Uncrystallised Funds Pension Lump Sum v Flexi access
Discussion
Hi I've been reading up on this and it's super confusing, maybe some could offer some basic advice?
I'm 2.5 years off pension access. Although am stopping work in 3 months.
I have 300k in the pot.
I'm trying to work out the best way to take my pension.
I'm pretty cheap to run needing approx 8 - 15k a year.
I don't need to take the 25% tax free in one lump.
One of my aims is to never pay income tax again.
I have 100k in an ISA to use if I need extra for a big purchase.
I don't care what happens to the remaining money when I die, because I will be dead.
Yes I appreciate I will likely need to speak to a financial advisor for my specifics.
It seems there are 2 options. Excluding annuity for now.
UFPLS - I can take about £16700 a year tax free for the rest of my life to maximize the tax free withdrawals and would put the unused in an ISA.
Flexi access drawdown - 25% tax free which I would put into to ISA, saving etc. I'm then limited to a tax free withdrawal of my personal allowance, approx 12.5k a year.
I'm unsure if for example you wanted to take 5% of the tax free over 5 years to make up the 25%.
My worries would be the grasping government removing the tax free 25% at some point.
Wondering if taking the full 25% on day one (75k) would be more effective than taking the £4100 each year tax free.
I'm 2.5 years off pension access. Although am stopping work in 3 months.
I have 300k in the pot.
I'm trying to work out the best way to take my pension.
I'm pretty cheap to run needing approx 8 - 15k a year.
I don't need to take the 25% tax free in one lump.
One of my aims is to never pay income tax again.
I have 100k in an ISA to use if I need extra for a big purchase.
I don't care what happens to the remaining money when I die, because I will be dead.
Yes I appreciate I will likely need to speak to a financial advisor for my specifics.
It seems there are 2 options. Excluding annuity for now.
UFPLS - I can take about £16700 a year tax free for the rest of my life to maximize the tax free withdrawals and would put the unused in an ISA.
Flexi access drawdown - 25% tax free which I would put into to ISA, saving etc. I'm then limited to a tax free withdrawal of my personal allowance, approx 12.5k a year.
I'm unsure if for example you wanted to take 5% of the tax free over 5 years to make up the 25%.
My worries would be the grasping government removing the tax free 25% at some point.
Wondering if taking the full 25% on day one (75k) would be more effective than taking the £4100 each year tax free.
One benefit, under current rules, of leaving it in a pension is that it's outside of inheritance tax. If that's not a concern, then I'd be more tempted to take the 25% up front in case the rules change. The other benefit is CGT protection, so you'd likely want to put it into ISA's as quickly as possible, or do something else to manage any gains.
Also don't forget that any state pension also forms part of your taxable income, so whilst you can initially draw £12,570 from the pension before tax, that will reduce once the state pension kicks in.
Also don't forget that any state pension also forms part of your taxable income, so whilst you can initially draw £12,570 from the pension before tax, that will reduce once the state pension kicks in.
This may be of some use:
https://www.mandg.com/pru/adviser/en-gb/insights-e...
Will you be getting a State Pension? If so that alone almost uses all of your personal tax allowance.
If you pull out £16700 you'll run out of money in 18 years unless you're getting 5.6% return after all charges & fees. Currently that's difficult to achieve, but hopefully the global financial situation may change.
Do you want to plan for going into care later in life? That's very expensive.
Is there any chance you will return to work? If so watch out for the MPAA.
£300k in a pension pot is better than most have but it will need careful management if it's to last.
You might want to have a look at some of the retirement planners/forecasters that are out there but most are based on American data & the situation over the last year or so is probably not catered for.
https://firecalc.com/
https://engaging-data.com/will-money-last-retire-e...
https://cfiresim.com/
https://www.mandg.com/pru/adviser/en-gb/insights-e...
Will you be getting a State Pension? If so that alone almost uses all of your personal tax allowance.
If you pull out £16700 you'll run out of money in 18 years unless you're getting 5.6% return after all charges & fees. Currently that's difficult to achieve, but hopefully the global financial situation may change.
Do you want to plan for going into care later in life? That's very expensive.
