Apologies if not correct forum but a wee question I hope someone more clued up than myself can answer
Im due a 5 figure lump sum around January from a pension from a previous employment. Does anyone know what percentage of tax I will get chopped from that ? Just want to prepare myself as I expect it will be a good whack 🥴
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Thread: Pension question
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29-09-2021 08:45 PM #1
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Pension question
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29-09-2021 08:59 PM #2
Have a look at the links on this thread.
https://www.hibs.net/showthread.php?...71#post6679071There is no such thing as too much yarn, just not enough time.
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29-09-2021 10:10 PM #3
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30-09-2021 05:24 AM #4
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Im not at retirement age and will probably be working until I drop so was hoping to at least enjoy this, or some of this lump sum and will let my family enjoy my other pension when I drop deid 🤣
I have the choice of lump sum or have it transferred to a pension so it could be divvied up into monthly payments but I just opted for lump sum, its a deferred pension, if that makes any sense
Im not being greedy but just dont want to be handing over half of it to the tax man, I dont know why but I had a figure of 13% floating around my head but I havent a clue to be honest. I think I will be getting a letter from them soon with the final figure as its still rising very slowlyLast edited by Bridge hibs; 30-09-2021 at 05:30 AM.
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30-09-2021 07:02 AM #5
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30-09-2021 10:29 AM #6
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I'm not an expert but one thing to be careful of is if you're paying into a pension scheme with current employer you should check whether this payment you're expecting triggers the Money Purchase Annual Allowance. If it does it'll limit contributions that can be made in the future.
The way you've described it sounds like it might be a payment under the Small Pots rules though.
To reiterate I'm not an expert but googling the bits I've put in capitals might help. Maybe look up UFPLS too, if the payment is one of those then I believe it would trigger MPAA.
Edit: Maybe it doesn't sound like Small Pots actually as I believe they're £10k maximum and you've mentioned five figures.Last edited by Rocky; 30-09-2021 at 10:32 AM.
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30-09-2021 02:24 PM #7
Rocky is spot on here.
If you are talking about a defined contribution pension then taking any TAXABLE money from your first pension will trigger the MPAA…effectively meaning you will only be able to put up to £4K in your current employers pension compared to up to £40k currently while receiving tax relief.
My suggestion is you would look to take the 25% tax free lump sum and put the rest into a ‘flexi access’ drawdown account…this essentially leaves it invested. That should give you a nice wee windfall but will not trigger the MPAA as you have not taken any taxable cash yet.
Any subsequent drawdown will be taxed and trigger the MPAA I think. You also need to consider that as you are still working it will all be taxed at your prevailing rate (or indeed it may push you into a higher tax bracket). Hence if you don’t need it just now you’d be better leaving it well alone to continue to (hopefully) grow over time.
It’s a bit of a minefield and a lot depends on the specifics and your circumstances so better to Google the hell out of it to make sure you understand your options before doing anything.
If it’s a defined benefit scheme then all of the above means nothing and there is a whole other set of options to consider!
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30-09-2021 02:36 PM #8This quote is hidden because you are ignoring this member. Show QuoteThere is no such thing as too much yarn, just not enough time.
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30-09-2021 04:30 PM #9
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Thanks for all your replies guys, very informative and I will have another good look through them when I have the time.
Looking back I was given options on what to do but I opted for cash sum on agreed choice of retirement age which I chose as 55 yo. This is a deferred pension from 1996-2003
I actually had an email exchange with a pensions advisor with regards my current pension with regards retirement age, benefits etc. I mentioned my previous pension and Im sure he said I will get that lump sum minus tax, at least Im sure he did but that was in amongst other jargon and him offering other services such as house insurance etc. What I do remember though is that this old pension is stand alone and would not affect my current pension/retirement
As a note, it fluctuates, a few days ago the “loose change” went from £200 to currently £97
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30-09-2021 04:54 PM #10This quote is hidden because you are ignoring this member. Show Quote
Either way you should DEFO seek further professional advice as while taking the pension as a whole lump sum won’t impact your current pension per se it would almost certainly impact how much you could save into your current pension with tax relief going forward.
Your current contributions will be subject to relief at your prevailing rate, let’s say that’s 25%. If you take your old pension as a lump and pay tax on it you will only get that 25% relief on the first £4K of contributions every year going forward.
If you are contributing more than £4K to your current pension then losing the relief above that is a serious cost and not one you want to really consider.
So not only will you pay tax on the old pension lump sum (less the 25% tax free) you will also lose the tax relief above £4K contributions on your new pension forever more.
As far as I am aware this CANNOT be undone once you have triggered it.
I doubt no matter what was said at the time that you can be forced to take your old pension as a lump sum…you will almost certainly be able to take 25% tax free and move the rest to the semi flexible draw down that I mentioned earlier.
In other words you need to be very aware of what you can and cannot do here and the consequences of your decided course of action. Paying for some advice might save / make you a lot of money in the long run.
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30-09-2021 04:59 PM #11
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So, I dug out an old letter, I worked for the distribution arm and after changes my pension was transferred to DHL, as was everyones. It states
You are following the route to retirement, which assumes that you will take 25% of your savings as tax free cash and buy an annuity with the rest
If you are planning to take all of your savings as cash (I am) you should consider changing to DHL Lifestyle Cash (Which I did) or if you are considering drawdown you should consider changing to DHL Lifestyle Drawdown
Hope that makes more sense ?
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30-09-2021 05:28 PM #12This quote is hidden because you are ignoring this member. Show Quote
I do hope you’ve not had it stuck in a cash fund for very long! Anyway what is done is done on that front.
All the previous points stand re advice and the implications of taking your whole lump sum in one go to your ability to save tax efficiently into your ongoing pension.
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30-09-2021 05:48 PM #13
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There was various amounts in each phase - Currently I have invested in DHL Lifestyle - Annuity (Default) with a target retirement age of 55 years
Lifestyle assumes you wish to retire 1 year, 9 months from now (that was from 2020) which means you are now in the ‘route’ to retirement phase
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30-09-2021 08:19 PM #14
Pension question
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Thing is though you are not actually retiring and almost certainly won’t be buying an annuity these days!
I assume you could actually simply transfer this pension into a SIPP and effectively do nothing until you have had more time to consider the options and consequences.
Anyway it’s your money so your decisions to make!!
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01-10-2021 05:54 AM #15
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Thank you all who have replied, certainly a lot of consideration required. I should be due a letter soon so hopefully things will be a bit clearer, I will dig this thread up when its all been resolved and will post an update, even if its to help anyone else in the same position as some cracking advice offered by you all
Thanks again 👍
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