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Take final salary tax-free cash from another pension?

Retirement | Pension Rules Helpful? 5

Asked by Financeguy, submitted 19 February 2012.

Open Quote My father is a few years from retirement, he currently has a final salary scheme and a smaller stakeholder pension, when he elects to take benefits is he able to effectively combine the 2 pots , my thinking is if possible it would be better to take his tax free lump sum using all the stakeholder pot and making the balance up from the final salary pot as this would give him the best return and not tie his money up in an annuity.

Is this possible?

Also would there be any complications caused if he moved the stakeholder pension into a SIPP for the 5 years or so he has until retirement?
End Quote

Answered by Justin on 07 September 2012

It's not normally possible to notionally combine pension pots in this way to take most or all of the overall tax-free cash from one of the pensions. The only exception I can think of is if you have an additional voluntary contribution (AVC) pension scheme linked to the main final salary scheme, in which case you may be able to take the tax-free cash from the AVC provided the final salary pension administrator is happy to allow it.

In you father's case it sounds as though his stakeholder pension is separate from his occupational pension scheme (although worth double checking), so this won't be allowed.

Of course, he doesn't have to take tax-free cash from his final salary pension. If he doesn't need the money then foregoing the cash will increase his pension income. Read my answer to this previous question covering the topic.

Provided the stakeholder pension is separate from his occupational pension then transferring into a SIPP shouldn't affect anything. Whether it's worthwhile depends on the extent your father will benefit from the increased investment choice offered by a SIPP relative to any extra cost incurred. Bear in mind if he plans to retire in around 5 year's time he probably won't want to take much risk, if any, with the underlying investments. So keeping the stakeholder pension and investing in cash/fixed interest funds might be most prudent.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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