip of many of the issues.

But this sounds like one case where professional advice is really the best option to get a definitive solution that won't trigger anything adverse, especially as your friend could hold you responsible for any errors you make. It could also be construed that you are providing advice on regulated products, which is something I think you should avoid for your own sake.

I'd speak to a few local Financial Advisors in your area and see if you can find one you "like", someone you feel understands the dilemma and can explain what needs to be done in clear and plain English. If you or your friend doesn't fully understand what they are saying to you, then move on to the next one until you find someone you do understand and are comfortable with.

This would be the safest way for you and your friend to ensure that there are no adverse impacts for either of you and that all the complexities of what you have discussed above are fully addressed and anything you may have overlooked (easy to do with such a complex situation) is dealt with.

If cost is a concern (and it needs to be considered), then find an advisor who will initially just advise on the technical issues and what you need to determine, rather than have them actually carry out the recommended course of action. Which it sounds like you are more than able to do.

Hope this helps resolve your friends complex situation. I am sure that there any many people in the UK with fragmented pensions and many won't have a good friend like you to help them out.

Marcon

Just as I feared, GPPP is a Personal Pension. I do wonder how employees are supposed to get a true workplace pension from their employer when so many employers opt to provide their legally obligated auto-enrolment workplace pension via a GPPP?

A Group Personal Pension Plan - the clue is in the name - but why 'feared'?

I'm not sure what you mean by a 'true workplace pension' - many employees are only too happy to be able to have a pension which is truly 'portable' without any action on their part when they leave a particular employer. Many employers provide workplace pensions through mastertrusts rather than GPPPs, but very few indeed set up their own occupational DC schemes. It would be inordinately expensive and cumbersome, especially for micro employers. As for an employer setting up a DB scheme…

She is over 55. 

She also still has two workplace pensions that she is making regular contributions to through her wages at each employer.

I fear the fact that she is currently contributing to pensions could cause some problems re. MPAA limit dropping from £60k pa to £10k pa.

The plan was to actually take the entire pot from an older employer, but it is less than £10k. This would be a waste of one of those three allowed.

It sounds a bit of a strange plan. If she's still contributing and might be impacted by the MPAA (so must be earning/contributing a reasonable sum), why cash in any of the pots - what's the objective? Pensions are designed to be long term savings vehicles for people to draw on in old age, not access as soon as they are legally able to do so. Some people who are really struggling with the cost of living may have little choice but to cash in if only to keep a roof over their head and food on the table but that doesn't sound to be the case here.

If she's fed up with trying to keep track of loads of tiddlers, transferring all, or at least most, of them to one place would resolve that. If the idea is to cash in as much as possible and then pay it back in…presumably she's aware of the rules about pension recycling?

I think getting free advice would be a bit wasted straight away. Much better to have a clue and at least have found all of the existing pension pots and gotten everything somewhat in order.

Completely agree with your second sentence, but be aware that if she wants/needs professional advice, it will need to be from a regulated individual and it won't be free. It's great that you are trying to help her, but pensions is a tough ask to get to grips with, especially if you're both in uncharted territory. PensionWise appointments are free (and sounds as if she'd benefit from one), but they offer 'guidance' - ditto people on this forum.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise

DRS1

[ETA - OP if you have read @Marcon's post you don't need to read this one]

Can I just mention that there is no such thing as "free professional advice". If you ask a professional (hopefully an IFA - emphasis on the I) for advice then it will cost money.

What you get on here may be free and may come from professionals (or not) but it does not count as advice. Advice is highly regulated which is why @2hc9kmju suggests you should avoid it.

As an aside if your friend is working (in two jobs by the sound of it) why is she wanting to take money OUT of her pension(s)? The pension is meant to provide her with money when she is no longer working. By all means consolidate the small ones (assuming she doesn't lose any special ("safeguarded") benefits by doing so) but keep them going until she stops work. If nothing else she may then be able to draw on them and still keep her taxable income relatively low (maybe even under her personal allowance).

2hc9kmju

https://forums.moneysavingexpert.com/discussion/comment/81898307#Comment_81898307

Hi DRS1,

You don't always need to pay for advice. I recently had an issue with how to approach an issue with my DB scheme and not knowing anyone suitable, I asked at a free legal clinic for advice.

They put me in touch with a local IFA who addressed my specific points and even sent me an email with links to specific guidance on the issue, all for no charge. I even offered to pay as I spent about 30 minutes on the phone and had a couple of follow up emails to clarify things and they declined any fee.

So, though it may be rare, it can happen, especially if as with the OP you may only be looking for confirmation of their understanding (as I was) rather than asking for a comprehensive analysis or formal guidance.

Moving on to the other points mentioned above, I'd agree that drawing funds in this case seems a bit unusual, but I guess if they have a specific need for the cash, then it could make sense to draw it in this way.

Consolidation may be a valid and cost saving/return-boosting option if the cash itself isn't needed.

Lastly, sounds like the Plans are all DC plans, so unlikely to have any reserved benefits or similar, but this DOES need to be checked in writing before actually giving any instructions.

DRS1

Interesting. I don't know about the IFA but in my day the free legal clinics tended to be set up as charities funded by donations from law firms (and maybe others) and staffed to some extent by volunteers from those firms. Which is why they could be free.

It may well be that the OP may get an initial chat with an IFA for free but I don't think they should be allowed to think they could get any meaningful (and professional) advice for free.