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  • FIRST POST
    • CoffeeLover
    • By CoffeeLover 10th Mar 18, 9:22 AM
    • 2Posts
    • 0Thanks
    CoffeeLover
    Two pension pot question
    • #1
    • 10th Mar 18, 9:22 AM
    Two pension pot question 10th Mar 18 at 9:22 AM
    Hiya,
    So I'm 50 and have a couple of pension pots that are worth about 250k or so. I'm fairly clueless on all things pension related. I've heard about the ability to take 25% tax free, and that would be useful to do things like clear the mortgage remainder in 5 years time. I plan on working until 60. My question is, can I take a lump sum from only one pot and leave the other untouched (ie. it carries on growing). And what are the rules for the remaining money in the pot that I have taken 25% from? Can I leave the balance to grow, or do I have to buy an annuity with it? Or can I drawdown from it in subsequent years - presume there will be some specific tax treatment around future withdrawls if so. Many thanks.
Page 1
    • FatherAbraham
    • By FatherAbraham 10th Mar 18, 12:00 PM
    • 765 Posts
    • 588 Thanks
    FatherAbraham
    • #2
    • 10th Mar 18, 12:00 PM
    • #2
    • 10th Mar 18, 12:00 PM
    [QUOTE=CoffeeLover;74001569My question is, can I take a lump sum from only one pot and leave the other untouched (ie. it carries on growing). And what are the rules for the remaining money in the pot that I have taken 25% from? Can I leave the balance to grow, or do I have to buy an annuity with it? Or can I drawdown from it in subsequent years - presume there will be some specific tax treatment around future withdrawals if so.[/QUOTE]

    You can take a lump sum from one pot, leaving the other untouched -- that's the simple bit.

    Theoretically, the residual part of the pot which has had 25% lump sum removed can be drawn, or used to buy an annuity, or a bit of both -- but just because the law says that these things are possible, doesn't mean that every provider, or every arrangement has to offer drawdown. So, you might need to transfer the pot to a provider who offers the flexibility of drawdown, if you want that.

    All the money which you draw down will be taxed as income in the tax year in which you receive it (that's why extracting a whole pension pot in one go is often a self-harming thing to do). All the money which you receive from a pension annuity which you have bought will be taxed as income in the tax year in which you receive it. There is no difference in the tax treatment whether you extract the money via an annuity or directly through draw down -- it is all income.

    Why do you even have two pots? Check whether it would be cost-effective to move one to the other, or both to a cheaper arrangement (note: it might not be cost-effective, it depends on the presence of any fees associated with "early closure", or the loss of any guaranteed benefits).

    Warmest regards,
    FA
    • CoffeeLover
    • By CoffeeLover 10th Mar 18, 12:24 PM
    • 2 Posts
    • 0 Thanks
    CoffeeLover
    • #3
    • 10th Mar 18, 12:24 PM
    • #3
    • 10th Mar 18, 12:24 PM
    Thank you for the reply. I have a pension wrapper which a few company schemes have been folded into. However I have an old company scheme that allows me to take more than 25%, so there is a protected tax free amount which I would lose if I moved it into the wrapper. Hence two pots.
    • atush
    • By atush 10th Mar 18, 2:22 PM
    • 16,690 Posts
    • 10,398 Thanks
    atush
    • #4
    • 10th Mar 18, 2:22 PM
    • #4
    • 10th Mar 18, 2:22 PM
    So whichever pot you wish to take the TFLS from, check with the provider if they offer Drawdown.
    • FatherAbraham
    • By FatherAbraham 10th Mar 18, 2:33 PM
    • 765 Posts
    • 588 Thanks
    FatherAbraham
    • #5
    • 10th Mar 18, 2:33 PM
    • #5
    • 10th Mar 18, 2:33 PM
    Thank you for the reply. I have a pension wrapper which a few company schemes have been folded into. However I have an old company scheme that allows me to take more than 25%, so there is a protected tax free amount which I would lose if I moved it into the wrapper. Hence two pots.
    Originally posted by CoffeeLover
    Good reason.

    Warmest regards,
    FA
    • The_Doc
    • By The_Doc 11th Mar 18, 2:55 PM
    • 80 Posts
    • 58 Thanks
    The_Doc
    • #6
    • 11th Mar 18, 2:55 PM
    • #6
    • 11th Mar 18, 2:55 PM
    Note that if you decide to take some of the remaining pot, then the amount that you can contribute to a pension per annum and receive tax relief goes down to the MPAA (Money Purchase Annual Allowance) which is now 4000. Given that you plan to work until 60, then it is probably wise NOT to draw down on the remainder until you stop work

    Tax rules may change of course in the next five years.
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