42
Striker
Can you then reinvest the crystallised pot within the pension tax wrapper so you can still drawdown growth tax free? Or does it have to remain in cash?
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Retirement
- Thread starter Shieldsman
- Start date
Can you then reinvest the crystallised pot within the pension tax wrapper so you can still drawdown growth tax free? Or does it have to remain in cash?
Barista
Midfield
The crystallised pot can be invested just like the uncrystallised pot and grows within the uncrystallised/drawdown pot tax free. It is only when you withdraw it that it is subject to income tax (if you are withdrawing more than £12570 pa.)
I am currently doing exactly what I have described above.
In fact, when I move funds from the uncrystallised pot (because I want to release 25% tax free lump sum), I don’t even have to sell the funds, they just transfer to my crystallised pot.
E.g. say I have £100,000 in Vanguard Lifestrategy 60 in my uncrystallised pot and I want to take a 25k lump sum: I would sell 25k worth of this fund and this would go to my bank account, the other 75k would be transferred in-specie (as is) to my crystallised/drawdown account. This way you are not incurring additional buying/selling costs and you are not out of the market and possibly missing out on any growth during that period.
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BILLY BUS PASS
Winger
It’s still in ya pot left to grow with the rest only the crystallised amount is ring fenced for tax.
Once ya get ya head round how it works it’s not difficult.
I keep a spreadsheet of total investment and crystallised amount because when I asked they gave me a figure i didn’t agree with and after a load of to and fro the came back with a figure I had or near as damn it so it’s always worth keeping an eye on it
Crook
Central Defender
Can anyone shed some light on the effect of interest rates on Lump Sum offers?
I know that when interest rates are lower, the lump sum offer is higher in many DB schemes (and vice-versa).
I'm not clear how this then affects the 'annual pension amount' provided from the remainder of your scheme fund? Is the annual 'non-lump sum pension' set higher when the 25% lump-sum 'payout figure' is lower???
I know that when interest rates are lower, the lump sum offer is higher in many DB schemes (and vice-versa).
I'm not clear how this then affects the 'annual pension amount' provided from the remainder of your scheme fund? Is the annual 'non-lump sum pension' set higher when the 25% lump-sum 'payout figure' is lower???
Darlo1973
Striker
I must admit that even though I'm pretty good with money and numbers the drawdown process still confuses me. I suppose I've never had any need to understand it but I've still got a few years to get my head around it.
hoping to get me hands on the 25% in Feb when turn 55. Probs a semi retirement but have got more info from here than anywhere else. Cheers
Derby Mackem
Central Defender
Not exactly sure what you are asking here.
If you are talking about cashing in a DB scheme then in some cases you will be quoted a figure which can achieve the same benefit should you buy an annuity with the transfer value. If interest rates are low then the transfer amount will be higher.
If you are taking about the tax free amount from a DB scheme then the important thing to know is what is called the ‘commutation factor’.
Let’s say your DB scheme has wuoted you a pension of 30k and the schemes commutation factor is 20. Then for the purposes of calculating tax free amount + remaining pension you work on a pot of 30k x 20 = £600k
Max tax free amount would therefore be 25% of this (£150K) and pension would be 450/20 = £22.5K.
Then it will depend on how the yearly increase is calculated on the pension (RPI, CPI etc etc )
Crook
Central Defender
Thanks @Derby Mackem.
I've got a deferred DB industrial pension. I'm planning on taking it around 7 years before normal retirement age, but I'm flexible +/- a couple of years.
I guess my rambling question was, as a general rule, is it generally better financially to wait for lower interest rates as the lump sum quoted is higher? I plan to take 25% tax free.
I've got a deferred DB industrial pension. I'm planning on taking it around 7 years before normal retirement age, but I'm flexible +/- a couple of years.
I guess my rambling question was, as a general rule, is it generally better financially to wait for lower interest rates as the lump sum quoted is higher? I plan to take 25% tax free.
Derby Mackem
Central Defender
Might be wrong but I don’t think that the interest rates will have any bearing on this decision other than the amount your deterred DB pension is going up each year based on inflation.
This is what will affect the tax free amount that you will get.
The bigger consideration is the amount you will lose by taking your DB pension early but I assume that you are considering at age 60 which is the retirement date on your DB scheme.
The other good thing about DB schemes is that you can take this pension and still pay into a DC scheme which can be a good option if you plan to still work part time.
So many articles like this which ultimately just waffle on and tell you nothing new.
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Update #94287
I kept my job by securing a role in another business unit in a different branch. i was just getting my feet under the table and enjoying the new role and low and behold we were told today that our business unit is being moved to the branch that i've just left and who wanted to make me redundant...
although they say no job losses now i'm sure in a year or two there will be another restructure and i'll be top of that list. maybe by then i will be able to retire but we shall see how it all pans out.
out of the frying pan and back into the errrr frying pan.
DaveH
Striker
It might be worth considering savings for when he is 18.
