Three pensions pots - one tiny

[coetzeeh]

I am PAYE and contribute into a work place pension scheme. Work in private sector. I am approaching 55 and enjoy work - interesting field, great employer, Nasdaq listed. No intention to stop working.

I have three private pension pots - contributing into one through work.

One legacy pension from a short transitional employment many moons ago is worth c £10k. I am considering transferring this amount into the fund I currently contribute into but also thought of posibility to take the cash.

I understand the tax implications - but key factor is I want to continue paying into existing fund and benefit from the £40k annual allowance/tax incentive as I have not reached the LTA.

Does taking the cash from the £10k pot mean I can no longer benefit from the £40k annual allowance?

Thank you.

[PurpleMoonlight]

If the pension arrangement is valued at less than £10,000 you can access it as a small pot commutation and it will not trigger the money purchase annual allowance of £4,000 pa.

It is it over £10,000 and you cash it in it would be an uncrystallised fund pension lump sum and it will trigger the money purchase annual allowance of £4,000 pa.

If over £10,000 you could transfer some to another pension arrangement so that both are below £10,000 and access both as a small pot commutation. Or transfer some to your existing workplace pension.

You can only have 3 small pot commutations in your lifetime.

[coetzeeh]

Thank you - much appreciated.

[dingg]

not wishing to thread hijack

but a similar question

two personal pensions , I wish to take the tax free element of 25% from one fund and obviously stop further payment into this fund.

I wish to keep on paying into the other fund

I 'think' hope this is allowed

PM can you confirm?

TIA

ETA nothing for a long time will be drawn from the initial fund that has the 25% withdrawn from it

[anonymous-user]

Even if there's a miniscule short term cash flow benefit HMRC has rules which restrict pension recycling,
https://www.pensionwise.gov.uk/en/pension-recyclin...

"The recycling rule applies when all of the following conditions are met:

the individual receives tax-free cash from their pension
because of the lump sum, the amount of contributions paid into a pension scheme is “significantly” greater than it otherwise would be.
the additional contributions are made by the individual or by someone else, such as an employer
the recycling was “pre-planned”.
the amount of the tax-free cash, taken together with any other such lump sums taken in the previous 12 month period, exceeds
£7,500 for events on or after 6 April 2015, or
1% of the standard lifetime allowance for events before 6 April 2015
and, the cumulative amount of the additional contributions exceeds 30% of the tax-free cash amount.

"All of the conditions need to be met for the contributions to be classed as recycling. If all 6 conditions are not met, no recycling has occurred. Where recycling is found to apply this can result in large tax charges.

"HMRC will generally consider contributions to be “significant” where they are 30% more than expected. Also, the duty is on HMRC to prove that “pre-planning” took place.

"As this can be a very complex area, you should seek regulated financial advice if you think recycling may apply to you."

Good luck finding cost-effective advice on that lot!!

[PurpleMoonlight]

dingg said:

not wishing to thread hijack

but a similar question

two personal pensions , I wish to take the tax free element of 25% from one fund and obviously stop further payment into this fund.

I wish to keep on paying into the other fund

I 'think' hope this is allowed

PM can you confirm?

TIA

ETA nothing for a long time will be drawn from the initial fund that has the 25% withdrawn from it

As long as you do not draw any pension from the crystallised fund the money purchase annual allowance of £4,000 pa will not be imposed on you.

[dingg]

^^

thanks for confirming that

[Ginge R]

This is an article published by Jo Cumbo this morning, it’s a very good piece. The only point I would make is that the *tax relief* isn’t the annual allowance. The earnings have to be relevant (I’ve lost count of the amount of time some clients want to use rental income to make contributions into the 40% bracket) and if your relevant earnings are, say, £20,000, you can’t exploit any more tax relief than that amount, regardless of how much extra above that point that you might contribute. One’s personal ability to claim tax relief and the annual allowance are distinct.

https://www.ft.com/content/59a6dea6-9636-11e8-b67b...

[Jockman]

Ginge R said:

This is an article published by Jo Cumbo this morning, it’s a very good piece. The only point I would make is that the *tax relief* isn’t the annual allowance. The earnings have to be relevant (I’ve lost count of the amount of time some clients want to use rental income to make contributions into the 40% bracket) and if your relevant earnings are, say, £20,000, you can’t exploit any more tax relief than that amount, regardless of how much extra above that point that you might contribute. One’s personal ability to claim tax relief and the annual allowance are distinct.

https://www.ft.com/content/59a6dea6-9636-11e8-b67b...

Glad you used the word 'personal'.