What the Maximum Tax free amount for NRA 60

[Hawkey99]

My wife is due to take her NRA 60 soon. Her forecast is approx £4000 for NRA 60 and same for NRA 65. She also has approx £100k in AVCs.

Does anybody know roughly what the maximum amount of total lump sum she would get if she took the max lump sum payment due from the NRA 60 and the max she could use out of her AVC.

Many thanks

[RobertT]

She could take a lump sum of £20k from her main benefits leaving a pension of £3k, the AVC's then taken as a UFPLS, left until Age65(pending any DBCBS?) or transfer them out for drawdown/annuity.

Or she could preserve the £4k pension and take £26k of the AVC's as tax free cash and then have the same options as above.

*UFPLS – 25% is tax free with the remainder coming under normal PAYE tax rules.

*Figures are ballpark!

[Hawkey99]

Thank Robert,

Could she take her full lump sum of £20k and have the £3k pension and also take an UFPLUS of £26k to give her a total of £46k.

Thank you...

[RobertT]

What you seem to be asking, is can she take two 25% tax free lump sums from the same RM pension benefits.
The answer is no!

UFPLS monies relate to any excess AVC(or DBCBS) cash once the tax free lump sum has been paid. Therefore if she uses her AVC's to fund the lump sum, the remainder would be paid as a UFPLS.

If she reduces her pension to fund the lump sum, all of her AVC's would be paid as a UFPLS.

As we're talking about a fairly large sum, transferring her AVC's, either as a whole or once the lump sum has been paid, is better than taking it alongside her benefits as a UFPLS, unless she wants to pay a shed load in tax.

Once it's transferred it's no longer part of her RM pension and it can be drawdown over time and so at least avoid paying 40% tax on any of it.

[mrcurve]

I am pretty certain that the 100k would be added to the pension value when calculating the 25% tax free, so she will be able to get a good chunk out at 60, the rest can just stays in the avc, the big problem will be the 65 pension, she will already have a large lumpsum, let alone the addition of the unclaimed avc. maybe the tax issues will change, will she still be earning a wage, its a while away unless she took both pensions now.

[NWpostie]

Can you split claiming your 60 and 65 separately on either side of the tax year ? Before 1st April and after making two separate claims ?

[RobertT]

I am pretty certain that the 100k would be added to the pension value when calculating the 25% tax free, so she will be able to get a good chunk out at 60, the rest can just stays in the avc, the big problem will be the 65 pension, she will already have a large lumpsum, let alone the addition of the unclaimed avc. maybe the tax issues will change, will she still be earning a wage, its a while away unless she took both pensions now.

To work out how much tax free lump sum you can take from your AVC's, you first need to work out how much the pension is worth.

In the case of the OP, her pension is worth £4k per year which gives a pot value of £80k(4x20). That will equate to 75% of her overall pot when working out the tax free cash. Therefore the other 25% or £26,666 can be taken from the AVC's. With the excess AVC money being taken as a UFPLS(1st 25% also tax free), or transferred out.

If she wants to take the tax free cash by reducing the pension, that would give a lump sum of £20k(25% of 80) with the whole AVC pot being paid as a UFPLS or transferred out.

There is the choice to leave the excess AVC until taking Age65 benefits, but I'm assuming she also has a Cash Balance pot to fund that tax free lump sum.

[mrcurve]

Can you split claiming your 60 and 65 separately on either side of the tax year ? Before 1st April and after making two separate claims ?

taking your 65 pension at 60 would reduce the pension, I would imagine this would reduce the pot value, making a smaller % you could get out tax free .

when you do get the 60 pension estimates, it will contain some options showing options for tax free cash. from the cash balance and or avc.
and if b not c pension the b lump sum too.

as to splitting the years for both pensions, income will play its part too, if your earning a full time wage on top of the 60 pension (assuming the 60 pension is payed before a new tax year, dob or taking 60 early to to get it in before 1st April) then the income will be higher when taking the 65 the following year.

https://www.gov.uk/income-tax-rates


Band Taxable income Tax rate
Personal Allowance Up to £12,570 0%
Basic rate £12,571 to £50,270 20%
Higher rate £50,271 to £125,140 40%
Additional rate over £125,140 45%

[NorthernBoy]

As we are talking about lump sum maximums can anyone answer the following question.

