Working out the 25% Tax Free Amount...

[NorthernBoy]

When working out your 25% tax free lump sum on section C is it based on NRA60 only or NRA 65 as well?

As an example, if my NRA 60 pension was 8k and my NRA 65 pension was 2k (if taken at 60), would my lump sum 25% calculation be based on

20 x 8k + avcs

Or

20 x 10k + avcs


Thanks

[RobertT]

It's a separate calculation for both!

If your NRA60 equals £8k, that gives a 'pot value' of £160k, meaning a max tax free lump sum of £40k.

But if you also have AVC's, the maths is a little different! You have a 'total pot value'!

With your figures, the £160k would be 75% of your maximum 'total pot value', and so the maximum tax free lump sum would be £53,333. With any excess being carried over to take with your NRA65, paid out as a UFPLS with the first 25% being tax free or else being transferred out.

It's a similar calculation with NRA65.

[NorthernBoy]

It's a separate calculation for both!

If your NRA60 equals £8k, that gives a 'pot value' of £160k, meaning a max tax free lump sum of £40k.

But if you also have AVC's, the maths is a little different! You have a 'total pot value'!

With your figures, the £160k would be 75% of your maximum 'total pot value', and so the maximum tax free lump sum would be £53,333. With any excess being carried over to take with your NRA65, paid out as a UFPLS with the first 25% being tax free or else being transferred out.

It's a similar calculation with NRA65.

Rob, if my nra60 avc fund is 45k and I take my 8k pension and 2k nra 65 fund at 60 what will my max tax fee lump sum be?

Thanks

[RobertT]

The £45k in AVC's could be attached to just your NRA60 and be completely tax free. You still have the opportunity to commute a little pension to provide a bigger tax free lump sum.

You could also commute some of your NRA65 if you choose to. With a commutation rate of roughly 1:20, that would mean giving up about £500 per year in return for a tax free lump sum of £10,000.

[NorthernBoy]

The £45k in AVC's could be attached to just your NRA60 and be completely tax free. You still have the opportunity to commute a little pension to provide a bigger tax free lump sum.

You could also commute some of your NRA65 if you choose to. With a commutation rate of roughly 1:20, that would mean giving up about £500 per year in return for a tax free lump sum of £10,000.

Thanks

If my avc pot was 80k, would my max lump free cash be 60k?

If so what happens to the other 20k? Assume I am taking all my benefits at 60

[RobertT]

As per my first post, the max tax free lump sum with your NRA60 would be £53,333.

Using the same calculation, the max with your NRA65 would therefore be £13,333.

The remaining amount could be taken as a UFPLS, with the first 25% also being tax free and the rest being classed as income and taxed accordingly.

So in total and based on your figures, I make that £70,000 tax free and £10,000 taxable.

[postie2007]

Hi
What does UFPLS stand for and is there a maximum limit.

TiA

[RobertT]

Hi
What does UFPLS stand for and is there a maximum limit.
TiA

Uncrystalised Funds Pension Lump Sum.

The maximum tax free lump sum you can normally take from any pension is 25% of it's value. The bigger your pension benefits, the higher in money terms, your tax free lump sum will be.

If you've got the potential to get a lump sum of more than 25%, which in RM pensions is usually as a result of having AVC's and/or the DBCBS, that excess can be paid out as a UFPLS. Which means 25% of that excess is also tax free, with the remainder being taxed under normal PAYE rules.

UFPLS is also a way to access a personal pension - similar to drawdown: https://thepeoplespension.co.uk/help/kn ... own-ufpls/