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  1. #1

    Pension question

    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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  3. #2
    @hibs.net private member Moulin Yarns's Avatar
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    Have a look at the links on this thread.

    https://www.hibs.net/showthread.php?...71#post6679071
    WASH YOUR HANDS, WEAR A MASK, KEEP 2M APART AND GET THE VACCINE

  4. #3
    Quote Originally Posted by Bridge hibs View Post
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    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 🥴
    Depends on what it is and what type of pension you have mate. Are you coming to pension age and getting your lump sum plus a pension? If so you can generally get up to 25% if your pot tax free.

  5. #4
    Quote Originally Posted by Danderhall Hibs View Post
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    Depends on what it is and what type of pension you have mate. Are you coming to pension age and getting your lump sum plus a pension? If so you can generally get up to 25% if your pot tax free.
    Cheers guys, DH, worked for a lift engineering firm late 80,s till 2003 then due to reorganisation etc a load of us were laid off. I was given a choice a while back to select a retirement age from 55 upwards so I opted for the 55. I found another job very quickly and basically forgot all about that one over the years until I received a letter from them

    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 slowly
    Last edited by Bridge hibs; 30-09-2021 at 05:30 AM.

  6. #5
    @hibs.net private member Jack's Avatar
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    Quote Originally Posted by Bridge hibs View Post
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    Cheers guys, DH, worked for a lift engineering firm late 80,s till 2003 then due to reorganisation etc a load of us were laid off. I was given a choice a while back to select a retirement age from 55 upwards so I opted for the 55. I found another job very quickly and basically forgot all about that one over the years until I received a letter from them

    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 slowly
    Just give the administrators of the pension a ring, they'll know for sure if it will be taxed or not. I doubt it.
    Space to let

  7. #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.

  8. #7
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    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!

  9. #8
    @hibs.net private member Moulin Yarns's Avatar
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    Quote Originally Posted by RyeSloan View Post
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    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!
    As well as all of the above, make an appointment with an independent financial advisor. Have as much information as possible ready when you meet them.
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  10. #9
    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

  11. #10
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    Quote Originally Posted by Bridge hibs View Post
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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
    If the value of fluctuating daily then it sounds very much like it’s a defined contribution pension.

    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.

  12. #11
    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 ?

  13. #12
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    Quote Originally Posted by Bridge hibs View Post
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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 ?
    Yeah it’s a defined contribution pension then.

    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.

  14. #13
    Quote Originally Posted by RyeSloan View Post
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    Yeah it’s a defined contribution pension then.

    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.
    Rye, it seems to have been made up as follows Your Lifestyle route - Diversified Growth fund - Diversified Cautious fund - Fixed interest bonds fund - Liquidity fund

    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

  15. #14
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    Pension question

    Quote Originally Posted by Bridge hibs View Post
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    Rye, it seems to have been made up as follows Your Lifestyle route - Diversified Growth fund - Diversified Cautious fund - Fixed interest bonds fund - Liquidity fund

    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
    Yeah it’s standard lifestyling stuff to protect your pot value as you near retirement.

    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!!

  16. #15
    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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