Any pension experts out there

[Lord Duckhunter]

Next year I reach the grand old age of 55. Having recently lost my best mate of 40ish years to the big C, those pension pots are looking quite enticing. However, it’s so bloody complicated I was wondering is anyone had some knowledge or advice.

 

I’ve basically got a frozen final salary one, I’ve got clear projections of what taking it 10 years early will cost me, so that’s the easy bit. The complicated one is the one I’ve got with my present employer. It started off as a final salary, but when they closed that,it got linked to a defined contribution one. I’ve checked and I can’t take the Final salary part, without taking the money purchase portion. Therefore I thought It’ll be a no go because there won’t be enough to fully retire once I stop work.

 

However, I’ve subsequently found out from a colleague that due to auto enrolment legislation you can take your pension and then start another one with the same employer the following month. I’m suddenly starting to think that I could take the linked one and because the FS part of it is frozen anyway , could then continue to work and rebuild the money purchase part of the pot. From what I can make out, all I’m going to be losing is the compound interest on the money.

 

I’ve googled it and there’s something called MPAA which limits tax relief and stops people over 55 recycling wages through pensions and avoiding tax, but if I’m reading the legislation correctly it won’t apply in my case, because I’m going to be taking 25% & then having an annuity.

 

Are my assumptions correct, or am I missing something obvious because getting extra income now whilst I’m fit and able to enjoy it, is pretty attractive. However it’s only attractive if I can continue to receive tax relief & company contributions after starting a new pension.

 

 

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[buctootim]

Next year I reach the grand old age of 55. Having recently lost my best mate of 40ish years to the big C, those pension pots are looking quite enticing. However, it’s so bloody complicated I was wondering is anyone had some knowledge or advice.

 

I’ve basically got a frozen final salary one, I’ve got clear projections of what taking it 10 years early will cost me, so that’s the easy bit. The complicated one is the one I’ve got with my present employer. It started off as a final salary, but when they closed that,it got linked to a defined contribution one. I’ve checked and I can’t take the Final salary part, without taking the money purchase portion. Therefore I thought It’ll be a no go because there won’t be enough to fully retire once I stop work.

 

However, I’ve subsequently found out from a colleague that due to auto enrolment legislation you can take your pension and then start another one with the same employer the following month. I’m suddenly starting to think that I could take the linked one and because the FS part of it is frozen anyway , could then continue to work and rebuild the money purchase part of the pot. From what I can make out, all I’m going to be losing is the compound interest on the money.

 

I’ve googled it and there’s something called MPAA which limits tax relief and stops people over 55 recycling wages through pensions and avoiding tax, but if I’m reading the legislation correctly it won’t apply in my case, because I’m going to be taking 25% & then having an annuity.

 

Are my assumptions correct, or am I missing something obvious because getting extra income now whilst I’m fit and able to enjoy it, is pretty attractive. However it’s only attractive if I can continue to receive tax relief & company contributions after starting a new pension.

 

Im no expert. I can only tell you what I did earlier this year (Im 56). I have three pension pots - one final salary and the other two PP. I took the tax free 25% from the two PPs and am able to continue to contribute to them and still get tax relief. As I understand it (but you should check) you only lose tax relief on the proportion you 'crystallise' - ie if you start to take an income from the capital.

[Lord Duckhunter]

Im no expert. I can only tell you what I did earlier this year (Im 56). I have three pension pots - one final salary and the other two PP. I took the tax free 25% from the two PPs and am able to continue to contribute to them and still get tax relief. As I understand it (but you should check) you only lose tax relief on the proportion you 'crystallise' - ie if you start to take an income from the capital.

 

Are you employed or is it a private pension. If it’s a company pension scheme are they still making contributions even though you’re drawing on their pension. I guess with auto enrolment they have to.

 

 

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[buctootim]

Are you employed or is it a private pension. If it’s a company pension scheme are they still making contributions even though you’re drawing on their pension. I guess with auto enrolment they have to.

 

The two I took the 25% from are private pensions which I had when I was with previous employers - they used to make contributions but no longer do. As I understand it if you take just the 25% tax free then you dont fall foul of the recycling rules (ie you can still make contributions and get tax relief on them) , but if you crystallise the rest by taking an annuity then you do. I would have thought the recycling rules would still apply even if you start a new pension, but I guess thats where you need an expert for a definitive view.

