Pension Question
Discussion
I have a Defined Benefit pension and also a Defined Contribution one that I pay AVCs into. I have a couple of questions regarding taking 25% tax free from the DC pension. If I do this will it cause any reduction in the amount that can be paid into the DB pension? Also can the rest of the DC pension still stay in the same investment and continue being added to with the AVC that I am paying. I am 56 so I have access and I don’t intend to retire yet. Many thanks
I think you will have to read the wording of your DB scheme carefully. In my case as soon as you take the 25% you are effectively a pensioner and receive the monthly pension. You are then drawing a pension as far as HMRC is concerned so the max amount you could pay in is greatly reduced even if you could continue to pay in.
bentley01 said:
I have a Defined Benefit pension and also a Defined Contribution one that I pay AVCs into. I have a couple of questions regarding taking 25% tax free from the DC pension. If I do this will it cause any reduction in the amount that can be paid into the DB pension? Also can the rest of the DC pension still stay in the same investment and continue being added to with the AVC that I am paying. I am 56 so I have access and I don t intend to retire yet. Many thanks
Once you have taken a tax free sum, then I think the maximum you can put into a pension and gain tax relief is £10,000. Not sure that includes any contributions your employer makes.I you will need to check the exact details of your schemes as to what is allowed - I am presuming that the AVCs are linked to the DB pension which, if the case, may complicate the position.
Again with regard to the DC element, it will depend. I had a DC policy and if I took the 25%, I had to either take a monthly payment with an annuity, transfer the fund to a SIPP (with a cost) or just take it all and take the hit on the tax after the 25% tax free.
TLDR - check with your employer/policy provider
You will need to check with your scheme but usually AVC's are linked to your DB and exist to enable you to take a tax free lump sum without reducing your annual pension. In most cases you can't take one without the other. Again, in most cases there will be an actuarial reduction on your pension for taling it early.
The £10k limit being referred to is MPAA, that does not apply when taking a DB pension, it only applies when taking a DC scheme.
The £10k limit being referred to is MPAA, that does not apply when taking a DB pension, it only applies when taking a DC scheme.
Jockman said:
Taking the Tax Free Lump Sum or PCLS as it s called nowadays does NOT trigger MPAA. You still have a £60k contribution allowance. Only when you enter drawdown is the MPAA of £10k triggered.
Indeed.Taking TFLS *only* has no impact on what you do with future contributions (either to a DB or DC pension).
Typically the 75% that is left (that has been ‘chrystallised’) would indeed remain in the same investments, but you might want to check with your specific fund in case they do something odd.
It is (again, typically) moved into a drawdown pot. You could potentially be continuing to save into the fund, but in a ‘non-drawdown’ area, as the funds are before you take the TFLS.
Happy Boxing Day!
Wombat3 said:
This, contributions only become limited when you touch the taxable element.
There may still be caveats to this too. I’m sure I read that buying an annuity with part of your pot would not trigger MPAA either as it is not classed as flexible drawdown. If so, that’s 2 options you can use whilst still enjoying a full contribution allowance.
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