Pension question
- Thread starter jaraarrow
- Start date
Beery
Striker
No
Each time you take £1 out of your lump £3 goes to "Crystallised". Meaning that £3 will be subject to tax at time of withdrawal according to tax levels at that time
eg £100k in pot today - take £10 out today and left with £90k of which £30k goes into a crystallised pot and £60k stays in uncrystallised pot
Next year your investments have grown 10% and your pots are now £99k total but pots are split 33/66. You take £5k out of the uncrystallised pot tax free so pots are now £94k split 48/46.
Each time you effectively take 4 x the amount you withdraw from Uncrystallised. Keep 1 x (25%) and move 3 x (75%) to the crystallized pot
Matt Hopkins
Midfield
They definitely don't give the advice the OP wants
Barista
Full Back
For DB (final salary) pensions i don’t think you can take the 25% tax fee lump sum in drive and drabs.
For DC you can usually take it in stages, although some workplace pensions may have different rules, so you will need to check. I turned 55 recently and transferred my previous workplace pension into my SIPP to consolidate various pensions into one place and last week I moved a smallish portion of the overall pot into drawdown.
So in the case of @jaraarrow, if he wanted to take £7500 tax free cash to go on a family holiday he would need to move 30k of his pension into drawdown. The tax free 25% cash would go straight to his bank account and the remaining 22.5k would go into his pension drawdown pot of taxable cash. However, If he is no longer working then he can potentially take an income of £12570 per year tax free from this drawdown pot using his personal income tax allowance. If he is still working then this would be taxable at 25% or even 40% plus depending on his salary so needs to be aware of this, and there would also be potential limits as to how much of his salary (currently 10k per annum, but Labour have said they will reduce to 4k) that he could continue to pay into his work pension.
After moving 30k into drawdown and taking 7.5k of this as tax free cash, the rest of his pension is just left untouched (uncrystallised) and will continue to grow (hopefully). At some future stage he can repeat the drawdown/crystallisation process, but only drawing down what he needs and taking 25% of the amount as tax free cash each time.
For me personally I would not drawdown/crystallise the full pension in one go as i want to leave as much as i can uncrystallised so that the uncrystallised pot grows along with the size of any 25% tax free amount that I will take in the future.
I am not a Financial Advisor, so all the above is simply my own take on the rules following reading around the subject and my understanding may not be correct.
Additionally, what is best for each individual all depends on their personal circumstances e.g are you still working, do you have other investments eg ISAs, do you want to use the lump sum to pay off a mortgage etc etc etc.
As already mentioned by @hoolio earlier in this thread it is recommended that you arrange either a phone or a face to face meeting with Pensionwise which is a free service provided by the government. Do this before making any decisions, as some pension decisions tend to be irreversible. You may also benefit from paying for advice from a licensed Financial Advisor.
There is also a financial advisor called James Shack that has a YouTube channel who explains all the options and potential pitfalls in his videos and I have found these useful.
For DC you can usually take it in stages, although some workplace pensions may have different rules, so you will need to check. I turned 55 recently and transferred my previous workplace pension into my SIPP to consolidate various pensions into one place and last week I moved a smallish portion of the overall pot into drawdown.
So in the case of @jaraarrow, if he wanted to take £7500 tax free cash to go on a family holiday he would need to move 30k of his pension into drawdown. The tax free 25% cash would go straight to his bank account and the remaining 22.5k would go into his pension drawdown pot of taxable cash. However, If he is no longer working then he can potentially take an income of £12570 per year tax free from this drawdown pot using his personal income tax allowance. If he is still working then this would be taxable at 25% or even 40% plus depending on his salary so needs to be aware of this, and there would also be potential limits as to how much of his salary (currently 10k per annum, but Labour have said they will reduce to 4k) that he could continue to pay into his work pension.
After moving 30k into drawdown and taking 7.5k of this as tax free cash, the rest of his pension is just left untouched (uncrystallised) and will continue to grow (hopefully). At some future stage he can repeat the drawdown/crystallisation process, but only drawing down what he needs and taking 25% of the amount as tax free cash each time.
For me personally I would not drawdown/crystallise the full pension in one go as i want to leave as much as i can uncrystallised so that the uncrystallised pot grows along with the size of any 25% tax free amount that I will take in the future.
I am not a Financial Advisor, so all the above is simply my own take on the rules following reading around the subject and my understanding may not be correct.
Additionally, what is best for each individual all depends on their personal circumstances e.g are you still working, do you have other investments eg ISAs, do you want to use the lump sum to pay off a mortgage etc etc etc.
As already mentioned by @hoolio earlier in this thread it is recommended that you arrange either a phone or a face to face meeting with Pensionwise which is a free service provided by the government. Do this before making any decisions, as some pension decisions tend to be irreversible. You may also benefit from paying for advice from a licensed Financial Advisor.
There is also a financial advisor called James Shack that has a YouTube channel who explains all the options and potential pitfalls in his videos and I have found these useful.
Ah cheers bud,been in touch with a financial advisor ,they are going to get back to me
Don’t like giving anyone pension policy numbers etc in case of fraud though
But I have looked into this company and everything looks legit
Went on the national pension advisors website so just waiting for them to get in touch
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Matt Hopkins
Midfield
Don't want to keep putting a dampener on the thread but do your own due diligence. When I was looking to do mine I went on, maybe unbiased but can't remember, first one up had been struck off
Actually just looked the company was dissolved 2 days ago
Actually just looked the company was dissolved 2 days ago
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Vinyl Score
Midfield
The Government have made a big mistake allowing people to withdraw money from their pensions tax free (with the pre-tax boost amount when paid in) to just pay for luxuries like the o/p's holiday instead of keeping it for retirement, it's basically subsidising foreign holidays (even more with the zero tax on aviation fuel).
