4k Rule

[oliviamae]

Hi I have a company pension with another company I used to work for .I'm thinking about taking some of that as I'm aged over 55 .I am aware of the tax disadvantages if you take out over a certain amount pushing you into another Tax Bracket. The only thing I cannot work out is that you can only pay 4k into a pension for that year.Is that the pension I took the lump sum out or does that include my Royal mail pension as I pay over £100 AVC in a week Cheers guys

[RobertT]

Having read some info on the web about it, I’m not sure I can give you a definitive answer to be honest, because I think it depends on:

a) What sort of pension your other company is(DB or DC).
b) Whether your AVC’s into the DB RMPP count as DC in this case or not.

My advice would be to get in touch with the pensions service centre in Sheffield and ask them.

In the meantime and if you haven’t already, here’s a few websites with information on the subject:

https://www.gov.uk/tax-on-your-private- ... -allowance" onclick="window.open(this.href);return false;
https://www.pensionsadvisoryservice.org ... -allowance" onclick="window.open(this.href);return false;
http://www.thisismoney.co.uk/money/pens ... ement.html" onclick="window.open(this.href);return false;

[oliviamae]

Thanks for the reply . It was my old pension scheme which mentioned the £4k . Will phone pension service up Monday .Once again thanks for your help.

[garnery]

Please post your response on here.
If i use my AVC account to fund lump sum of NRA 60 is my AVC account then subject to mpaa rules when it comes to continuing to pay AVC’s to take with NRA 65 scheme ?
Thanks

[RobertT]

Please post your response on here.
If i use my AVC account to fund lump sum of NRA 60 is my AVC account then subject to mpaa rules when it comes to continuing to pay AVC’s to take with NRA 65 scheme ?
Thanks

The answer to that will depend on whether your AVC’s are more than 25%.
If you take your NRA60 and have an excess in your AVC’s, you can then either take that as taxable cash, defer it to take with your NRA65 or transfer it. But that would mean you come under the MPAA rules. It is covered in this thread from 2015 when the limit was £10,000. Where it says:

What are ‘money purchase’ benefits?
This is where your pension contributions are saved and invested in an account (or pension ‘pot’ as the media calls it) The amount in your pot when you retire is based on how much has been paid in and how well the investments have performed. If you pay into to one of the Plan’s Additional Voluntary Contribution (AVC) schemes, like Flexiplan or Bonusplan, then these are money purchase benefits. Please note that Addplan contributions buy additional service (benefits) in the main Plan. They aren’t money purchase benefits, so aren’t affected by these changes.
At the moment, when you take your main Plan benefits, you can already choose to use your AVC pot as part of the maximum amount of tax-free cash you can take. Or you can use your AVC pot to buy a pension (also called an annuity). An annuity is simply retirement income that is paid to you regularly, usually for life.

Am I affected?
From April 2015, if you have money purchase benefits (such as AVCs) you won’t have to buy an annuity and you can take your pot at any time from age 55.
For most members with AVC pots, very little will change. Your AVC pot can still be used towards your tax-free cash from the Plan. However, some members who have particularly large pots may be affected. This is because if you have any AVC savings left after using them to fund your 25% tax-free cash from the Plan, you might be allowed to take more of your AVC pot as cash than before the changes, either from the Plan or by transferring them to another arrangement. Any cash taken above the current 25% tax-free limit would be taxed at your highest tax rate. Also, any further tax-deductible AVCs you pay would be limited to £10,000 a year.

Don’t forget to factor the DBCBS into your plans – its job is to provide a lump sum in the same way as AVC’s.

[garnery]

Thanks Robert
I suspected as much. Once i factor in the transitional scheme i think that added to my AVC will be over 25%. I was then hoping to keep up AVC after drawing NRA 60 (at 60 years old) & transfer out into a scheme that provides a drawdown arrangement.
It doesn’t look like i will be able to do that.
I have got loads of info from you & others on this forum
Its a shame RM don’t arm us with this much info regarding our pensions

[garnery]

I have done some reading & watched some videos & think i finally understand it. For anyone accessing a money purchase pension (such as AVC) the 4k mpaa rule comes into effect once you draw on it after taking tax free element of it.
For me this means i can use it alongside NRA 60, then continue to contribute & take alongside NRA 65. I wont come under the 4k mpaa rule until i take any extra which would be taxable by either taking as cash or transferring it into a different scheme for drawdown.
The DBCBS will affect the numbers but i dont think it has yet been confirmed that we can take this part of it with NRA 60 yet (needs government approval)
( i think)