What is the best was to access my different pensions?
25 November 2021
Question by James
I’m 60, semi retired and I’ve used my lifetime pension allowance. I have a few small pots of unused pension contribution sitting with Various providers. What is best way to access these if at all?
Answered by Boring Money
If you don't need to access them they can stay invested and continue to grow. Under current rules they are also outside of your estate for IHT purposes so might form part of an estate planning strategy if that is going to be important to you. If you die before 75 your beneficiaries can receive the remaining pensions as a lump sum free of any tax. For death after age 75 any pension received as a lump sum is taxed to income based upon their income tax in the year of receipt.
If you access them, because you have used up your Lifetime Allowance you will pay the LTA charge each time you access ('crystalise') any in whole or in part. The charge will be 55% of the excess if you take it as a lump sum or 25% if you take it as an income. Any pension taken as income will be added on to income in that year and charged at your marginal rate after the LTA charge (i.e. an additional 20%, 40% or 45%).
If you don't access them they will be tested against the LTA (at whatever the level is at that time) when you reach 75 and/or death so it is likely that there will be an LTA charge to pay at some point. That is assuming the allowance doesn't increase significantly in the future, which is unlikely.
I hope this answers your question.