If I take my age 60 and 65 pensions (section c) at the same time, is the lump sum maximum worked out on the combined pensions or just the age 60 one?

Say my age 60 pension is 8k and my age 65 is 2k and my AVCs are 40k what will be my max lump sum be?

Will is be 10k x 20 plus 40k = 240k x 25% = 60k max lump sum or

Will it be 8k x 20 plus 40k x 25% = 50k max lump sum

Thanks

[RobertT]

As we are talking about lump sum maximums can anyone answer the following question.

If I take my age 60 and 65 pensions (section c) at the same time, is the lump sum maximum worked out on the combined pensions or just the age 60 one?

Say my age 60 pension is 8k and my age 65 is 2k and my AVCs are 40k what will be my max lump sum be?

Will is be 10k x 20 plus 40k = 240k x 25% = 60k max lump sum or

Will it be 8k x 20 plus 40k x 25% = 50k max lump sum

Thanks

You can take 25% of each pension you have tax free, so my understanding is if you take them both at the same time, they will be worked out separately and then added together. With AVC's potentially being payable with both Age60 & 65 benefits, depending on amounts involved.

Based on your figures:

Your Age60 pot is potentially worth £200k(8kx20+40k), so you can take all the AVC tax free. Plus you can commute roughly £500 of pension to form another £10k lump sum(based on 1:20 ratio).

Alternatively you could create a lump sum of £40k(160k/4) by commuting around £2k of pension, leaving an income of £6k and AVC's as a UFPLS or transferred out.

You can then commute your Age65 pension to create a 25% lump sum, that would also be £10k in return for giving up £500 in pension.

[NorthernBoy]

Thanks Rob. Looking to take all pensions and max lump sum next year at 55.

[Hawkey99]

Northern Boy,

Thats a huge amount of pension to lose if you take both at 55.

25% of your NRA 60 & 50% of your NRA 65 I believe.

Ofcourse everyones circumstances are different....Good luck....

[Hawkey99]

Hi Robert,

She has a cash balance amount of £3000 also. How does this p[lay into things?

Without the cash balance and just to clarify, to avoid paying a huger amount of tax her best option would be:

Take her full 4K pension and 26k lump sum from her AVCs, then transfer the remainder of her AVC money to another provider.

Really appreciate your help as always.......

[RobertT]

Hi Robert,

She has a cash balance amount of £3000 also. How does this p[lay into things?

Without the cash balance and just to clarify, to avoid paying a huger amount of tax her best option would be:

Take her full 4K pension and 26k lump sum from her AVCs, then transfer the remainder of her AVC money to another provider.

Really appreciate your help as always.......

The whole point of AVC's is to provide a lump sum so you don't have to give up any pension to get one. So in my opinion she should take the full pension and use the AVC's for the tax free cash, with the remainder being transferred out for drawdown – possibly not until after she takes her Age65?

But ultimately it's a case of whether she values the inflation proofed income for life over the lump sum upfront.

With the amount of money involved, going the UFPLS route will mean losing a lot to the taxman, so by transferring she can draw it down over a period of time and at least avoid paying 40% tax on any of it.

The Cash Balance is attached to her Age65 benefits and specifically those accrued via the RMPP between 2012-2018. It sounds as if it's small enough to take the whole sum as a tax free lump sum with those benefits, with any additional amount being funded by the AVC's, before they are then transferred out.

[NorthernBoy]

Northern Boy,

Thats a huge amount of pension to lose if you take both at 55.

25% of your NRA 60 & 50% of your NRA 65 I believe.

Ofcourse everyones circumstances are different....Good luck....

You are not wrong, it’s a big reduction in cash terms for taking early.

However by taking early I think I will be able to improve my quality of life in the age age 55-60 significantly.