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Small DC pension - options?

20thcenturyboy
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Small DC pension - options?

#421965

Postby 20thcenturyboy » June 24th, 2021, 4:05 pm

Hi all, I have 2 pensions, a DB scheme and a small DC scheme. The DB scheme is fine and I don't want to touch it. However the small DC scheme is worth about £40K if transferred out. Is it worth moving it into a SIPP say with a low cost Vanguard ETF? The current fund is expensive and underperforming (it's a legacy fund from the 90s). I quite like the idea of managing it myself as it's small enough not to be life changing if I mess up, but has potential upside if I do well (better than leaving it where it is any way).

I'm assuming there's no way I can get my hands on the full £40K in one lump sum? Oh and I'm 53 - I guess that's important :-)

Urbandreamer
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Re: Small DC pension - options?

#421966

Postby Urbandreamer » June 24th, 2021, 4:32 pm

20thcenturyboy wrote:The current fund is expensive and underperforming (it's a legacy fund from the 90s). I quite like the idea of managing it myself as it's small enough not to be life changing if I mess up, but has potential upside if I do well (better than leaving it where it is any way).

I'm assuming there's no way I can get my hands on the full £40K in one lump sum? Oh and I'm 53 - I guess that's important :-)


Is it worth transfering: YES!
My wife would rather someone else looks after pension so she transfered her 90s scheme to St' James Place. They come in for a lot of stick, but she is over the moon with it's performance since.
Is it worth managing your own pension in a SIPP. Well I have a frozen DB scheme and two DC scheme's. I am happy with the SIPP that i manage myself, it's great fun and I'm ok at investing. So I'd say that's a yes too.*
Is there any way to get your hands on it as a lump sum. Well definately not for a few years and I would regard taking it early as a truely bad idea. You might even have to stop any DB contributions, which would affect your final pension.

*I know nothing of your tax situation, however I am a 20% tax payer intending to retire at 60. I will be able to ensure that taxable income is below the personal allowance until 65-67. Hence any money saved in my SIPP recieves a true 20% uplift from the government as tax won't be paid when I take it out in those years.

GeoffF100
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Re: Small DC pension - options?

#422057

Postby GeoffF100 » June 24th, 2021, 9:42 pm

You need to compare your transfer value with the cost of buying the benefits of the existing scheme. Index linked annuities are very expensive nowadays. Costs will bite deep for a £40K SIPP. Your cheapest option might be Vanguard's platform. A repetition of past equity returns does not look likely from current valuations (the world index is at an all time high), but nobody knows the future.

ursaminortaur
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Re: Small DC pension - options?

#422219

Postby ursaminortaur » June 25th, 2021, 11:42 am

Urbandreamer wrote:
20thcenturyboy wrote:The current fund is expensive and underperforming (it's a legacy fund from the 90s). I quite like the idea of managing it myself as it's small enough not to be life changing if I mess up, but has potential upside if I do well (better than leaving it where it is any way).

I'm assuming there's no way I can get my hands on the full £40K in one lump sum? Oh and I'm 53 - I guess that's important :-)


Is it worth transfering: YES!
My wife would rather someone else looks after pension so she transfered her 90s scheme to St' James Place. They come in for a lot of stick, but she is over the moon with it's performance since.
Is it worth managing your own pension in a SIPP. Well I have a frozen DB scheme and two DC scheme's. I am happy with the SIPP that i manage myself, it's great fun and I'm ok at investing. So I'd say that's a yes too.*
Is there any way to get your hands on it as a lump sum. Well definately not for a few years and I would regard taking it early as a truely bad idea. You might even have to stop any DB contributions, which would affect your final pension.


If, in a few years when you are able to, you wwre to put the DC scheme/SIPP into drawdown and take out more than the tax free lump sum then a new lower limit on pension contributions to DC schemes known as MPPA would kick in which would currently restrict you to only being able to contribute £4000 per year. It should be noted though that this MPAA only applies to contributions to money-purchase/DC schemes it doesn't restrict contributions to DB pensions - though it would restrict contributions to any associated AVC.

https://www.moneyadviceservice.org.uk/en/articles/money-purchase-annual-allowance

However, if you start to take money from a defined contribution pension, the amount you can pay into a pension and still get tax relief reduces. This is known as the Money Purchase Annual Allowance or MPAA.

As a basic guide, the main situations when you’ll trigger the MPAA are:

If you take your entire pension pot as a lump sum or start to take ad-hoc lump sums from your pension pot
If you put your pension pot money into a flexi-access drawdown scheme and start to take an income
If you buy an investment-linked or flexible annuity where your income could go down
If you have a pre-April 2015 capped drawdown plan and start to take payments that exceed the cap

The MPAA won’t normally be triggered if:

You take a tax-free cash lump sum and buy a lifetime annuity that provides a guaranteed income for life that either stays level or increases
You take a tax-free cash lump sum and put your pension pot into a flexi-access drawdown scheme but don’t take any income from it
You cash in small pension pots valued at less than £10,000

The MPAA only applies to contributions to defined contribution pensions and not defined benefit pension schemes.

The MPAA is £4,000 for the 2020/21 tax year.


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