Tax free lump sum and multiple pensions?

zolablue25 · 10 April 2018 at 3:34PM

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

molerat · 10 April 2018 at 3:39PM

Each pot is separate, you cannot rob Peter to pay Paul.

zolablue25 · 10 April 2018 at 3:43PM

Thanks Molerat. I thought that was probably the case but wanted to get the facts to be sure.

dunstonh · 10 April 2018 at 3:50PM

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.

zolablue25 · 10 April 2018 at 3:52PM

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 · 10 April 2018 at 3:59PM

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 · 10 April 2018 at 4:00PM

zolablue25 wrote: »

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?

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.

dunstonh · 10 April 2018 at 4:04PM

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.

Asghar · 10 April 2018 at 5:46PM

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 · 10 April 2018 at 5:53PM

Asghar wrote: »

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.

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.

zolablue25 · 10 April 2018 at 7:30PM

Asghar wrote: »

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.

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.

Tax free lump sum and multiple pensions?

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