25% - to take or not to take...

[mikees]

Gut feel would be take it. I will, and reinvest. Not sure in what yet as 7 years off so prob won't be able to by then.

Mike

[otherman]

Simpo Two said:

Apparently you can't:

https://www.pensionwise.gov.uk/take-cash-in-chunks

So I may as wll leave it there and let it fester. Whether I'll ever actually get it, who knows. Probably have to live to 120.

That's an option, not the only route. You can also choose to take all 25% tax free in one go, which is what most people do.
I think you're quite wrong that you may never get it, that the government will 'keep it for themselves'. It's your money not theirs and they can only get it from you by taxing you. I don't think any government that took it away, ie introduced a 100% tax on savings, would remotely electable.
It's not the same as a state pension, which isn't backed by any savings. They control the rate of that, how and when it's paid.

In answer to your original question, if you take all 25% now, any investment returns will be due to income and capital gains tax, unless you move it into an isa, but you can only do that with (£11,500 I think at the moment) per year. So if you don't need it, it's better in your pension and use draw down to get it out gradually, at a rate to avoid any higher rate income tax.

[Jockman]

DonkeyApple said:

Ah. So it would take at least 4 years to get it back in to take the tax advantage. Still might be worth it as it's as much a risk free 20% return on each £10k plus whatever you get on the money pending the transfer?

How would it work if the wife was earning income and she paid into a SIPP?

This would be useful to read. https://www.gov.uk/tax-on-your-private-pension/ann...

[PurpleMoonlight]

Jockman said:

Annual allowance reduces to £10k once you drawdown.

That only applies where pension is drawn.

If only PCLS is taken then it does not apply.

[Jockman]

PurpleMoonlight said:

That only applies where pension is drawn.

If only PCLS is taken then it does not apply.

That was my understanding too.

The linked article then muddies the water slightly by saying -

"That’s because your annual allowance drops to £10,000 for all defined contribution schemes that you remove money from."

Are you able to clarity?

[Jockman]

Just found another article which directly references the PCLS unlike the Govt article.

https://www.aegon.co.uk/news/news-articles/money-p...

[Simpo Two]

DonkeyApple said:

One thought: Do you still earn income?

No, I'm living on investments/savings.

otherman said:

You can also choose to take all 25% tax free in one go, which is what most people do.

That would appear to be flexi-access drawdown:

https://www.pensionwise.gov.uk/adjustable-income
https://www.moneyadviceservice.org.uk/en/articles/...

But then the other 75% has to be re-invested elsewhere it seems.

The idea was to liberate as much as possible tax-free from my pension fund so I had more control over it, for example adding it to existing investments. As it stands I can take money to live on from several different sources; it would be nice to spread it across them.

[PurpleMoonlight]

It would be crystallised funds from which any pension paid would be deemed flex-access pension, but until you actually draw some pension the lower annual allowance isn't triggered.

However, as you are not making any ongoing pension contributions it's arguably a bit of a red herring.

You should perhaps look to crystallise an then draw pension so that you use all your personal allowance each tax year.

The only other thing to consider is that you are taking funds from a currently tax free environment to a potentially taxable environment. Only you can really decide if that is right for you.

[Simpo Two]

PurpleMoonlight said:

It would be crystallised funds from which any pension paid would be deemed flex-access pension, but until you actually draw some pension the lower annual allowance isn't triggered.

However, as you are not making any ongoing pension contributions it's arguably a bit of a red herring.

You should perhaps look to crystallise an then draw pension so that you use all your personal allowance each tax year.

The only other thing to consider is that you are taking funds from a currently tax free environment to a potentially taxable environment. Only you can really decide if that is right for you.

Thanks PM. I think on balance there are no clear advantages emerging so I shall leave it be. I can only hope the pensions environment doesn't become less favourable/flexible as the economy worsens and Labour come to power (we saw what Brown did).

As for personal allowance, that will of course be used up taking the money I live on.

Thanks all, it's been a helpful discussion.