Pension Question (TFLS)

[L1OFF]

My wife has 2 pensions, she is looking to take a TFLS from one of the pensions when she goes part time early next year. She has previously taken a lump sum from the other pension. As long as the sums aren't >25% on each of the pensions (and lower then the lifetime limit) it will be tax free, yes?

[mikeiow]

L1OFF said:

My wife has 2 pensions, she is looking to take a TFLS from one of the pensions when she goes part time early next year. She has previously taken a lump sum from the other pension. As long as the sums aren't >25% on each of the pensions (and lower then the lifetime limit) it will be tax free, yes?

Each is dealt with separately, so yes, just take up to 25%, not a penny over, and it will be tax free (& the MPAA will not get triggered, if she was still working)

[L1OFF]

mikeiow said:

L1OFF said:

My wife has 2 pensions, she is looking to take a TFLS from one of the pensions when she goes part time early next year. She has previously taken a lump sum from the other pension. As long as the sums aren't >25% on each of the pensions (and lower then the lifetime limit) it will be tax free, yes?

Each is dealt with separately, so yes, just take up to 25%, not a penny over, and it will be tax free (& the MPAA will not get triggered, if she was still working)

My wife says thank you very much, its quicker that trying to get an answer from the Pension people. (just need her to want a GT3 now )

[alscar]

Probably won’t happen and assuming she is willing to take the ( small ) risk there is a chance that Rachel may play around with the amount of TFLS in the budget.
Obviously if the lump sum earmarked is modest then probably won’t be applicable.
I took 100% of mine just before they were elected so I’m wrong so far though !

[DT1975]

alscar said:

Probably won t happen and assuming she is willing to take the ( small ) risk there is a chance that Rachel may play around with the amount of TFLS in the budget.
Obviously if the lump sum earmarked is modest then probably won t be applicable.
I took 100% of mine just before they were elected so I m wrong so far though !

We're going through this process now. We've transfered a small DC pension to an existing SIPP and will take the full TFLS . It seems to be a hot topic, I'm not sure if Rachel is scaremongering to get all this pension cash freed up and spent or reinvested, she may of course do nothing but I hate this guessing game.

As my wife is a non earner we intend to draw it all down within her yearly personal tax allowances before her state pension kicks in and reinvest in our ISA's.

[alscar]

DT1975 said:

We're going through this process now. We've transfered a small DC pension to an existing SIPP and will take the full TFLS . It seems to be a hot topic, I'm not sure if Rachel is scaremongering to get all this pension cash freed up and spent or reinvested, she may of course do nothing but I hate this guessing game.

As my wife is a non earner we intend to draw it all down within her yearly personal tax allowances before her state pension kicks in and reinvest in our ISA's.

Indeed and her speech today didn't do a thing to put a halt to this guessing game and scare mongering.
Its almost like she doesn't care about the repercussions.
Also TFLS shouldn't just be removed without any thought as to where to then put it which was the issue at the last budget.

[mikeiow]

alscar said:

DT1975 said:

We're going through this process now. We've transfered a small DC pension to an existing SIPP and will take the full TFLS . It seems to be a hot topic, I'm not sure if Rachel is scaremongering to get all this pension cash freed up and spent or reinvested, she may of course do nothing but I hate this guessing game.

As my wife is a non earner we intend to draw it all down within her yearly personal tax allowances before her state pension kicks in and reinvest in our ISA's.

Indeed and her speech today didn't do a thing to put a halt to this guessing game and scare mongering.
Its almost like she doesn't care about the repercussions.
Also TFLS shouldn't just be removed without any thought as to where to then put it which was the issue at the last budget.

On thing to consider is to not rush into anything.

Time could prove me disastrously wrong, of course, but I’m with James Shack on this - block out the noise, wait to hear, then take measured steps AFTER the budget is done.

See his video here for more

[fat80b]

mikeiow said:

On thing to consider is to not rush into anything.

Time could prove me disastrously wrong, of course, but I m with James Shack on this - block out the noise, wait to hear, then take measured steps AFTER the budget is done.

