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  • FIRST POST
    • zolablue25
    • By zolablue25 10th Apr 18, 3:34 PM
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    zolablue25
    Tax free lump sum and multiple pensions?
    • #1
    • 10th Apr 18, 3:34 PM
    Tax free lump sum and multiple pensions? 10th Apr 18 at 3:34 PM
    Hi everyone

    Another question from the former Ostrich finally trying to get to grips with pensions.

    I have a number of relatively small pension pots from different employers, Private pensions etc. (all DC)

    I understand that, in general, you can take 25% lump sum out without paying tax. My question this time is....Is that 25% from your overall pots or 25% from each pot?

    i.e. can I take 50% (tax free) from one pot provided that the total taken doesn't amount to more than 25% of all the pots added together?

    Thanks
Page 1
    • molerat
    • By molerat 10th Apr 18, 3:39 PM
    • 19,726 Posts
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    molerat
    • #2
    • 10th Apr 18, 3:39 PM
    • #2
    • 10th Apr 18, 3:39 PM
    Each pot is separate, you cannot rob Peter to pay Paul.
    https://www.helpforheroes.org.uk/give-support/donate-now/
    • zolablue25
    • By zolablue25 10th Apr 18, 3:43 PM
    • 1,601 Posts
    • 469 Thanks
    zolablue25
    • #3
    • 10th Apr 18, 3:43 PM
    • #3
    • 10th Apr 18, 3:43 PM
    Thanks Molerat. I thought that was probably the case but wanted to get the facts to be sure.
    • dunstonh
    • By dunstonh 10th Apr 18, 3:50 PM
    • 96,058 Posts
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    dunstonh
    • #4
    • 10th Apr 18, 3:50 PM
    • #4
    • 10th Apr 18, 3:50 PM
    My question this time is....Is that 25% from your overall pots or 25% from each pot?
    Theoretically either. However, the number of schemes that support the first option are low and are always linked (e.g. the main scheme and an AVC linked to the same employed). So, the latter, 25% of each scheme is the most common.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • zolablue25
    • By zolablue25 10th Apr 18, 3:52 PM
    • 1,601 Posts
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    zolablue25
    • #5
    • 10th Apr 18, 3:52 PM
    • #5
    • 10th Apr 18, 3:52 PM
    Just another question that would be useful to get an answer on.

    I've read that you can get your hands on your tax-free sum at age 55. Is that a hard and fast rule or is it actually State Pension age -10 years? I'm due to retire at 67 (unless they change it again) so do I have to wait until I'm 57 to get at the pot?

    Understand that I hopefully won't need to get at the pot but I can pay more of my savings in if I know I can get access to them again should need arise.
    • Mnd
    • By Mnd 10th Apr 18, 3:59 PM
    • 833 Posts
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    Mnd
    • #6
    • 10th Apr 18, 3:59 PM
    • #6
    • 10th Apr 18, 3:59 PM
    As I understand it you can access this money at 55. I think it's been discussed but not implemented.
    If I'm wrong someone will correct me.
    Make sure that if you do need to access them only use the 25% tfls or you will be restricted to 4k contributions in the future
    • Paul_Herring
    • By Paul_Herring 10th Apr 18, 4:00 PM
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    Paul_Herring
    • #7
    • 10th Apr 18, 4:00 PM
    • #7
    • 10th Apr 18, 4:00 PM
    I've read that you can get your hands on your tax-free sum at age 55. Is that a hard and fast rule or is it actually State Pension age -10 years? I'm due to retire at 67 (unless they change it again) so do I have to wait until I'm 57 to get at the pot?
    Originally posted by zolablue25
    It's currently hard-coded at 55, but there have been numerous discussions over the years about raising it to [SPA - 10years.]

    Nothing's been done about it yet, and there's currently nothing in the pipeline.

    So, it's still 55 at the moment.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
    • dunstonh
    • By dunstonh 10th Apr 18, 4:04 PM
    • 96,058 Posts
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    dunstonh
    • #8
    • 10th Apr 18, 4:04 PM
    • #8
    • 10th Apr 18, 4:04 PM
    Is that a hard and fast rule or is it actually State Pension age -10 years?
    There are caveats. Some people have a protected scheme age. Some schemes wont allow earlier than 60/65. Some schemes have safeguarded benefits which may not be able to allow earlier commencement within the same plan.

