Cash balance query.

[Gary55]

I'm approaching 65 but hope to continue working. I know I can take 25% of cash balance tax free to provide a lump sum for nra 65 , but can you leave the rest in place to draw down or do I need to take all at once and take a tax hit. Also should I choose to retire would I need to transfer it out or is there the option after taking 25% tax free to leave iti n place. . Exactly what could you transfer it into to allow further drawdown. Thanks

[RobertT]

You don't mention a standard lump sum, so I assume you're in section C?

You can transfer the DBCBS out to a personal pension before you take your Age65 benefits, which you can then put into drawdown. If it's worth over £30k you'll need IFA approval, which can be difficult to get and will be expensive.

Otherwise it can be used to fund the tax free cash with Age65, with the remainder being paid out as an UFPLS, which means 25% of that is also tax free.

You can work out how much DBCBS can be taken tax free by using the normal 20x multiple to work out the pot value of your RMPP Age65(not RMSPS) and then divide that by 3.

For example:

£3,000 x 20 = 60,000 / 3 = £20,000

In that example, the total pot value for tax free cash purposes is £80k(60+20) with 25% being tax free. Any remaining DBCBS is paid as a UFPLS.

As far as I'm aware, there's no option to leave the DBCBS in the RMPP after you've taken Age65 benefits.

[July 1981]

I recently took my NRA 65 and was in section B, I commuted my lump to my pension and used part of my cash balance to fund my lump sum, I then took my remainder as UFPLS this has 25% tax free, this is paid sixteen weeks after you take your pension, so if you were going to reduce your hours/OT taking your pension later in the financial year would allow you to take your UFPLS in the next tax year and reduce or remove the risk of paying 40% tax.

[Gary55]

I'm in section c not sure what ufpls means will have to do some research thankyou both for the advice

[RobertT]

not sure what ufpls means

Uncrystallised Funds Pension Lump Sum

It's a term usually used in relation to personal pensions and is a way of taking an income from your pot.

Basically with UFPLS, the first 25% of each withdrawal is tax free with the rest being classed as income.
It's an alternative to drawdown, which is when you take 25% of the total pot upfront tax free and then use the remainder as income.

It's used in relation to RM pensions(RMPP&RMSPS) when you have an excess amount of DBCBS or AVC's, after you've used them to fund the tax free lump sum. That excess is paid out as a UFPLS, meaning the first 25% of that is tax free.

[Gary55]

Thanks again

[fatcat1uk]

Re ufpls ,
My question is .
Is the tax free part of this paid on your b,day and the taxable part paid 16 weeks after b,day or is the whole lot paid 16 weeks after 65 b,day ?

[RobertT]

Re ufpls ,
My question is .
Is the tax free part of this paid on your b,day and the taxable part paid 16 weeks after b,day or is the whole lot paid 16 weeks after 65 b,day ?

As far as I'm aware any 'normal' 25% tax free pension commencement lump sum should be paid on your birthday if you're taking your benefits at NRA, or as near as possible pending weekends, bank holidays, etc.

Based on previous posts from people on here, any excess cash from DBCBS or AVC's after taking that lump sum, is paid via a UFPLS 16 weeks later.

[fatcat1uk]

Thanks you for info .

[Steve_claret]

Otherwise it can be used to fund the tax free cash with Age65, with the remainder being paid out as an UFPLS, which means 25% of that is also tax free.

I'm section B and this was the option I went for with my NRA65 which means I then get a bigger annual pension by not taking my standard PCLS.

Once you have accessed some of the cash balance for your tax free cash then you can't leave it invested and pretty much the only option is to take it as a UFPLS and therefore take the tax hit.

[Wullie10]

It is going to be very interesting in the next 5 to 10 years. Many Royal Mail employees are approaching 60/65 . Most will have put in 20 years plus service at least I'd say.
So they are going to have a pension at 60 another at 65 and in future another at 67 with state pension. Also it looks like the 40% threshold is going to be frozen for many years to come. So as I see it that period between 65 and 67 is going to be a problem for anyone who wishes to remain.
It's a mess.

[RobertT]

I think Rachel Reeves announced in the budget, personal tax thresholds will be frozen until April 2028 and then be increased by inflation from then on.
As far as I'm aware that will apply to all three thresholds - £12,570(basic), £50,270(higher) and £125,140(additional).

[Wullie10]

I think Rachel Reeves announced in the budget, personal tax thresholds will be frozen until April 2028 and then be increased by inflation from then on.
As far as I'm aware that will apply to all three thresholds - £12,570(basic), £50,270(higher) and £125,140(additional).

Well there might be some crumbs with an election due about then . But I think we are going to hear more and more about tax Implications in years to come.

[RobertT]

The freezing of income tax bands has created fiscal drag, which means many people will pay more tax and some will be brought into the tax system when they weren't before.

The DBCBS has become a tax burden on posties due to it being in operation for far longer than originally planned, which was due to the CDC legislation taking so long to come through.
Plus it's only attached to RMPP benefits, when the initial aim was for it be attached to RMSPS benefits too.

[Wullie10]

Absolutely. It's going to be interesting and a shock for some. Considering the need to book overtime to complete many rounds every day. Of course not everyone agrees with overtime , understandable. They'll be a point where booking extended to complete won't be financially worth doing. Christmas pressure etc. All depends on how good your pension is too. For me personally I can't see it worth going beyond 65. Luckily I e got a private pension. So I can leave.