Confusion about MPAA

SVaz

Of course you can take less than 25%
Say you take 15% - meaning you only crystallise 60% of your pot.
The remaining 10% will remain uncrystallised and rise/fall with the value of the pot.

Triumph13

https://forums.moneysavingexpert.com/discussion/comment/82161125#Comment_82161125

In case it's not clear from the previous answers, the key thing is that they split your fund in two* at the point you take that first lump sum. You are left with:

1. £40k of uncrystallised funds in one account - from which you can take a 25% TFLS in the future - the TFLS being 25% of whatever the value of these funds is at the time you take it in the future,
2. £45k of crystallised funds in a separate account- with no right to any further tax free cash
3. Your £15k of cash to pay your debts

*Some providers will fully split your pension into two separate accounts, one crystallised, one not. Others do it 'virtually' and will just record that your remaining £85k pension is 52.9% crsytallised.

BikingBud

Thanks and interesting how different people see and explain it, I can see where confusing comes in, I'll try it another way to ensure I am understanding correctly.

• 100k starting pot
• Take £15k = 15% of original pot
• This sets the crystallised figure > £15k*4 = £60 crystallised
• £40k remains subject to growth and incudes a revised 25% tax free allowance
• If 40k increases to 60k then 25% = £15k
• If you take 25% of the original pot, then tax will be taken at marginal rate for all subsequent withdrawals?

I have headroom below higher rate tax to exploit before SP, so I think I will draw the 25% and then split roughly over the next 8 years. A faint glimmer of hope that tax thresholds might lift a little to accommodate a little more growth before Apr 27 and transfer of 25% to ISA

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82161282#Comment_82161282

Just to avoid any possible confusion, on the second point , I have added a comment.

• Take £15k tax free cash = 15% of original pot

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82161165#Comment_82161165

This is poor advice, if you read the other posts.

mrklaw

don’t say it like taking 15% of the fund that’ll just cause confusion.

say ‘I want to take 15k tax free’ - then ‘how much do I need to crystallise’. Its always 25% tax free and 75% going into drawdown. So if you want 15k tfc you need 15*4=60 to be crystallised.

15k pays out to you in tax free cash, the other 45k goes into drawdown and is ‘tagged’ as crystallised so it cannot get any more tax free. The rest (40k) sits uncrystallised. You still have 25% of this available. right now its 40k so 10k tax free. If it doubles you’ll have 80k (20 tax free). if it halves you’ll have 20k (5k tax free)

FatherAbraham

https://forums.moneysavingexpert.com/discussion/comment/82161567#Comment_82161567

You might need to be a little more specific about which part of dissuading someone from taking less than 25% of a crystallized pension as a tax-free lump sum is a bad idea (apart from the foreign-tax-residence issue mentioned, of course).

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82163196#Comment_82163196

You said this :

 That £10k of unused pension-commencement lump sum cannot increase, so you need to get it out and invest it elsewhere.

As mentioned in other posts, the £40K of uncrystallised pension that would be left, could certainly grow in future. If it did then 25% of the increased fund would be available as a tax free lump sum. So potentially more than £10K ( so it can increase).

So it is most likely best to leave it alone, and not withdraw it.