 

ps why not just ask the administrators of your scheme, they'll be able to tell you

Edited 8 September, 2018 by buctootim

[whelk]

Can’t help I’m afraid. A few years off 55 but am I right in thinking you can take all as a lump at that age? I am talking a couple of years at two previous employers and annuities on both will be fck all but prob about £40k as a lump. Guess some may have separate Ts & Cs but not allowed to restrict to too much older? So a Lamborghini for me in a few years. Then again post Brexit might just be tinned food.

[buctootim]

am I right in thinking you can take all as a lump at that age?

 

You can, but only 25% will be tax free. The rest will be treated as income and subject to tax, presumably at 40% or 45% if its substantial

[whelk]

You can, but only 25% will be tax free. The rest will be treated as income and subject to tax, presumably at 40% or 45% if its substantial

 

Cheers

[buctootim]

Cheers

 

Actually i didnt read your post properly, sorry There are different rules for smaller pots - but im not sure what they are. You might get a better deal

[Lord Duckhunter]

As I understand it if you take just the 25% tax free then you dont fall foul of the recycling rules (ie you can still make contributions and get tax relief on them) , but if you crystallise the rest by taking an annuity then you do. I would have thought the recycling rules would still apply even if you start a new pension, but I guess thats where you need an expert for a definitive view.

 

ps why not just ask the administrators of your scheme, they'll be able to tell you

 

Their worse than useless. The girl I spoke to was so paranoid that she would have been giving financial advice that she basically said **** all.

 

From what I understand I can re join the company one, they’ll continue to contribute, but she wouldn’t commit on the tax implications. If I read the Gov rules correctly, you can take an annuity and not fall foul of recycling rules because that income is taxed. If I left my present employer at 55, I could take my pension. I could then take out a new pension with my new employer, so I don’t see the difference in terms of tax implications with doing that with the same employer.

 

Maybe I’m look at it too simplistically, but the only downside i can see to taking a MP pension early is the compound interest you’ll lose. The FS portion is incredibly generous around taking it early, I’ll lose £92 a month gross, which is not a lot when it means taking it 10 years early. However it becomes incredibly unattractive if I can’t build up a decent new pot in those 10 years.

 

I guess I’ll have to try this Govt pension service, or even pay for advise.

 

 

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[Lord Duckhunter]

Can’t help I’m afraid. A few years off 55 but am I right in thinking you can take all as a lump at that age? I am talking a couple of years at two previous employers and annuities on both will be fck all but prob about £40k as a lump.

 

My snap dragon is just sorting 3 small previous ones she had. She’s taking 25% tax free, the rest is going into some sort of retirement account that she can draw the money from when she wants to. Obviously the money she draws down will be taxed as she earns over the 12k tax free amount. She’s got a decent NHS pension as well, so when she retires she’ll still pay tax on it. However, if you’re going to retire on less than 12k (or what ever the equivalent figure is then), leave it in the account and it won’t be taxed when you draw it down.

 

So my understanding of the rules is you can take all the money from both your pots, but 75% of it will be taxed at your income tax rate. If you put that 75% in a retirement account, you’ll only pay tax when you draw down the money. So under present rules if your income through retirement or semi retirement was 10k you could draw down 2k of it a year tax free. I maybe wrong, but that’s what we think. Personally, I want to get my 25% out ASAP, because there’s nothing to stop future Governments ****ing with that figure

 

Ps only applies to defined contribution ones, not sure about FS rules.

 

 

 

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Edited 8 September, 2018 by Lord Duckhunter

[whelk]

Also signed up on the HMRC site. Had a few years travelling but pretty much paid NI contributions for years and pretty substantial over last 10 years. I still need to pay another 7 odd years to get full state pension. Assume done by years nit contribution as must be manny putting significantly less in.

Still don’t understand the contracted out SERPS thing and if that is included either but only talking £8k if make it to 67.

[Lord Duckhunter]

Also signed up on the HMRC site. Had a few years travelling but pretty much paid NI contributions for years and pretty substantial over last 10 years. I still need to pay another 7 odd years to get full state pension. Assume done by years nit contribution as must be manny putting significantly less in.

Still don’t understand the contracted out SERPS thing and if that is included either but only talking £8k if make it to 67.

 

You used to be able to buy extra years, don’t know if you still can.

 

 

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[whelk]

You used to be able to buy extra years, don’t know if you still can.

 

 

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I got plenty of working years left to make it up so shouldn’t be a problem, Just expected to be home and hosed by amount of NI I have paid so far.

[ecuk268]

I'd advise seeing a Financial Adviser (preferably one that's been recommended by someone else). I did this about 18 months before I retired and he did a very good job in sorting out my various pensions and they now manage my pension pot and are always on hand for advice. You pay for it of course but it avoids making expensive mistakes if you don't know much about it.