Aviva pension taking tax free slices

Gavcob

hello,

Have sent email to Aviva workplace asking if this is possible but here goes

have 8k per year coming from a DB pension

My Aviva pension is DC with estimate 300k

so I could have a 75k lump sum, but instead of taking in one hit, I take it in smaller slices, much smaller slices…

is there any limits on how many slices you can take per year usually?

i understand say if it was allowed and I take 7.5k per year split into 12 slices, for each little bit parts of my remaining pot are moved to taxable pot.

So annually I take the dB 8k, then take parts of the taxable pot to bridge to tax allowance….and then I also have the tax free slices hopefully monthly…..to add up to roughly 19/20k per year

any downsides? If possible of course…

Am I am idiot?

regards

gav

Tim_L

This is a very standard drawdown practice, not idiotic at all.

I don't know how Aviva deal with it, but it'll be possible to do on a monthly basis I'm sure.

Albermarle

Most modern schemes can facilitate this ( not all ), whilst many older schemes will not be able to.

With Aviva, as well as the age of your scheme, it will probably depend on who the original provider of the pension was. Aviva have acquired other pension providers over the years, as well as offering their own pensions. The rules can be different for all of them.

So I would have a close look at the pension you have, and give them a call.

Gavcob

thanks so far,

is it true that if I say took 7.5k per year tax free, the part that goes into the taxable pot receives no growth in the pension, e.g. 22.5k per year will receive no further growth…?

regards

gav

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82191035#Comment_82191035

No, the growth (or loss)will depend on what you have invested in.

Even if you don't invest it the provider will often pay some interest, albeit not necessarily at competitive rates.

What is true is that whatever the 22.5k grows to is all taxable income when you take it out of the pension, you don't get a second lot of tax free cash from the crystallized pot.

dunstonh

is it true that if I say took 7.5k per year tax free, the part that goes into the taxable pot receives no growth in the pension, e.g. 22.5k per year will receive no further growth…?

No, that is wrong. The crystallised value will receive the exact same returns as the uncrystallised value assuming you use the same investments.

DRS1

So annually I take the dB 8k, then take parts of the taxable pot to bridge to tax allowance….and then I also have the tax free slices hopefully monthly…..to add up to roughly 19/20k per year

I may be reading too much into the "and then" but what people do is take the tax free slice first before the taxable pot part. What you wouldn't do is take the taxable bit before you take the tax free bit. At least that would apply for the first time you take the money. For later years it may not matter which order you do it in because you will be crystallising more than you take in taxable pension each time you take the £7500 tax free cash and only draw say £4570 in taxable pension.

Gavcob

the taxable parts would still be in the pension then still allowing it to grow…

is there any limits on amount of times per year I could take the tax free portion, e.g. 7.5k/12 so £625 monthly like an income but not classed as income

regards

gav

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82191066#Comment_82191066

What you may want to factor in is that each time you take a tax free lump sum you will almost certainly be filling in a form. Doing that 12 times a year may be a bit tedious after a while.

Tim_L

Typically, yes, you'd take slices monthly.

I looked at the Aviva site and they work through the options in summary form, but this is an absolutely standard drawdown strategy for tax optimisation. You take your DB and a DC pension of (personal allowance - DB), plus a slice of your tax free sum, and no tax is payable for the period you're doing this. It should all be dealt with via PAYE and divided up monthly.

You need to talk to Aviva about how exactly this works in their scheme, but it will certainly be possible.

Depending on your age and NIC status the state pension then kicks in at some point and you can draw down less, or amend the amount to compensate for inflation. At that point you'll definitely be paying some tax and there's not a whole lot you can do about that.

It's well worth running the plan past a pension advisor to check the slice size and the various interactions with DB and state pension. Also to look at where the pot is invested, and to validate against your risk profile.

And enjoy your retirement! Best job I've ever had, certainly.

mrklaw

I’m not sure about the tax free other part you talk about - do you want to take 7.5k tax free, or 7.5k total with a part being tax free and a part being taxable

if you have 8k DB so want to use up the remaining 4.5k allowance, you could do FAD for 6k. it’d pay out £1500 TFC and then £4.5k goes to the drawdown/crystallised pot. then you can set up a monthly draw from that if the platform allows (may depend on age of the scheme)

but taking 7.5k tax free as 12 payments is possibly doable but sounds a hassle - why not take 30k FAD and the 7.5k TFC in one shot, then leave the other 22.5k to just sit crystallised? there is no tax/HMRC fuss, its below your ISA allowance - I don’t see what spreading it over the year achieves other than admin headache