    However, if its a bog standard money purchase scheme with no transitional reliefs or safeguarded benefits, then its 55. It is going up to 10 years less than state pension age in 2028. However, the act of parliament to put that in place has not appeared. However, the Govt have not officially dropped it. The last official bit of news, IIRC was back in 2016 when the Treasury said they still intend to stick to it going to 57 and then 58 but its been quiet since. It was an Osborne decision. Hammond has had plenty of chances to include the lines in various acts. If we see a change of Government, this may never happen. Best to assume it is going to but dont be surprised if it doesnt.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Asghar
    • By Asghar 10th Apr 18, 5:46 PM
    • 216 Posts
    • 142 Thanks
    Asghar
    • #9
    • 10th Apr 18, 5:46 PM
    • #9
    • 10th Apr 18, 5:46 PM
    It may also be possible that a future Government may do away with the 2015 pension freedom rule and no longer allow access to the whole sum in a defined contribution pension.
    Go back to taking 25% tax free and having to buy an income/annuity with the rest.

    Hope not and it would also have to depend on the current interest rate at the time.
    • dunstonh
    • By dunstonh 10th Apr 18, 5:53 PM
    • 96,058 Posts
    • 63,876 Thanks
    dunstonh
    It may also be possible that a future Government may do away with the 2015 pension freedom rule and no longer allow access to the whole sum in a defined contribution pension.
    Go back to taking 25% tax free and having to buy an income/annuity with the rest.

    Hope not and it would also have to depend on the current interest rate at the time.
    Originally posted by Asghar
    Interest rates will have no impact on that decision as you can still buy an annuity. Indeed, I arranged one last week. Annuities are not dead.

    Plus, the legislation raises a lot of money for the treasury as well as being extremely popular. But in reality, it only expanded options a little compared to what already existed. Drawdown had been available for over a decade before. It just moved from being something for large pots to something for everyone.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • zolablue25
    • By zolablue25 10th Apr 18, 7:30 PM
    • 1,601 Posts
    • 469 Thanks
    zolablue25
    It may also be possible that a future Government may do away with the 2015 pension freedom rule and no longer allow access to the whole sum in a defined contribution pension.
    Go back to taking 25% tax free and having to buy an income/annuity with the rest.

    Hope not and it would also have to depend on the current interest rate at the time.
    Originally posted by Asghar
    I would be surprised if this happened mainly because Governments know they can't afford the state pension in the long run and they are trying to make pension saving as attractive as possible.

    Of course, joined up thinking is not something you can usually accuse a politician of.
    • zolablue25
    • By zolablue25 10th Apr 18, 7:34 PM
    • 1,601 Posts
    • 469 Thanks
    zolablue25
    There are caveats. Some people have a protected scheme age. Some schemes wont allow earlier than 60/65. Some schemes have safeguarded benefits which may not be able to allow earlier commencement within the same plan.

    However, if its a bog standard money purchase scheme with no transitional reliefs or safeguarded benefits, then its 55. It is going up to 10 years less than state pension age in 2028. However, the act of parliament to put that in place has not appeared. However, the Govt have not officially dropped it. The last official bit of news, IIRC was back in 2016 when the Treasury said they still intend to stick to it going to 57 and then 58 but its been quiet since. It was an Osborne decision. Hammond has had plenty of chances to include the lines in various acts. If we see a change of Government, this may never happen. Best to assume it is going to but dont be surprised if it doesnt.
    Originally posted by dunstonh
    I will be opening a SIPP for myself and one for my wife this year and these are the plans that I will be loading up with especially if I can get at 25% of my money when I'm 55 (we are both 52 at the moment)

    @MND, I wasn't aware of a 4K restriction, so thanks for the info, Is that 4K per annum or total?
    • Mnd
    • By Mnd 10th Apr 18, 11:26 PM
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    • 1,018 Thanks
    Mnd
    It's 4000 per annum if you take any taxable cash. (Even if you don't pay tax)
    You are allowed the 25% but no more
    • Paul_Herring
    • By Paul_Herring 11th Apr 18, 12:48 AM
    • 6,504 Posts
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    Paul_Herring
    ... and they are trying to make pension saving as attractive as possible.
    Originally posted by zolablue25
    Except for small things like the lifetime allowance...
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
    • zolablue25
    • By zolablue25 11th Apr 18, 7:51 AM
    • 1,601 Posts
    • 469 Thanks
    zolablue25
    Except for small things like the lifetime allowance...
    Originally posted by Paul_Herring
    Ah yes, but to be fair, if you can afford to put in your lifetime allowance you probably aren't going to be relying on a state pension once you retire.