Maybe - but you can make a decent guess / work out the risk of not acting and regretting it later.

i.e. Let's say you have 1M pot today allowing you to take 250K tax free right now. You do this (as a precaution against the TFLS being reduced) and as such you lose the ability to take it in smaller chunks annually tax free so you end up paying "slightly" more tax this way than by dripping it out from an ever increasing pot size over the next n years(one of James Shack's points).

But the alternative of seeing the 250K amount get reduced to (lets say) 100K would immediately wipe out (150 * 0.2 = 30K of tax free-ness). So essentially the "cost" of taking it now is a play against the "risk" of it being reduced / or removed.

If it was me - I'd seriously be considering that getting 250K out of the IHT captured pension pot now is worth the "lost opportunity cost" of leaving it in there and hoping that she keeps her sticky fingers off it..... (leave it there and it either gets taxed as drawdown, or hit (in the future) with the double whammy of IHT and the beneficiaries marginal tax rate which could be as much as ~80%)

[mikeiow]

fat80b said:

mikeiow said:

On thing to consider is to not rush into anything.

Time could prove me disastrously wrong, of course, but I’m with James Shack on this - block out the noise, wait to hear, then take measured steps AFTER the budget is done.

Maybe - but you can make a decent guess / work out the risk of not acting and regretting it later.

i.e. Let's say you have 1M pot today allowing you to take 250K tax free right now. You do this (as a precaution against the TFLS being reduced) and as such you lose the ability to take it in smaller chunks annually tax free so you end up paying "slightly" more tax this way than by dripping it out from an ever increasing pot size over the next n years(one of James Shack's points).

But the alternative of seeing the 250K amount get reduced to (lets say) 100K would immediately wipe out (150 * 0.2 = 30K of tax free-ness). So essentially the "cost" of taking it now is a play against the "risk" of it being reduced / or removed.

If it was me - I'd seriously be considering that getting 250K out of the IHT captured pension pot now is worth the "lost opportunity cost" of leaving it in there and hoping that she keeps her sticky fingers off it..... (leave it there and it either gets taxed as drawdown, or hit (in the future) with the double whammy of IHT and the beneficiaries marginal tax rate which could be as much as ~80%)

You could be right….& having taken my TFLS a few years ago, my thoughts are perhaps less relevant.
Not sure if you watched the Shack video: he points out that whenever major changes to pensions happened, there were ‘protections’ put in place….I feel he is right, but if you have a good use for the TFLS, go ahead!
I have a relative who has done that, not specifically because of the limits (nowhere near them), but because they had a plan for the money released.

[alscar]

mikeiow said:

On thing to consider is to not rush into anything.

Time could prove me disastrously wrong, of course, but I m with James Shack on this - block out the noise, wait to hear, then take measured steps AFTER the budget is done.

See his video here for more

Absolutely shouldn’t rush but equally blocking noise and waiting May then leave it too late for action.
I took mine as didn’t want to take the risk of not being able to take mine which was earmarked as early inheritance for my children’s house purchase funds.

[alscar]

And clashing with your last post , totally right in that if you do withdraw have a plan.

[ukwill]

I think it would be very odd for the Govt not to grandfather in any changes made to pensions. I'm relatively confident that if they do decide to mess with pensions, they will do so in a manner similar to previous administrations (which would afford them political cover).

[alscar]

ukwill said:

I think it would be very odd for the Govt not to grandfather in any changes made to pensions. I'm relatively confident that if they do decide to mess with pensions, they will do so in a manner similar to previous administrations (which would afford them political cover).

Agree in that it would be odd but fair to say Rachel is capable of anything.
Trying to cut through the media scribbles or her own words is impossible.
I’m not even sure political cover is within her thinking ability.
Still ,only 21 days to go.

[Tighnamara]

ukwill said:

I think it would be very odd for the Govt not to grandfather in any changes made to pensions. I'm relatively confident that if they do decide to mess with pensions, they will do so in a manner similar to previous administrations (which would afford them political cover).

I may be wrong here, but is it not the case the government don t have authority to put in place overnight pension changes due to tight regulations and process that is required to be followed regarding pension change.

