Transfer Window for Higher Protected Pension Lump Sums

Published / Last Updated on 26/09/2014

Video explains the window that is open before April 2015 to transfer pensions with a protected higher tax free cash lump sum to a new pension.

Transcript

"Hey there, subject for the video is Enhanced Tax Free Cash.

Right, what does that mean?  So, for most private pension schemes and investment linked pension schemes, the maximum tax-free lump sum you can draw down from your pension fund is 25%.   

Or if it's a company style pension scheme, the calculations may be a little bit different but sometimes it works out about a third of the fund that can be taken as a lump sum. So there are restrictions, I mean it's a slightly different calculation for company pensions but if we just just keep it simple for today,  and say 'the maximum lump sum you can have from your pension fund is 25% of the value'.

Now, there are certain occupations where you may have had a specialist occupation.  You may have been sportsperson or something like that or it may be an old-style scheme where 33% of the fund could be taken as a lump sum.   So, higher lump sums than the usual 25%

Now if you then choose,  let's say you've got one of these higher tax-free cash entitlement pension schemes and you choose to transfer it to a 'newer' style pension, you lose your enhanced tax free cash entitlement.  So to transfer it from this pension over here, where let's say you got 33% as a lump sum entitlement, [and] transfer into this one over here: a brand-new scheme.  Immediately you lose your entitlement, {and get] maximum 25% lump sum   Wow!

Now, what has happened is the government have recognised this.  Obviously, pension groups, financial advisers [etc] been lobbying the government to say, 'well if you're in a 'duff' pension scheme with high charges, you want to be able to transfer [and you cannot as you lose cash], so government have opened the window,  right now.

That window is available where you can make a decision to transfer from this older style, perhaps higher charged, pension but with a higher tax-free lump sum entitlement you can transfer it to a newer style, lower charged, pension and still protect your higher tax-free cash entitlement.   But, that window is only open for a short period and essentially by the middle of next year you will have to have taken your maximum lump sum.  

So opportunity [is] here, for those of you out there who have got pensions with protected tax-free cash entitlement.  You may wish to consider moving to a newer, lower style (lower charged) style, pension scheme, still protect your tax-free, higher tax-free cash.  Then you will have to look at taking benefits sooner or later in 2015 and that maybe you are looking to take advantage of the newer drawdown rules, capped drawdown, flexible drawdown etc.

But just be aware, [the] window is open now for transferring pension schemes with protected tax-free lump sums, higher than normal, where there is a window open for you to transfer to a newer style, lower charged pension.  

As ever do contact me if you have this sort of issue or if you need advice. Thanks very much for watching."



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