Possible hypothetical pension taking question?

GibbsRule_No3 · 11 March 2017 at 9:13AM

Brief back story. 63 year old female, working for same employer nearly 46 years, started as Civil Servant, so CS pension of 23 years, then outsourced for 22 years with roughly equivalent pension, both final salary, so I was really lazy and had no idea what I was doing, everything was done for me. At 60 I took the CS pension and continued working full time, then last March I dropped down to 3 day week and started taking the other pension as well. Started paying in to the Stakeholder pension option available to new starters. Part of the first 45 years I was "opted out" so State Pension would be reduced, but if I continue to work until 65 3/4(March 2020) when the SP kicks in, I understand that the SP will increase. I am liking the new working arrangement but wonder how long, if a set time, I have to pay into the new pension before I could take it without losing anything? Just in case I do decide to give up work before 2020. I'm guessing the reply might be that I need to read the pension rules of the new scheme. I rent my property, so the main reason for not retiring before SP kicks in is that will pay the rent and council tax and I can live on the other two monthly pensions, I would want to take the new pension as a lump sum not draw down when I take it. Just weighing up my options, hence the question, if work gets to a stage of aggro. Lot of changes taking place and loads of older people I have been used to working with have left. At present the thought of extra SP and more money going in to the new pension is making work still bearable.

jamesd · 11 March 2017 at 10:12AM

You should be able to transfer and take some of the pension whenever you like but that might be restricted, ask.

If you have the savings to afford it, strongly consider paying 80% of your gross salary into some pension this year. You can take out 25% tax free within a few months. You could instead pay into three pensions ensuring that they don't individually go over £10,000 and use the small pots rule to take 25% tax free and 75% taxable together. Don't take taxable money other than in that way, if you do your annual allowance for this type of pension contribution will be cut to £4,000 a year. Small pots is restricted to no more than three per lifetime. This in effect makes more than 25% of your pay tax free, a handy boost.

dunroving · 11 March 2017 at 10:35AM

jamesd wrote: »

You should be able to transfer and take some of the pension whenever you like but that might be restricted, ask.

If you have the savings to afford it, strongly consider paying 80% of your gross salary into some pension this year. You can take out 25% tax free within a few months. You could instead pay into three pensions ensuring that they don't individually go over £10,000 and use the small pots rule to take 25% tax free and 75% taxable together. Don't take taxable money other than in that way, if you do your annual allowance for this type of pension contribution will be cut to £4,000 a year. Small pots is restricted to no more than three per lifetime. This in effect makes more than 25% of your pay tax free, a handy boost.

James: From several recent threads I have seen you and others post something like this, so have been looking into the small pot rules, and it seems a convenient and flexible way to fund post-retirement (or pre-retirement) financing.

I'm still not sure how/why this is more advantageous than simply taking money from a larger SIPP (either as a large TFLS or smaller sums that are 75% taxable and 25% tax-free). Is the advantage solely that taking small pots does not trigger the pensions contribution limit (£10k/£4k)? Or are there other reasons? Based on your "informational posts" and others (and doing my own research of course; I know that what is said on the board does not constitute financial advice in a legal way), I am seriously considering opening three separate SIPPS (any advice on MSE as to the simplest/cheapest) to go with my "big SIPP" and employer pension plan, to give me the flexibility you have referred to.

Silly question maybe, but if a small pot SIPP starts to become too successful (nice problem to have!) and is creeping towards £10k, is there any way to get around this? Would you just have to move it to cash and accept the fact it won't grow any more?

kidmugsy · 11 March 2017 at 12:54PM

dunroving wrote: »

Is the advantage solely that taking small pots does not trigger the pensions contribution limit (£10k/£4k)?

James can speak for himself but I know no other reason.

dunroving wrote: »

if a small pot SIPP starts to become too successful (nice problem to have!) and is creeping towards £10k, is there any way to get around this?

You could always choose a provider which will allow partial transfers out that aren't too pricey. Maybe that's a crystal ball job.

dunroving · 11 March 2017 at 1:01PM

kidmugsy wrote: »

You could always choose a provider which will allow partial transfers out that aren't too pricey. Maybe that's a crystal ball job.

Ah, OK, so if my £9k pot were moving towards £10k, I could transfer say £2k out and thereby keep that SIPP below the small pot threshold? Interesting.

jamesd · 12 March 2017 at 1:35PM

I mention small pots just to avoid the MPAA restriction. No other reason.

Transfer or change investments to stay within £10k. Or take PCLS first. Yes, the £10k can be either uncrystallised or crystallised. Crystallised allows extracting more taxable money without triggering the MPAA but finding economically cheap places to do it may be an issue.

I only looked up one pay in and take out soon cheap place, Virgin. I'll be interested to see what others you find.

Possible hypothetical pension taking question?

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