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

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

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Simpo Two

Original Poster:

86,911 posts

271 months

Tuesday 17th May 2016
quotequote all
I have a private pension fund of about £155K. I'd always intended to leave it alone and only take it/some of it when I needed it (and pay tax on the 'income'). However I'm 55 later this year and so have the option of liberating 25% tax free. I don't want to spend it, merely reinvest it in an alternative vehicle/s. Assuming the funds within each grow at the same rate, being able to release it tax free now might be advantageous in the long run.

I know there are too many variables for a definitive answer but what does the panel think in general? I stress this is for reinvestment not spending.

condor

8,837 posts

254 months

Tuesday 17th May 2016
quotequote all
What have been the returns on your pension fund to date? and if 6% or more would you be able to get a higher percentage with a low level of risk such as you're currently getting?

Simpo Two

Original Poster:

86,911 posts

271 months

Tuesday 17th May 2016
quotequote all
condor said:
What have been the returns on your pension fund to date? and if 6% or more would you be able to get a higher percentage with a low level of risk such as you're currently getting?
I don't see it as a fund performance issue, more of a vehicle issue. A pension is only funds in a wrapper; I might be able to invest the money in the same funds (7IM) directly and have the same underlying performance but without the strings.


Ozzie Osmond said:
£155k isn't a lot of dosh at age 55. You need another 10 years tax-free growth on that. I can't see it makes much difference whether you leave it invested in pension or get it out and invest it in ISA - the investment choices are identical. However, there's often more cost and hassle doing two things than doing one thing.
I suppose that's the difference, the cumulative effect of (largely) tax-free growth.

Re ISAs I have about the same amount in those - but I don't think I'll be paying income tax from now on so unless I'm mistaken the benefits of an ISA are nil.

NorthDave

2,404 posts

238 months

Tuesday 17th May 2016
quotequote all
Simpo Two said:
I suppose that's the difference, the cumulative effect of (largely) tax-free growth.

Re ISAs I have about the same amount in those - but I don't think I'll be paying income tax from now on so unless I'm mistaken the benefits of an ISA are nil.
I dont think you pay Capital gains on ISA profits though? Not sure if that impacts you or not as I have no idea of the levels at which capital gains kicks in.

Ozzie Osmond

21,189 posts

252 months

Tuesday 17th May 2016
quotequote all
Simpo Two said:
I don't think I'll be paying income tax from now on so unless I'm mistaken the benefits of an ISA are nil.
In which case, logic suggests the benefit of "tax free cash" from pension will also be nil. Or have I missed something?

IMO a combined saving/investment strategy of ISA and Pension is highly effective - tax efficient and very flexible.

sidicks

25,218 posts

227 months

Tuesday 17th May 2016
quotequote all
Simpo Two said:
I have a private pension fund of about £155K. I'd always intended to leave it alone and only take it/some of it when I needed it (and pay tax on the 'income'). However I'm 55 later this year and so have the option of liberating 25% tax free. I don't want to spend it, merely reinvest it in an alternative vehicle/s. Assuming the funds within each grow at the same rate, being able to release it tax free now might be advantageous in the long run.

I know there are too many variables for a definitive answer but what does the panel think in general? I stress this is for reinvestment not spending.
If you'll forgive the very broad brush:

Investing inside the pension wrapper you get tax efficiency.
Investing outside the pension wrapper you get flexibility.

One thing you can do outside the pension wrapper is leverage - whether that is appropriate or attractive will depend on your own circumstances and investment requirements!

Simpo Two

Original Poster:

86,911 posts

271 months

Tuesday 17th May 2016
quotequote all
Thanks all.

Taking the long view, there's £155K (and it will grow) that I may never actually be able to get back. With any other investment, if I wish, I can sell it and roll about in it. By contrast I feel the money in my pension fund is in escrow. The current window to get money out is epehemeral; eventually the Government, be they Conservative or Labour, will shut the door and make pensions harder and harder to realise because they need the money for themselves.

My long term prediction (because we're talking 20+ years here) is that pensions will slowly become extinct, just as BTL is going extinct.

Thoughts?

SunsetZed

2,456 posts

176 months

Wednesday 18th May 2016
quotequote all
Simpo Two said:
Thanks all.

Taking the long view, there's £155K (and it will grow) that I may never actually be able to get back. With any other investment, if I wish, I can sell it and roll about in it. By contrast I feel the money in my pension fund is in escrow. The current window to get money out is epehemeral; eventually the Government, be they Conservative or Labour, will shut the door and make pensions harder and harder to realise because they need the money for themselves.

My long term prediction (because we're talking 20+ years here) is that pensions will slowly become extinct, just as BTL is going extinct.

