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small pot pensions v flexi drawdown

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small pot pensions v flexi drawdown


Postby 2boi » July 20th, 2021, 8:44 pm

My partner, over 55, has one small pot pension of currently £9.3K. I am struggling to see the benefits of taking it as

a small pot pension
transferring it to a SIPP and beginning flexi drawdown.

As far as I can see the only benefit of the small pot is that MPAA is not trigged. Apart from that both options would allow 25 % to be taken tax free.

The advantage of the SIPP option is that she could tailor her flexi drawdown to stay below the current £12,570 tax allowance and so not pay tax at all. With the small pot option she has to take the whole £9.3K in one tax year and, because of her likely £8K earnings this tax year, she would end up paying tax on much of the £9.3K pension sum, albeit less the 25% tax free.

Am I missing some other advantage of small pot pensions? It doesn't seem to be the boon I initially thought it might be.

I don't see leaving the pension where it is as a sensible option due to the usual rip off charging and poor performance.

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Re: small pot pensions v flexi drawdown


Postby Myfyr » July 21st, 2021, 11:43 pm

Taking it as a small pot uses 0% LTA whereas drawdown uses 0.1% LTA approx.

Useful if you may breach LTA.

Taking the maximum of three small pots effectively increase LTA by £30,000 thus providing an extra PCLS of £7,500 instead of an LTA charge of at least £7,500.

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