Two Pensions?

[auntie-bertie]

I have a personal pension pot of around £100k and then I have a final salary pension which also entitles me to 25% tax free.
At 55, assuming I take 25% of the £100k pot, can I also take 25% of the FSP too or will it have to be in separate tax years?
I have no other income so I am also planning on taking the c£10k pa tax free allowance out of the remaining £75k and when that has gone I will start drawing my FSP.

[Hymie]

Normally the rules of a FSP will not allow you to take 25% without starting to draw the pension. There may be a heavy penalty for taking the pension so early, making it not worthwhile anyway. Plus once you are drawing your FSP, you will have of lost this amount from your £10k tax free annual allowance.

As to how much your 25% of the FSP is worth will depend on the commutation rate. As an example, let’s assume that you have a £10k per annum FSP. By giving up 25%, you will receive £7.5k per annum, plus the tax free lump sum.

The commutation rate can be any number, normally between 10 – 20. Again, as an example let’s say it’s 15 – then you will receive £2.5k x 15 (£37.5k) tax free.

Before you do anything with the FSP, you need to find out how much it will pay out at age 55, and the applicable commutation rate from the Pension scheme.

By all means take the 25% of the £100k, plus £10k/year – but I think you’ll be best served waiting until you reach your normal retirement age (as defined by your FSP), given the likely reduction for taking it early.

[auntie-bertie]

Thanks: I must admit I was surprised as I thought it was 62 for the FSP. According to their online estimates the 25% is ££££££££ at 62, so I have asked them for the projection at 55.

[auntie-bertie]

With the personal pension pot of £100k, if I take £25k as my 25% in year 1, and £10k as my tax free allowance, in year 2 can I take another 25% of the remaining £65k, or are you only allowed to take 25% once?

You are correct regarding the FSP, so I will leave that one till I'm 62.