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| pjb Member Since: 08 Apr 2009 Location: Sunny Oxford Posts: 1244  |
Morning
Just thought I should ask here first. Brief summary :- I was looking to take a lump sum (25% cash tax free) out of my pension scheme once 55 to pay off some of my mortgage / help daughter on property ladder but not take anything else out of the scheme till circa 60 so another 5 years. My problem is the "Annual Allowance" I have read that it will drop to £10k, £4k from 5.4.17 once I have taken the tax free lump sum, but also read that it applies if I take more than 25%, so my thinking if I took 24% would the annual allowance remain as is at £40k ? My company pays into the scheme & I go not want to lose that contribution for 5 years ! I have asked the company scheme administrator but would like to try & get a second opinion as well just in case I can do it - current thinking seems to say I cannot which is a bit of a  ! 2020 P300 HSE |
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19th Jan 2017 7:10am |
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| Orangesofa Member Since: 10 Oct 2014 Location: Somerset Posts: 214  
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Firstly, I am not a pensions expert - I work in the Pension sector delivering programmes of change and I happened to deliver a project on Annual Allowance last year.
Since the Pensions Freedoms capability was enabled a couple of years ago, people over 55 could take up to 25% of their pot (subject to terms) tax free. The obvious loop-hole that needed to be closed was that if you pay into your pension, you get tax relief from the government for everything you put in up to a figure of £40k - the "Annual Allowance" (limit subject to change annually). So if you drew out say £50k and then immediately put in £40k you'd get government relief on what you put in. Do this every year and you are quids in.... So they closed this loophole before it was exploited. If you take an amount from your pension, a "UFPLS" (Uncrystallised Funds Pension Lump Sum), your Annual Allowance is automatically reduced to £10k to stop you trying to pay it back in. This is reducing to £4k from April 2017. This lower contribution limit is known as the "MPAA". The 25% you refer to is the amount of your pot you can take tax free, so if you took 24%, you would just get less and neither would be taxable. If of course you went to 26%, then the extra 1% would be taxable. The answer I think you are looking for (although not what you want to hear) is that any UFPLS amount will mean the MPAA limits will be applied afterwards. So if you took 5%, the MPAA limits would apply. CAVEAT - I am not a financial advisor so I would recommend you seek proper advice. Besides - taking any UFPLS will diminish your pension pot which whilst it may be only for a few years - this can make a significant difference to the amount you receive in a pension during retirement. I would urge you to get some good advice before cashing in any part of your pension. Phil |
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19th Jan 2017 9:59am |
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| pjb Member Since: 08 Apr 2009 Location: Sunny Oxford Posts: 1244 |
Thanks Phil
Just had confirmation that you can take the 25% without losing the annual allowance 
For anyone in a similar position as Phil says imperative to take professional advice. In my case the rest of my fund is in property & rent coming in will help keep me in funds to repair landrovers for many years to come  2020 P300 HSE |
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19th Jan 2017 2:45pm |
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| Orangesofa Member Since: 10 Oct 2014 Location: Somerset Posts: 214
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With the greatest respect - you need to check that, as I am certain it is incorrect.
If you take 25% of your pension pot, you will not be taxed on it but your annual allowance will absolutely be affected and you will be subject to a new MPAA limit of £10k if you took it in this Financial Year or £4k if you took it in the next Financial Year. Please double check your understanding as you could be in for a shock. 
There is lots of information online on this topic and would recommend a look at the Scottish Widows website. They were commended by the FCA for the information they provided customers. Partial Pension Encashment is the search phrase to use. Good luck! Phil |
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19th Jan 2017 3:11pm |
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| pjb Member Since: 08 Apr 2009 Location: Sunny Oxford Posts: 1244 |
Thanks Phil it was a concern.
Had it just confirmed by two companies now 
http://www.hl.co.uk/help/sipp,-drawdown-an...-commenced 2020 P300 HSE |
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19th Jan 2017 3:22pm |
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| Orangesofa Member Since: 10 Oct 2014 Location: Somerset Posts: 214
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Phil |
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19th Jan 2017 3:24pm |
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| AMBxx Member Since: 24 Jul 2016 Location: York Posts: 1032 
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Might be worth finding out about your options for income draw-down too. Depends upon the size of your pension, but could save tax long term.
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19th Jan 2017 9:29pm |
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