Tax fee allowance NRA 65

[Wullie10]

To keep it simple. Cash balance 30k.
Option 1 Income + Take 30k full cash balance @ 25% tax free and 75% tax.
Option 1a. Income + Tax free 14k + remaining Cash Balance which is 16k
( the maximum tax free is the 14k )

Option 2. Less income + Tax free 11k + Full 30k cash balance.

So if option 2 . Cash Balance 30k. I'm guessing 25% and 75 % 7.5k and 18k after tax. but that's still 11k and 7.5 tax free which is over the limit .
And also. If you take maximum tax free lump sum of 14k @ option 1a will that cash balance still be spilt 25% 75 % .. or not ?

[chocolatesaltyballs]

My reading of it was that under option 1a you get the 14k tax free and the remaining 16k you get the first 25% tax free and pay tax on the remaining 75%.
So 4k tax free of 16k and 9600 after tax on the remainder.
Hopefully RobertT will be along shortly.

Edit. I had to dig out my paperwork and have a read.
tax free cash from your cash balance fund cannot be worth more than 25% of your overall benefits.
if you take more of your age65 benefits as income, there is more room for tax free cash from your cash balance fund. If there is still some left over, you'll need to take it as taxable cash, the first 25% is tax free and the remaining 75% is taxed. We will pay the taxable cash part around 16 weeks after we pay you and will write to you again.

Do something else with your whole Cash Balance Fund instead.
You can either
take it as taxable cash - first 25% is tax free and the remaining 75%is taxed.
use it to buy an income for life ( annuity )
transfer it to another provider as ( annuity ) or take the money gradually, known as 'Drawdown'.

[Wullie10]

So I suspect if you take option 2... tax free lump sum of 11k.
And the limit is 14k tax free then the 25% 75 % tax. free tax figures will be altered ?

[RobertT]

My understanding of the option forms I got(not returned) is the same as chocs:

Option 1 – Unreduced pension, no tax free cash(from pension), full Cash Balance paid as UFPLS
Total lump sum = £7.5k tax free/£22.5k taxable.

Option 1a – Unreduced pension, no tax free cash(from pension), Cash Balance used to fund lump sum instead with remainder paid as UFPLS
Total lump sum = £18k tax free(14+4)/£12k taxable

Option 2 – Reduced pension in return for tax free cash, full Cash Balance paid as UFPLS
Total lump sum = £18.5k(11+7.5) tax free/£22.5 taxable

[chocolatesaltyballs]

Likewise got the forms and didn't return them.
The key part of it is .
If there is still some left over, you'll need to take it as taxable cash, the first 25% is tax free and the remaining 75% is taxed
I took that to mean the remainder of the cash balance under option 1a .

[chocolatesaltyballs]

So I suspect if you take option 2... tax free lump sum of 11k.
And the limit is 14k tax free then the 25% 75 % tax. free tax figures will be altered ?

I assumed the 14k part was allowed to be used to fund your nra65 tax free lump sum and that the Cash Balance remainder itself is seperate to your nra65 and has it's own 25% tax free allowance. At least that's how it reads to me
So under option 2 it would be a straightforward 25% of 30k tax free and taxed on the remainder..
Under option 1a if I'm reading it right you get 14k tax free and another 4k tax free from the remaining 16k and 9600 after tax. So in total 27600 after tax.
Under option 2 you get 11k tax free lump sum ,7500 tax free and 18000 after tax, so 36500 in total.

[Wullie10]

So option 2 . £25500 from the cash balance as you state plus the tax free lump sum of £11,000 and a reduced pension from RMPP... Total £36500.
And for me whats left of the RMSPS and AVC approx tax free lump sum of £8000, and a tiny annual pension.
So I suppose what we are saying , Is there are 3 pensions with different tax free rules ? RMPP , Cash Balance and RMSPS ? The three aren't combined under one rule ? I expect RMPP and RMSPS to be different but Cash balance and RMPP i wasn't sure.

[chocolatesaltyballs]

That's why it's great to have RobertT still around, his knowledge on pensions is invaluable. It's a minefield for your average Joe trying to negotiate it all.

[RobertT]

So I suppose what we are saying , Is there are 3 pensions with different tax free rules ? RMPP , Cash Balance and RMSPS ? The three aren't combined under one rule ? I expect RMPP and RMSPS to be different but Cash balance and RMPP i wasn't sure.

The same tax rules apply – it's more a case of how the schemes interact with each other and which option you choose.

Option 1 – you're effectively taking the pension and Cash Balance as two separate things, with the 25% tax free lump sum coming from the Cash Balance.

Option 1a – you're using the Cash Balance to fund the tax free lump sum in conjunction with the pension. If you multiply the pension by 20 and then divide by 3, you'll get the max 25% lump sum allowable from the Cash Balance, with the remainder of that paid out as a separate pot(25% tax free).

Option 2 – You're reducing the pension to fund the 25% tax free lump sum, worked as pension x20 divided by 4, then taking the Cash Balance as a separate pot(25% tax free).

You're figures are obviously rounded up or down, but I guestimate your RMPP Age65 pension is somewhere around the £2,100 mark?

AVC's are best taken with Age60 and work in a very similar way to the Cash Balance. Because if you have any left over once you've used them to fund the tax free lump sum, that is paid out as a UFPLS(25% tax free), or else left until Age65, or transferred out.

[goldy2007]

My understanding of the option forms I got(not returned) is the same as chocs:

Option 1 – Unreduced pension, no tax free cash(from pension), full Cash Balance paid as UFPLS
Total lump sum = £7.5k tax free/£22.5k taxable.

Option 1a – Unreduced pension, no tax free cash(from pension), Cash Balance used to fund lump sum instead with remainder paid as UFPLS
Total lump sum = £18k tax free(14+4)/£12k taxable

Option 2 – Reduced pension in return for tax free cash, full Cash Balance paid as UFPLS
Total lump sum = £18.5k(11+7.5) tax free/£22.5 taxable

1a would be the better option?

[Wullie10]

1 a the best option ?
Not for me. Obviously these are rounded up figures and don't give the annual income. But going on what has been said , looking at my forecast , Option 2 would give me £8000 more lump sum for £500 pa less pension. ( more round figures).
Its up to each individual which they would rather have.

[Wullie10]

It looks simple enough now .
Option 1. More Pension Less Lump Sum.
Option 2. Less Pension More Lump Sum

Option 1a.... an odd one. I can't see any advantages to this Option . These are my figures and for others it may work out differently.

[RobertT]

1a would be the better option?

Some people will value the full index linked pension for life, while others prefer the bigger one off lump sum.
It's a choice based on your personal circumstances.

Option 1a is better than option 1, if you want the full pension.
Option 2 is better if you want a bigger lump sum.

[RobertT]

Option 1a.... an odd one. I can't see any advantages to this Option . These are my figures and for others it may work out differently.

With option 1a you're taking the Cash Balance how it's designed to be taken, i.e to fund the lump sum without having to give up any pension.
Plus you're likely to get more of it tax free compared to option 1.

[Hyrrokkin]

Just reading this thread and all the number crunching jumping through hoops you have to do...

Makes my head hurt thank God i do not have to do this for a few years yet.

Looking forward to it.