Small pots £10k rules - the latest mse email

mark_cycling00

Just read the latest email email explaining pensions. Read the low incomes tax reform group website too.

What's to stop someone who is age 55, working and in the 20% tax band from starting a small pension say £6000, getting 25% tax relief making it £7,500

Then cashing it in. Getting 25% tax free £1875 and paying 20% tax on the rest rather than 28% paye+ni

I guess you'll have paid NI on the initial £6000 contribution so the benefit is probably only a few hundred quid. But apparently you can do this with up to £30,000 of small pot pensions. So about £1500 of Extra cash.

Maybe I've misunderstood it all. It's quite confusing. And there are trivial commutation and small pot rules apparently

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6669245/small-pots-10k-rules-the-latest-mse-email

I think you must have misunderstood something as there is no real tax advantage.

In what scenario does someone ever pay 28% (tax and NI) on pension income?

The benefits lots of people like are that a small pot doesn't trigger MPAA and doesn't count towards the normal tax free cash limit.

mark_cycling00

I was thinking that it might provide more income in the current year than a standard salary with NI and income tax on the equivalent money.

Without triggering the mpaa as you say

NoMore

You would gain 1500 quid as you say on 3 x 10000, which is a 6.25% gain over your contribution. It's similar to the no relevant income contribution of 2880 a year and withdrawing, except with the small pots rule you don't trigger the MPAA, or the LSA.

Nothing stopping you doing it.

mark_cycling00

Thanks very much for the reply!