Enhanced tax-free pension payment still delayed!
Discussion
Having first spoken to my pensions advisor in February to withdraw the (enhanced) tax-free amount, I’m still waiting to receive it with no idea when it will be forthcoming.
My understanding is that if I wish to have the whole tax-free sum (which I do, for a project of which the advisor approves) and for the balance to go into a draw-down scheme rather than an annuity (again, which I do and he recommends), then we are dependent on the IR’s calculation model.
He advised, however, that the IR calculation had - somehow - been incorrect and had to be revised and this revision then needs to go through Parliament before any payout can be made. Due to the change of Government in the Summer, this was delayed and there is still no statement regarding when this issue will be resolved nor even what the solution will be.
As a result, our plans have had to be put on ice which is not only causing inconvenience but also means that we are missing out on the income we would be deriving from the completed project.
I am not exactly sure whether the pension itself is growing at all meanwhile (I no longer make payments into it) but, even if it is, it would not generate as much as the completed project will.
There must be many, many more people by now who are in a similar position and I find it incredible - and very frustrating - that there is no information or any apparent urgency to resolve this issue.
Anyone on here who is in the same boat or anyone who has info about how and when this is due to get sorted, reported to be “sometime later this year” ?
My understanding is that if I wish to have the whole tax-free sum (which I do, for a project of which the advisor approves) and for the balance to go into a draw-down scheme rather than an annuity (again, which I do and he recommends), then we are dependent on the IR’s calculation model.
He advised, however, that the IR calculation had - somehow - been incorrect and had to be revised and this revision then needs to go through Parliament before any payout can be made. Due to the change of Government in the Summer, this was delayed and there is still no statement regarding when this issue will be resolved nor even what the solution will be.
As a result, our plans have had to be put on ice which is not only causing inconvenience but also means that we are missing out on the income we would be deriving from the completed project.
I am not exactly sure whether the pension itself is growing at all meanwhile (I no longer make payments into it) but, even if it is, it would not generate as much as the completed project will.
There must be many, many more people by now who are in a similar position and I find it incredible - and very frustrating - that there is no information or any apparent urgency to resolve this issue.
Anyone on here who is in the same boat or anyone who has info about how and when this is due to get sorted, reported to be “sometime later this year” ?
Assuming you are talking about the withdrawal of the 25% TFC and then crystallising the balance , I think as above your advisor is spinning a tale.
I had taken around 8% already in TFC from my private pension pot and then wanted to take the remaining 92% out as early inheritance for my 3 children just in case Labour decide to play with the amount available next month in the budget.
Whilst the actuaries then had to do some calculations and the final figure was £178 more than I was expecting ( using a simplistic 25% ) the money was in my bank 2 weeks after the instruction issued.
I had many conversations about this leading up to the instruction and never once was an act of Parliament mentioned !
I had taken around 8% already in TFC from my private pension pot and then wanted to take the remaining 92% out as early inheritance for my 3 children just in case Labour decide to play with the amount available next month in the budget.
Whilst the actuaries then had to do some calculations and the final figure was £178 more than I was expecting ( using a simplistic 25% ) the money was in my bank 2 weeks after the instruction issued.
I had many conversations about this leading up to the instruction and never once was an act of Parliament mentioned !
Thanks all.
The enhanced tax-free amount was a feature of the very old Company-run scheme which permits a bit more than the standard 25% tax-free amount - an extra few per cent so it is a worthwhile benefit to take advantage of.
I have researched it a bit, being otherwise fairly ignorant regarding pensions and how to operate them and there are several large Accountancy firms and advisors who confirm that a stop has been put on such scheme payouts in case the sum has been miscalculated (using the IR’s incorrect formula): I have not just taken the word of my advisor because it does seem rather implausible but has been borne out on further investigation.
I am beginning to assume from the responses so far that this is not as widespread an issue as I had assumed, hence the apparent inertia in getting the issue resolved…?
The enhanced tax-free amount was a feature of the very old Company-run scheme which permits a bit more than the standard 25% tax-free amount - an extra few per cent so it is a worthwhile benefit to take advantage of.
I have researched it a bit, being otherwise fairly ignorant regarding pensions and how to operate them and there are several large Accountancy firms and advisors who confirm that a stop has been put on such scheme payouts in case the sum has been miscalculated (using the IR’s incorrect formula): I have not just taken the word of my advisor because it does seem rather implausible but has been borne out on further investigation.
I am beginning to assume from the responses so far that this is not as widespread an issue as I had assumed, hence the apparent inertia in getting the issue resolved…?
DB - defined benefits ie almost always linked to final salary and sometimes referred to as gold plated schemes - quite a few companies try and get these frozen and closed down !
