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Managing two pension pots to take advantage of the 25% tax free lump sum?
JethroPark
Posts: 5 Forumite
Hello
I have two pension pots and I am trying to understand how I can take advantage of the 25% tax free cash lump sum rules to take the maximum amount from each of them.
I am 61 and effectively retired and no longer work.
Pension 1 is a Defined Benefit - Final Salary scheme. I have been told I can take cash sum out of this to the value of £33K ( The maximum sum permitted by HMRC)
Pension 2 is a Defined Contribution Workplace pension scheme. Currently, I could take a 25% tax free cash sum out of this to the value £37K.
So, can I do the following;-
i.) Take the 25% cash tax free sum from both pensions now?
or
ii.) Can I take the 25% cash tax free sum from one of these now, and then take it from the other pension some other time and keep the tax free advantage?
iii.) Are these pension pots regarded separately by HMRC, or do they expect them to be lumped together for the purposes of taking advantage of the 25% tax free lump sum?
Obviously I will go see a IFA before making a decision, but would like to get some clarification on this before doing anything.
Thanks
Geoff
I have two pension pots and I am trying to understand how I can take advantage of the 25% tax free cash lump sum rules to take the maximum amount from each of them.
I am 61 and effectively retired and no longer work.
Pension 1 is a Defined Benefit - Final Salary scheme. I have been told I can take cash sum out of this to the value of £33K ( The maximum sum permitted by HMRC)
Pension 2 is a Defined Contribution Workplace pension scheme. Currently, I could take a 25% tax free cash sum out of this to the value £37K.
So, can I do the following;-
i.) Take the 25% cash tax free sum from both pensions now?
or
ii.) Can I take the 25% cash tax free sum from one of these now, and then take it from the other pension some other time and keep the tax free advantage?
iii.) Are these pension pots regarded separately by HMRC, or do they expect them to be lumped together for the purposes of taking advantage of the 25% tax free lump sum?
Obviously I will go see a IFA before making a decision, but would like to get some clarification on this before doing anything.
Thanks
Geoff
0
Comments
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They are treated separately.
The DB pension may have restrictions when you can take the TFLS (i.e. you must take it at the start), the D.C won't have a restriction like that.0 -
JethroPark wrote: »i.) Take the 25% cash tax free sum from both pensions now?
Yes (assuming that the lump sum from Pension 1 represents 25% - in general there is no requirement for DB schemes to allow any lump sum, and if they do it can be anything up to 25% - the 25% rule only applies to DC pensions.JethroPark wrote: »ii.) Can I take the 25% cash tax free sum from one of these now, and then take it from the other pension some other time and keep the tax free advantage?
Yes - although if you take the cash free lump sum from Pension 1 you will be probably be expected to start receiving the pension itself.JethroPark wrote: »iii.) Are these pension pots regarded separately by HMRC, or do they expect them to be lumped together for the purposes of taking advantage of the 25% tax free lump sum?
Each pot is treated separately.
You also have the option for the DC pot, rather than taking the entire 25% up front, of taking 25% tax free each time you make a withdrawal (your particualr pension schmeen may not allow this approach, but if not you can transfer to one that does).0 -
Your situation seems not very complicated so not sure why 'obviously' to see an IFA ( and pay ).Obviously I will go see a IFA before making a decision, but would like to get some clarification on this before doing anything.
Their input on the DB scheme could only be minimal .
What they could more productively advise you on is where to invest the tax free sums and the remaining drawdown pot.0 -
Are both your pensions with your employer scheme? If so, can you take the combined tax free sum from just your DC pension? I believe this could give you the tax free max you want plus a better DB income but someone here will know better than me.0
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0
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You can take a 25% tax free lump sum from the DC pension now with no adverse consequences.
To comment on the defined benefit one properly we need to know what the lump sum options are, how long it is to the scheme's normal retirement age and what the values are at that age..0
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