Thoughts?
I don't disagree with most of what you've said, the only reasons I pay into my pension is the employer contributions, otherwise I'd sacrifice the government top-up for the flexibility of accessing it when I want it and invest via a stocks and shares ISA or in BTL (probably a combination of the 2). I disagree with the latter thing you've said because I don't believe BTL will die as there is still a large demand for rental properties in many area which is increasing faster than the properties available for let.

PositronicRay

27,483 posts

189 months

Wednesday 18th May 2016
quotequote all
Simpo Two said:
Thanks all.

Taking the long view, there's £155K (and it will grow) that I may never actually be able to get back. With any other investment, if I wish, I can sell it and roll about in it. By contrast I feel the money in my pension fund is in escrow. The current window to get money out is epehemeral; eventually the Government, be they Conservative or Labour, will shut the door and make pensions harder and harder to realise because they need the money for themselves.

My long term prediction (because we're talking 20+ years here) is that pensions will slowly become extinct, just as BTL is going extinct.

Thoughts?
They won't become extinct, just evolve to take advantage of tax breaks.

LeoSayer

7,379 posts

250 months

Thursday 19th May 2016
quotequote all
I don't think it's possible to withdraw the 25% tax free from a personal pension before the taxed part under UFPLS rules.

Happy to be corrected if that's wrong.

Simpo Two

Original Poster:

86,911 posts

271 months

Thursday 19th May 2016
quotequote all
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.

Love pensions.

Ozzie Osmond

21,189 posts

252 months

Thursday 19th May 2016
quotequote all
"Come the revolution" - otherwise known as the election of Jeremy Corbyn and his mates - we'll all be in trouble. The only way I can see for socialist principles to be implemented in UK today would be a full-on wealth tax of considerable vigour. Mind you, since the abolition of indexation on Capital Gains the only thing preventing CGT acting as a wealth tax is the current absence of material inflation.

It seems to me the socialist revolution is entirely plausible, once young people realise rich old folks who don't do anything have actually got ALL the money and the working kids have got ALL the debt. No wonder Corbyn wants 16-year olds to be able to vote!

http://www.theguardian.com/politics/2014/jan/23/la...

...and London's new mayor is in on the act as well. Now there's a thing.


PurpleMoonlight

22,362 posts

163 months

Thursday 19th May 2016
quotequote all
UFPLS is confusing the issue.

If you want you should be able to crystallise 100% of the fund, receive 25% as a Pension Commencement Lump Sum and leave the rest invested without taking any pension for the time being.

Jockman

17,990 posts

166 months

Thursday 19th May 2016
quotequote all
Ozzie Osmond said:
"Come the revolution" - otherwise known as the election of Jeremy Corbyn and his mates - we'll all be in trouble. The only way I can see for socialist principles to be implemented in UK today would be a full-on wealth tax of considerable vigour. Mind you, since the abolition of indexation on Capital Gains the only thing preventing CGT acting as a wealth tax is the current absence of material inflation.
And yet under 13 years of Labour Govt the gap between rich and poor widened. Comrade Corbyn will be assimilated too.

Ozzie Osmond

21,189 posts

252 months

Thursday 19th May 2016
quotequote all
Ah yes. Gordon Brown's infamous claim of "Ten years prudent management of the economy"!

Ginge R

4,761 posts

225 months

Thursday 19th May 2016
quotequote all
All things considered, I'd probably take it while I could.

http://www.independent.co.uk/news/world/europe/nat...

Simpo Two

Original Poster:

86,911 posts

271 months

Thursday 19th May 2016
quotequote all
Ginge R said:
All things considered, I'd probably take it while I could.

http://www.independent.co.uk/news/world/europe/nat...
No no no, we have the wonderful EU which will send Putin a directive ordering him to stop it!



Hmm, Chamberlain v Hitler just popped into mind.

DonkeyApple

58,456 posts

175 months

Thursday 19th May 2016
quotequote all
Simpo Two said:
I have a private pension fund of about £155K. I'd always intended to leave it alone and only take it/some of it when I needed it (and pay tax on the 'income'). However I'm 55 later this year and so have the option of liberating 25% tax free. I don't want to spend it, merely reinvest it in an alternative vehicle/s. Assuming the funds within each grow at the same rate, being able to release it tax free now might be advantageous in the long run.

I know there are too many variables for a definitive answer but what does the panel think in general? I stress this is for reinvestment not spending.
One thought: Do you still earn income?

If so, if you draw the £40k down tax free, what's to stop you paying £40k of your income into a SIPP and claiming the income tax back? wink

Jockman

17,990 posts

166 months

Thursday 19th May 2016
quotequote all
Annual allowance reduces to £10k once you drawdown.

DonkeyApple

58,456 posts

175 months

Thursday 19th May 2016
quotequote all
Jockman said:
Annual allowance reduces to £10k once you drawdown.
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?