    I was talking mainly about Mr Average who, like me, put off pension planning until it was, to all intents and purposes, too late to put enough aside to be able to live without a state pension.
    • Paul_Herring
    • By Paul_Herring 11th Apr 18, 10:00 AM
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    Paul_Herring
    Given that the
    • LTA has gone more down than up recently, and
    • when it did go up for this tax year it was only by inflation *
    • thus anyone in their 20's/30's putting in a not stupidly small amount will bump up against that limit well before retirement

    I'd consider that a major disincentive, especially when what 1m will (or rather wont) be able to buy in a couple of decades.

    ====

    * If your investment, any investment, is only increasing by inflation, you'd better start looking to see if it's actually in the right place. And of the inflation measures they had to choose from, they chose CPI.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
    • zolablue25
    • By zolablue25 11th Apr 18, 10:07 AM
    • 1,601 Posts
    • 469 Thanks
    zolablue25
    Given that the
    • LTA has gone more down than up recently, and
    • when it did go up for this tax year it was only by inflation *
    • thus anyone in their 20's/30's putting in a not stupidly small amount will bump up against that limit well before retirement

    I'd consider that a major disincentive, especially when what 1m will (or rather wont) be able to buy in a couple of decades.

    ====

    * If your investment, any investment, is only increasing by inflation, you'd better start looking to see if it's actually in the right place. And of the inflation measures they had to choose from, they chose CPI.
    Originally posted by Paul_Herring
    True but its a balancing act for the Government. Encourage as many people as possible to provide for themselves, to a reasonable degree, without losing too much in tax income.

    Wish I had reached my LTA, I wouldn't be worrying about what I'm going to do in retirement if it had.

    "I'd consider that a major disincentive, especially when what 1m will (or rather wont) be able to buy in a couple of decades."

    If the LTA is increased in line with inflation then the LTA will buy in a couple of decades time pretty much what it will buy today. Of course, that depends on the LTA being increased.

    I still think a Conservative Government wants to encourage most peopel to save for their retirements (but they have limits). Of course, if Jezza gets in there could be a complete about face

    Edit: This link is enlightening https://www.moneyadviceservice.org.uk/en/articles/the-lifetime-allowance-for-pension-savings
    It suggests that you will be OK on a DB pension of 51,500 pa. Given that is approximately twice the average earnings, that doesn't seem like too many people will encounter this as a problem
    Last edited by zolablue25; 11-04-2018 at 10:17 AM.
    • Paul_Herring
    • By Paul_Herring 11th Apr 18, 11:17 AM
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    Paul_Herring
    Given that CPI is seen as the unfair benchmark to pin benefits to and to change pensions in payment to (from RPI,) I fail to see how it's any fairer to pin something that should be increasing well beyond it, to it.

    Again - it's not an incentive.

    It suggests that you will be OK on a DB pension of 51,500 pa. Given that is approximately twice the average earnings, that doesn't seem like too many people will encounter this as a problem
    "I wouldn't have a problem with it (despite not being near that situation anyway,) therefore I don't see why anyone else should see it as a problem"

    OK.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
    • Economic
    • By Economic 11th Apr 18, 11:34 AM
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    • 432 Thanks
    Economic
    Given that CPI is seen as the unfair benchmark to pin benefits to and to change pensions in payment to (from RPI,) I fail to see how it's any fairer to pin something that should be increasing well beyond it, to it.

    Again - it's not an incentive.



    "I wouldn't have a problem with it (despite not being near that situation anyway,) therefore I don't see why anyone else should see it as a problem"

    OK.
    Originally posted by Paul_Herring
    CPI is generally lower than RPI, but it is a better measure of inflation so it is not an unfair measure of inflation!
    Regarding the LTA, my view is that when you hit the LTA then it is time to retire. I assume that by reducing the LTA the government wanted to increase early retirement. If not then it was rather foolish.
    • Paul_Herring
    • By Paul_Herring 11th Apr 18, 11:43 AM
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    Paul_Herring
    CPI is generally lower than RPI, but it is a better measure of inflation so it is not an unfair measure of inflation!
    My point was whether any measure of price inflation should be simplistically used in determining future income, as it has been here. (It wasn't even CPI+<reasonable growth for a pension>%] - it was just CPI.)

    If so then all wage inflation/increases should be set at CPI - no more, no less, even if getting a promotion - then everyone would be happy bunnies!

    Except those that wouldn't be, of course.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
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