A client approaching his 60th birthday emailed me.
An insurance company had contacted him about an old personal pension he’d completely forgotten about.
He’s been a client for many years and has a substantial SSAS (Small Self Administered pension Scheme). He’s taken some tax free cash but not yet drawn any income yet. That’s because he’s a business owner and his company is still paying maximum pension contributions for him each year.
The personal pension was valued at just over £11,000. He thought it too small to bother transferring to his SSAS. Instead he was thinking of taking the whole of the fund as a cash sum. He’d pay income tax on the balance over the 25% tax free lump sum.
Fortunately, he contacted me to check it was the right thing to do in his circumstances.
The problem, I explained, was that his fund was over £10,000. And that if he takes it all as he was proposing the Money Purchase Annual Allowance (MPAA) will apply to him.
The MPAA restricts pension contributions on which he’ll get tax relief each year from £40,000 to £4,000.
As his plan is to continue to use his company profits to fund his pension to the maximum as part of his business exit strategy this wasn’t the best idea.
So instead we arranged to transfer the small pension fund into his SSAS so he could take just the lump sum and leave the income for later.
Comment: if the pension fund had been larger or in a more flexible pension plan, rather than transferring my client could have set up the tax free lump sum with the existing provider and left the balance of the fund as deferred flexi drawdown income.
If you’re in similar situation and would like some help, why not book a call to chat it through?
Fill in the contact form, or call us on 0117 290 0370