Very near retirement and swaying to remove or leave alone, tending to think any change in the tax free allowance would not be applied on budget day.

All very uncertain though and should be something the government could be slightly clearer on to reduce people inadvertently changing retirement plans based on Labour hearsay.

Edited by Tighnamara on Wednesday 5th November 11:16

[Zigster]

I don’t think the current TFCS limit will be reduced, and it is very unlikely changes would be introduced with immediate effect and without the chance to “protect” existing funds.

However, “anti-forestalling” rules were put in place in 2009/10 to stop people putting large amounts into their pensions in advance of proposed changes to pension contribution tax relief coming into force. I can’t remember the precise detail now (it was 15 years ago) but I remember it was a real faff to try and get around it.

Also, the maths mean that if you have funds over the Lifetime Allowance (ie, max Lump Sum Allowance of £268,275) then it is worth taking out the money immediately even if it just to put it into a GIA. This is due to the expectation that the marginal rate of tax on income withdrawals from your pension fund will be 40%.

If you do want to crystallise the max TFCS (>90% of max), some (all?) providers will make life difficult. Fidelity, for example, is insisting I have an “interview” to discuss but also they are fully booked at the moment because of the rush to take out max TFCS. They’re claiming the interview is a legislative requirement but that’s news to me (noting that it isn’t the exact area in which I work so I could have missed it).

[SunsetZed]

alscar said:

ukwill said:

I think it would be very odd for the Govt not to grandfather in any changes made to pensions. I'm relatively confident that if they do decide to mess with pensions, they will do so in a manner similar to previous administrations (which would afford them political cover).

Agree in that it would be odd but fair to say Rachel is capable of anything.
Trying to cut through the media scribbles or her own words is impossible.
I m not even sure political cover is within her thinking ability.
Still ,only 21 days to go.

They need money now though, as ever politically the way they see it as there's no point the government taking a load of flak for changing it now for 5 years time when they may well not be in power which is why they don't change those type of things often. I think that if she is going to change the lump sum she'll do it quickly and that's fine because it only affects rich people will be the cover offered even though we know that half a million in a pension will only buy a £27k escalation annuity at 66, that's hardly rich!

[mikeiow]

alscar said:

mikeiow said:

On thing to consider is to not rush into anything.

Time could prove me disastrously wrong, of course, but I'm with James Shack on this - block out the noise, wait to hear, then take measured steps AFTER the budget is done.

See his video here for more

Absolutely shouldn t rush but equally blocking noise and waiting May then leave it too late for action.
I took mine as didn t want to take the risk of not being able to take mine which was earmarked as early inheritance for my children s house purchase funds.

Well...he wasn't saying "wait until May" - just let the dust settle, check what has changed, then make a decision.

alscar said:

ukwill said:

I think it would be very odd for the Govt not to grandfather in any changes made to pensions. I'm relatively confident that if they do decide to mess with pensions, they will do so in a manner similar to previous administrations (which would afford them political cover).

Agree in that it would be odd but fair to say Rachel is capable of anything.
Trying to cut through the media scribbles or her own words is impossible.
I m not even sure political cover is within her thinking ability.
Still ,only 21 days to go.

There's a lot of "Rachel Thieves" in these kind of threads.....& whilst I remain convinced she is pretty clueless about the direction we are heading, I am also very well aware of the previous shysters who fiddled with pensions, lowered CGT, froze various bands.....

Just work off what you know, rather than what you think might happen

[alscar]

Well...he wasn't saying "wait until May" - just let the dust settle, check what has changed, then make a decision.


May as not in the month - I should have not used a capital and put in inverted commas instead.

[mikeiow]

alscar said:

Well...he wasn't saying "wait until May" - just let the dust settle, check what has changed, then make a decision.


May as not in the month - I should have not used a capital and put in inverted commas instead.

Easy to misunderstand and indeed mistype!
Hopefully the OP has made the right decision for them!

[alscar]

mikeiow said:

Easy to misunderstand and indeed mistype!
Hopefully the OP has made the right decision for them!

Absolutely.