What's to stop someone paying as much as they can in to their pension in their early 50s & then withdrawing the max at age 55 with the 20% or 40% (or is it 25%/50%?) boost? It's not like the Tories to create tax dodging schemes for the relatively rich...
What's to stop someone paying as much as they can in to their pension in their early 50s & then withdrawing the max at age 55 with the 20% or 40% (or is it 25%/50%?) boost? It's not like the Tories to create tax dodging schemes for the relatively rich...
BiG
Central Defender
Must be DC I've never heard of a DB where you can take the tax free element in dribs and drabs
Mine was a final salary defined benefit pension scheme, which meant what I get is based on the maximum I was earning when I left. If I’d decided to work part time - or for some other reason my salary decreased, a career average might have been better. But, like I say, I left that company in about 98/99 after about 10 years. But it still provides a reasonable amount and contributes well to my final full pension amount. In the latter days of my employment I was able to transfer to a final salary db scheme after 5 years in a dc. I transferred the benefit of the dc scheme into a larger pot derived from savings and other transfers and it contributes a smaller amount (my choice) to the final amount I draw down every month. Thats the pot that Truss fucked up and is still in recovery. Fortunately I don’t totally rely on it.
“A defined benefit pension is a type of workplace scheme that gives you a guaranteed income for life. The amount you get is based on your salary and length of service.
How much you pay into the scheme and the investment returns do not affect the level of pension you get, although you usually have to make contributions to remain in the scheme. (nb : I didn’t. So it was even more gold plated)
While these ‘gold-plated’ pensions are increasingly rare in the private sector, they're still common in the public sector, for example for civil servants, teachers and doctors. Some large private sector companies still operate DB schemes, but most are closed to new members.” as is mine for quite some time.
I type all this to illustrate that for people such as myself - financially illiterate and with a memory like a sieve, obtaining independent advice is crucial to avoiding f***ing things up for myself.
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Barista
Full Back
I would say my salary was average, but when I hit 50 I upped my contributions as I knew I could take £ from my pension when I hit 55. I made the choice to do that and was able to do that by for example keeping my previous car for 15 yrs, so I think it’s a good idea to be in control of your own finances and make your own choices about what to do with your own money. I would say it’s not a tax boost anyway, it is money that I have earned, and I get to keep more of it if I put it into a pension.
Apart from the tax free sum I will still have to pay tax on the rest of the money that I take from my pension. It’s more of a tax deferral than anything else as I will pay more tax when I’m retired rather than when working.
JAZZMANB
Striker
Check on type of pension as once you draw out of one the value you can add voluntarily on any you have drops dramatically
Folk like to put big cash lumps in the last few years for your instant 25% from the government. So 60k allowance drops to 5k ( rough number )
Barista
Full Back
Yes, that's a good point to bear in mind.
As long as you only take the tax free cash then the amount you can continue to put in is not affected but once you take out the taxable cash these rules come into effect. Currently you are restricted to 10k per annum of total contributions (employer and your own) once you have started taking any taxable money out, but I think Labour have indicated that they will reduce this to 4k.
JAZZMANB
Striker
That last paragraph is what people should be doing 50 ,55 onwards .
People have isa's and stuff and bits of inheritance . Chuck it In a sipp ,get 25% free on top and let it do its bit those last few years . Yes you can withdraw your tf 25% but why if you had cash to put away before that.
Wait until you want to stop working then take a lump and draw more under your £12k allowance tax free too .
With the sums we're talking about, this isn't really a tax dodging thing.
A couple of people have suggested leaving stuff uncrystalised in order that it will continue to grow. I'm happy to be proven wrong, but your pension will continue to grow regardless. Furthermore, if you can get comparable performance from an ISA then it makes sense to stuff your money in there where (a) growth is tax free and (b) the risk of hitting the lifetime allowance is reduced. So each year, crystallise £80k, throwing £20k in the ISA and also make sure you exhaust your tax allowance by withdrawing £12.5k from your other £60k.
Of course, this assumes you have a decent chunk of money in there.
i8playoffs
Goalkeeper
Yeah take advice. Lots of duff posts on here.
Also if a higher rate tax payer when working it's most likely you will be a basic rate payer on retirement so it also saves tax in what when you are over 50 is a short to medium term savings plan.
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Pnematic1
Full Back
I took my 25% worth tax free last year - Prudential really pushed me to one of their “ accredited “ advisors who wanted £5000 to transfer it to drawdown.
So I moved the lot myself to my other pension with Standard Life - did my homework and cost me nowt.
As I was a 40% taxer then - I’ve since retired -the drawdown account is staying where it is until after tax year end when I can nibble at it at standard rate. A couple of grand of the nibble is tax free as state pension takes up a fair chunk of your tax free allowance.
So I moved the lot myself to my other pension with Standard Life - did my homework and cost me nowt.
As I was a 40% taxer then - I’ve since retired -the drawdown account is staying where it is until after tax year end when I can nibble at it at standard rate. A couple of grand of the nibble is tax free as state pension takes up a fair chunk of your tax free allowance.
Matt Hopkins
Midfield
Always is on these type of threads
Not working atm but looking for another job
Fletch
Striker
Haven’t read all the thread mate , pretty sure though if you drawdown from a DC pension and still working you’re then restricted massively on what can pay into your pension , including employer contributions , only reason why asked incase didn’t realise
Cheesy Feet
Striker
You can take the tax free lump in as many bits as you like..lads where i worked have taken a bit for a car then a bit for home improvements.
