Lump Sum at 55

[TwigtheWonderkid]

If an employee takes their 25% tax free from their pension pot aged 55, and they continue working, can their employer continue to make contributions into the pension? And if so, can the employee take 25% tax free of those additional amounts paid in, further down the line?

[Stay in Bed Instead]

TwigtheWonderkid said:

If an employee takes their 25% tax free from their pension pot aged 55, and they continue working, can their employer continue to make contributions into the pension? And if so, can the employee take 25% tax free of those additional amounts paid in, further down the line?

Yes and yes.

[TwigtheWonderkid]

Stay in Bed Instead said:

TwigtheWonderkid said:

If an employee takes their 25% tax free from their pension pot aged 55, and they continue working, can their employer continue to make contributions into the pension? And if so, can the employee take 25% tax free of those additional amounts paid in, further down the line?

Yes and yes.

Brief and to the point!

Good stuff, many thanks.

[Mazinbrum]

If the scheme lets you.

[Ean218]

And no other pension benefits are taken.

[Stay in Bed Instead]

And before 2028.

[rigga]

Ean218 said:

And no other pension benefits are taken.

If 25% lump sum taken, is it not automatic that the actual pension has to be taken too?

Certainly the case in the railway DB scheme I'm in.

Can carry on working, and I believe after a certain time, can rejoin the scheme, with all benefits re established, death in service etc.

[bentley01]

Stay in Bed Instead said:

And before 2028.

Why 2028?

[plenty]

anonymous said:

[redacted]

You can’t take out 25% of your pot and pay no tax.

The first 25% of any amount you take out is tax free. The remaining 75% is taxed.

[Stay in Bed Instead]

anonymous said:

[redacted]

Yes, it's called the Money Purchase Annual Allowance, but it only kicks in when pension is taken. The 25% tax free lump sum is not pension.

[plenty]

Jasey_ said:

There are a number of options available to some pensions (most tbh).

25% tax free lump sum and leave the rest invested

take out smaller amounts and get 25% tax free for each withdrawal

No doubt others

https://www.pensionwise.gov.uk/en/pension-pot-opti...

Yes you’re right - my mistake. But you can only do that once. I’ve just read about the “crystallised” vs “uncrystallised” portions of the pot.

[TwigtheWonderkid]

Jasey_ said:

Not sure what happens if you have fully crystallised a pot (taken the full 25% lump sum) in terms of taking out money after than if you continue to make additional payments after the lump sum.

I guess the Pension need to keep track of crystallised / uncrystallised contributions - but not sure how growth come into it !!

Which I think is the nub of the OPs question - And I'm not sure it's actually been answered yet .

My main query, asking for a friend (yes, honestly), is that if they take their 25% tax free at 55 (they need the money) and are still employed, can the employer continue to pay in to the pension. The answer appears to be YES.

Point 2, if the answer is YES, the amounts paid in post taking the 25%, can you get 25% of those amounts tax free at a later date, say at 67 when you stop work.

[PorkInsider]

As has been mentioned, the pension would then be (partially) crystallised which changes what happens with future payments and deductions.

I'd strongly suggest asking the question on the Intelligent Money sticky thread at the top of the finance section. There is an expert on pension tax and that sort of thing at IM and he'll answer questions for non-clients, too.

[PorkInsider]

anonymous said:

[redacted]

IM are definitely not IFAs.

I'm talking about posing the question to someone who specialises in this area (in a different thread on the Finance forum - which they also sponsor) at no cost to the OP.

Other than that, I'm sure your answer will be very useful to the OP who would not know that IFAs exist.

[JulianPH]

anonymous said:

[redacted]

Cheers Porkinsider

Chicken dinner - IM is (as has been pointed out) is not an IFA, it is an investment, pension, SIPP and ISA provider.

So by actually running pension schemes we have a whole team of people who can answer this fairly basic question. For free.

Also, if the whole 25% tax free cash (PCLS) was taken then it wouldn't be partially crystallised, it would be fully crystallised. Doing this does not change what happens with future payments (unless the member also starts to draw down income from it).

TwigtheWonderkid - your mate can take the full tax free cash and contributions can continue as they did before.

It is also worth highlighting that if his personal pension contributions then started to largely increase, HMRC would likely take the view that this was recycling the tax free cash to get additional tax relief.

Some (very few) schemes still do not allow you to take the tax free cash without also starting to take the income though, so if he wants a definitive answer for his scheme just let me know.

[TwigtheWonderkid]

JulianPH said:

Some (very few) schemes still do not allow you to take the tax free cash without also starting to take the income though, so if he wants a definitive answer for his scheme just let me know.

It's not a scheme, it's a personal pension that the employer contributes to.

[Stay in Bed Instead]

I refer you to the second post of this thread.

[JulianPH]

TwigtheWonderkid said:

JulianPH said:

Some (very few) schemes still do not allow you to take the tax free cash without also starting to take the income though, so if he wants a definitive answer for his scheme just let me know.

It's not a scheme, it's a personal pension that the employer contributes to.

All pensions are classed as schemes:

https://www.gov.uk/pension-types

So not knowing what type of pension this was, this was the most appropriate word for me to use. Please just replace this word with "personal pensions".

[JulianPH]

Stay in Bed Instead said:

I refer you to the second post of this thread.

Since then there has just been some more detail, but you did indeed answer the question with your first reply!