25% Lump Sum Question

[Double Fault]

Hi

A question on tax free lump sum, best illustrated by example:

You have £1m in your workplace pension and you reach retirement age but do not want to retire.

You want to claim your 25% tax free lump sum so you move your pension to a drawdown provider (as this is the only option available).

So, your workplace pension pays you £250k and moves the rest to your drawdown provider.

You work for another 5 years and you do not touch your drawdown pension. Also, you have 5 years of contributions (yourself and employer) to the new 'pot' you got when you transferred everything out 5 years earlier. You don't touch this either.

The value of the 2 pots after the 5 years is £1.5m and you decide to retire.


So, you still have c. £18k which you can in theory take tax free (the max TFLS is £268k), as your lifetime pot is clearly in excess of the £1,073m max for TFLS.

My question is, I assume you are still entitled to that £18k? If so, how is it monitored?
How would you know that your total pension pot had reached £1,073m so that you would actually be entitled to the full £268k tax free? What would stop sometime with a lifetime pot of £1m over 3 providers claiming the full £268k?

Many thanks

[Rufus Stone]

Ignore the previous LTA, it's now immaterial.

You can receive up to 25% of uncrystallised funds on crystallisation. Providing your second, and uncrystallised fund, is valued at least £72,000 you can have £18,000 from it, being your unused Pension Commencement Lump Sum lifetime allowance.

[ffc]

Are your contributions limited after you have crystallised the initial pot?

[Double Fault]

As long as the '£750k' drawdown pension is not drawn down from, no.