From: "neil f" 
Newsgroups: uk.finance
Subject: Re: Pensions Query
Date: Sun, 17 Jun 2007 22:42:20 +0100
Bytes: 3053


"PhilJ"  wrote in message 
news:1181990611.052968.203800@k79g2000hse.googlegroups.com...
I currently have 2 personal Pension plans that I am paying into (1
I've had for years and 1 thru a work Group scheme).

I'm coming up to 55 and at that point I could take 25% of my larger
fund as Tax Free cash.

Can anyone tell me - if I take this cash then do I also have to stop
the plan and buy an annuity or can I continue to make paymnts into
it ?

My thought is to take £40K out of the plan (25%) - and then pay this
as an AVC into my smaller plan. The next question is - Will the £40K
paid into the 2nd plan get netted up - to £60K - by regaining the
original Tax.

If thats too obvious - then could I just put £40K of my savings into
the 2nd plan - get it netted up to £60K...then at 55 take the £40 back
out of the 1st ?

...........................................

To get the 25% tax free cash you'd have to convert the whole pot to a 
pension (annuity) or convert it to income drawdown (but it doesn't sound 
like your funds are big enough to be recommended for I.D.) You can't get the 
25% on its own without taking one of the above options. If you want to carry 
on contributing to your existing fund (out of convenience, say, to save 
setting up a new fund) then just leave a small rump of £1000 behind and 
build the fund up again with more contributions in future years.

As for tax relief - it's more accurate to think of it as a tax refund. And 
as you can't have tax refunded that you haven't already paid, you can only 
get tax relief equivalent to your current year total tax liability. Of 
course, there'd be nothing to stop you splitting the contribution over two 
years. £20K tax relief implies a gross income of well over £100K.  But if 
you're on that kind of money you could have afforded some decent financial 
advice in the first place.

Neil F.