Mary, 58, has several pension arrangements, one of which is an old occupational money purchase scheme worth currently £100,000 that provides a protected tax-free cash entitlement of £50,000.
Mary wants to access the cash from that scheme; but when reviewing this with her financial adviser at the end of 2013, there were two problems:
- The scheme would only facilitate tax-free cash if she purchased a lifetime annuity with the remaining £50,000
- To transfer to a scheme offering income withdrawal required another scheme member to transfer their funds at the same time to the same scheme. This was impossible to resolve.
If Mary did not elect an income option by 5th October 2015 then the tax-free cash payment would be treated as an unauthorised payment, subjecting it to a 55% tax charge.
Transferring the fund to the Old Mutual Wealth CRA will allow:
- Immediate payment of protected tax-free cash.
- The balance of capital to be held in a capped drawdown facility providing an income solution, without the obliation to take an income, so avoiding the risk of tax on an unauthorised payment.
- Future consolidation of other pension savings into the CRA
- Payment of further contributions, preserving the £40,000 Annual Allowance and 3 year carry-forward, until the income she takes in future exceeds the maximum capped drawdown limit
- Rebasing of the maximum capped drawdown income every year - or at any time by adding uncrystallised assets to the drawdown fund - to preserve for as long as possible, the ability to contribute annually more than £10,000
Chart: How this can be achieved