DC - defined contribution and usually the default option especially when no DB scheme offered.
Your mention of an advisor implied that neither option scheme was a conversation that you were having with your company hence my initial reply.
Fixed protection simply referred to the HMRC scheme and applied to larger pots.
DC - defined contribution and usually the default option especially when no DB scheme offered.
Your mention of an advisor implied that neither option scheme was a conversation that you were having with your company hence my initial reply.
Fixed protection simply referred to the HMRC scheme and applied to larger pots.
Thank you.
No, not a DB in that case, I think a DC: a varying level of contributions were paid into the scheme over many years, often depending on the annual profitability we achieved.
The Company closed down during COVID and contributions ceased at that time.
I have been looking for the articles I found previously regarding this topic but am struggling to find them now. When I do, I will try to post something or a link.
No, not a DB in that case, I think a DC: a varying level of contributions were paid into the scheme over many years, often depending on the annual profitability we achieved.
The Company closed down during COVID and contributions ceased at that time.
I have been looking for the articles I found previously regarding this topic but am struggling to find them now. When I do, I will try to post something or a link.
From the “ tech zone “ page of Abrdn ( Was Aberdeen ) - is this the type of issue / scheme ?
Scheme specific tax-free cash protection
29 May 2024
Key points
Tax-free cash rights greater than 25% ont 5 April 2006 can be protected
Protected cash rights can be lost on transfer or if paid in stages
Block (buddy) transfers can maintain protection when switching schemes
Before 6 April 2023, individuals with stand-alone lump sum protection could take all their fund tax-free - but the tax-free element is now limited to the value of the fund on 5 April 2023
No application to HMRC is needed
Scheme specific tax-free cash protection
29 May 2024
Key points
Tax-free cash rights greater than 25% ont 5 April 2006 can be protected
Protected cash rights can be lost on transfer or if paid in stages
Block (buddy) transfers can maintain protection when switching schemes
Before 6 April 2023, individuals with stand-alone lump sum protection could take all their fund tax-free - but the tax-free element is now limited to the value of the fund on 5 April 2023
No application to HMRC is needed
BB , copied from the M&G piece below but that links into the fixed protection I mentioned.
In a nutshell without any Fixed protection the max cash available tax free would be £ 268,750 I believe with then uplifts to a max of £375k or even £450k assuming fixed protection obtained at the relevant time to either £1.5m or £1.8m.
When the LTA was abolished on 6th April 2024 the link to LA was removed from the calculation and replaced with numeric
amounts. The overall result of the changes was that post 5th April 2024 everyone receives the same amount of tax free cash
regardless of protection status. Those with LTA protections would receive more tax free under the new formula.
In a nutshell without any Fixed protection the max cash available tax free would be £ 268,750 I believe with then uplifts to a max of £375k or even £450k assuming fixed protection obtained at the relevant time to either £1.5m or £1.8m.
When the LTA was abolished on 6th April 2024 the link to LA was removed from the calculation and replaced with numeric
amounts. The overall result of the changes was that post 5th April 2024 everyone receives the same amount of tax free cash
regardless of protection status. Those with LTA protections would receive more tax free under the new formula.
If I have understood all of this correctly, I think should still be entitled to more than 25% of my pension, tax-free and the final paragraph of the M&G statement says the HMRC are amending the formula so that those who had this benefit will not be worse off than before 6/4/24.
Or am I mistaken?
Or am I mistaken?
alscar said:
Did you have Fixed Protection or not I think impacts the answer ?
That's something else and still works with the new allowances in place.Scheme specific tax free cash protection is where the value of TFC in a particular pension was more than 25% as at 6th April 2006 (A Day). Before A Day it wasn't as simple as 25% so where people's pots on that day meant more than 25% you were allowed to retain the extra and then earn 25% TFC on any further growth since A Day. Hence why you need a calculation and why it's broken since the LTA was abolished.
PistonHead007 said:
alscar said:
Did you have Fixed Protection or not I think impacts the answer ?
That's something else and still works with the new allowances in place.Scheme specific tax free cash protection is where the value of TFC in a particular pension was more than 25% as at 6th April 2006 (A Day). Before A Day it wasn't as simple as 25% so where people's pots on that day meant more than 25% you were allowed to retain the extra and then earn 25% TFC on any further growth since A Day. Hence why you need a calculation and why it's broken since the LTA was abolished.
In the OP’s case and back to his original question then does that still mean he cannot access whatever the correct calculation total quantum should be or was his FA correct ?
Alternatively would he be entitled to “only “ take a flat 25% now ?
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