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Is it possible to sell a personal pension for the full amount ?

There are a few cases where it would be possible to take the full value of your pension fund, but in the vast majority of cases the answer is likely to be no! To explain further . . . .

Personal pensions attract very favorable tax treatment. All contributions you make, bellow the annual allowance, receive tax relief at your marginal rate. Very simply if you are a basic rate tax payer, for every 80p you put in, the government will put in an extra 20p to make the contribution £1. If you are a higher rate tax payer, the further tax rebates will be made.

Because of this generous tax relief the government want to make sure that you are the person who benefits from the pension fund and that the money is used to provide you with an income when you are no longer working. They therefore limit how you can take your money out.

In the majority of cases this means that you can take 25% of the total fund as a tax free pension lump sum, but the remaining 75% must be used in some form of income producing pension product such as an annuity or income drawdown contract. It would be possible to take the 25% and leave the 75% until a later date, but it would still need to be taken as a regular income.

There are two areas where, if you qualify, you could take all of the fund. These are 'Triviality' and 'Flexible Drawdown'

If you and your pension qualify for ‘triviality rules’, then you would be able to take the 25% lump sum free of tax. You could also take the remaining 75% of the fund as a lump sum but it would be subject to tax at your marginal rate.

The triviality rules are aimed at people who are very close to retirement and have small pension funds that are unlikely to produce much of an income in retirement. The view is that they may be able to make better use of the whole fund. At the time of answering this question (May 2012) the triviality rules are as follows :

  • You must be aged 60 or over
  • The total of all pension funds you hold must be less that £18,000 (this amount changes annually)

Flexible Drawdown applies to people who already have over £20,000 per annum coming to then from "approved" pension sources and these sources are guaranteed for the remainder of your life.

In such a case any pension fund that has not been used could be taken as a lump sum.

 

 
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  The value of your pension fund can fall as well as rise.
  By Bob Cook
  Published : 10th July 2013
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