My mam and dad did that for my daughter and they were only putting a little bit away, but I think it was somewhere between £4 k and £5k in the end. Meanwhile we opened a ISA and a couple of savings accounts that we put money in. When I opened one I had to have a regular amount going in just to open the account, so I set up a standing order for £2 a week. Then we looked at what else were going to do, set that up, and never cancelled that £2. That over 52 weeks over 18 years with interest became £2k. When I started it was the cost of a cheap pint per week. Now it is a half!
With all the other stuff we saved, she has quite a healthy amount of money which will make a significant difference if she goes to Uni or wants money towards a house deposit. That is the big and expensive stage of life. You could then keep giving the same amount but start a pension fund for him after 18, or start now and split where you put the cash. Then it is a message to him that when he starts earning, right from the start pay something into that pot on pay day, even if it is just £20. He will never miss it, but hit 50, start to look at when he might retire and find he has a 5 figure pot sitting there.
I was only a year into my first job and looked at buying. Then I found HSBC were offering 100% mortgages and bought a house based on keeping mortgage payments the same as what I was paying in rent. (100% mortgages a very good to get started, but it was dick heads stretching themselves too far that broke everything, and banks encouraging it). Anyway, he was very scornful of it. What if interest rates rise? (We had accounted for that) What if the housing market collapses? (There was no sign). He was determined to save a 10% deposit before he started looking at houses.
Over the next 4 years, his rent rose each year, meaning he could save less, and house prices went up quickly meaning that 10% just got further and further away. I don't know if he ever did buy. I moved onto another job and moved out the area, selling my house a little on the cheap side for a quick sale and making a profit far in excess of what he had saved in that time.
Getting out of the renting game early in my career was the best thing I have ever done financially. But it was a different era then and it was far easier.
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Ned Land
Winger
I am bored of working FT in a ‘responsible’ job so I might jump at 55 rather than at 60 which was my original plan.
The pension will be reduced to 60% of what I’d receive at 67 but I’m going to do some calcs.
I can always work somewhere else or do contract work until I’m 67.
The pension will be reduced to 60% of what I’d receive at 67 but I’m going to do some calcs.
I can always work somewhere else or do contract work until I’m 67.
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Nookie Bear
Striker
I’ve just been modelling impact of retiring at 55 and taking CS pension straight away versus leaving it til 60 to avoid the actuarial reduction and it works out I’d be 35k better off at state pension age if I left it in til 60 vs 55 which is nowt really so I think it makes sense to just take it at 55 rather than find from savings / SIPP
DaveH
Striker
Some pensions allow you to work while claiming to ease you into retirement. I'm not sure how that works.
My old boss saw some pension changes coming with much harsher penalties for going early. He worked out that if he left in 2 years time he would be no better off then doing immediately before the changes came in. He didn't feel ready to retire but put his notice in. He then floated his name around to other places in the same industry that he was experienced and free, so was brought in within weeks to another place to manage a project and do some of the ground work.
It has crossed my mind that that might not be a bad option. I'm getting pretty well known in the industry. I should spend a bit more time putting my name out there, and making links to people, then it is a potential option should anyone want me and I want to do some work.
Ned Land
Winger
It’s a conundrum! I could have e.g. £1500/month from the pension from 55 onwards and then supplement it with another job.
I could defer the pension for 5 years and do something else. Then at 60 I wouldn’t need to work again, hopefully.
My father-in-law is nearly 80 and his advice was to pay for big holidays while you’re still working.
I think perhaps that it’s better to feel relatively affluent between 60 and 75.
You work in HE too, iirc. About 25% of my LGPS service is pre-2008 which was still final salary, so I didn’t want to work part time because that would affect the (complicated) formula. There’s an even more arcane one called the 85-year rule that applies when you’re over 60.
Ideally I’d be paid a lumper to leave through the ‘mutually agreed resignation scheme’.
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My plan is to retire at 60 using my SIPP then my CS pension kicks in at 67 without penalties. If things like inheritance do come along (not banking on anything) then maybe a year or 2 before 60.
Hard to plan we obviously don’t know hat things will like come the time but good to have a plan
Hard to plan we obviously don’t know hat things will like come the time but good to have a plan
Charlestonian
Striker
My mate is mortgage advisor, he’s speaking to people more and more regularly who are pushing 70, paying interest only mortgages, waiting for a parent to pass. I don’t think I’d sleep at night living like that.
Far more restricted than it was years ago, very much age and dates of service dependant nowadays.
DaveH
Striker
Yep, also HE.
On mine, I thought the final salary part was based on what my salary was in 2008 when that part of the scheme ended, and my current salary doesn't reflect on that. I've just checked now and that bit will give me around £8k per year, and I'm sure that has been fixed like that for a few years. I've had a couple of salary changes in that time and would expect it to have risen quite a bit if it were linked.
I'd love another round of resignations to come around about the time I'm ready to retire. The place I was working has been in dire financial trouble for years. A few people I knew took the redundancy and retired a year or two early feeling very comfortable. If I had taken it, I would have got 14 months wages, but when first offered it was in the middle of covid. jobs.ac.uk is the best place for academic jobs and they had 17 jobs advertised across all salary bands. It was too risky to consider going then. In the end I found another job about 2.5 years ago, resigned and they announced another voluntary redundancy round the week after.