Is there any chance you will return to work? If so watch out for the MPAA.
£300k in a pension pot is better than most have but it will need careful management if it's to last.
You might want to have a look at some of the retirement planners/forecasters that are out there but most are based on American data & the situation over the last year or so is probably not catered for.
https://firecalc.com/
https://engaging-data.com/will-money-last-retire-e...
https://cfiresim.com/
I appreciate the replies.
Yes I will be getting full state pension unless the goalposts are moved. I haven't planned that far ahead, nor have I planned for old age care, other than a one way ticket to Switzerland.
I may return to work but it would only be very part-time to stay below personal allowance.
Bear in mind even if I withdrew the full 16700 tax free a year I wouldnt be spending all that and likely would be putting 5k into the ISA
Of course these are all based on today's value and not accounting for inflation.
Yes I will be getting full state pension unless the goalposts are moved. I haven't planned that far ahead, nor have I planned for old age care, other than a one way ticket to Switzerland.
I may return to work but it would only be very part-time to stay below personal allowance.
Bear in mind even if I withdrew the full 16700 tax free a year I wouldnt be spending all that and likely would be putting 5k into the ISA
Of course these are all based on today's value and not accounting for inflation.
To confirm I'm 52, so many years off state pension.
Or are you saying with state pension , say 8.5k, I cannot then withdraw 4k from the pension to remain under personal allowance, without being taxed?
Edit nevermind, I think I undestsnd what you are saying.
Or are you saying with state pension , say 8.5k, I cannot then withdraw 4k from the pension to remain under personal allowance, without being taxed?
Edit nevermind, I think I undestsnd what you are saying.
Edited by m_cozzy on Sunday 8th January 11:33
Edited by m_cozzy on Sunday 8th January 11:35
With respect, given that we don't know your personal circumstances, making 300k last for 35 years or so is not going to be straightforward even if you are cheap to run. Although inflation will hopefully fall from it's current high you're still going to need to make your investments work pretty hard.
You might want to consider getting advice from a financial planner who can work through your assets & aspirations to show you what is the best course of action. Note this doesn't mean paying them a percentage of your investments - look for a fixed fee session.
You might want to consider getting advice from a financial planner who can work through your assets & aspirations to show you what is the best course of action. Note this doesn't mean paying them a percentage of your investments - look for a fixed fee session.
m_cozzy said:
To confirm I'm 52, so many years off state pension.
Or are you saying with state pension , say 8.5k, I cannot then withdraw 4k from the pension to remain under personal allowance, without being taxed?
Edit nevermind, I think I undestsnd what you are saying.
Yeah - I was working on state pension being 9.5k - so you could then draw 4k from your pension, 1k tax free and 3k subject to tax. So less than the 16k you'd hoped for.Or are you saying with state pension , say 8.5k, I cannot then withdraw 4k from the pension to remain under personal allowance, without being taxed?
Edit nevermind, I think I undestsnd what you are saying.
Your 300k - the 75% taxable portion is 225k
The years from 55-67 could be at whatever the basic rate of tax is - assume it stays at 12,570 - that's about 150k. So you have 75k left. Then from 67 onwards, 3k per year, so another 25 years.
All that is just at todays rates with todays rules - who knows what growth there might be and what changes in pension rules or tax thresholds.....
Carbon Sasquatch said:
Yeah - I was working on state pension being 9.5k - so you could then draw 4k from your pension, 1k tax free and 3k subject to tax. So less than the 16k you'd hoped for.
Your 300k - the 75% taxable portion is 225k
The years from 55-67 could be at whatever the basic rate of tax is - assume it stays at 12,570 - that's about 150k. So you have 75k left. Then from 67 onwards, 3k per year, so another 25 years.
All that is just at todays rates with todays rules - who knows what growth there might be and what changes in pension rules or tax thresholds.....
This is based on flexi-access drawdown & me taking 25% tax free on day 1 on rather than UFPLS? Limiting my all withdrawals to 12.5k before being taxed.Your 300k - the 75% taxable portion is 225k
The years from 55-67 could be at whatever the basic rate of tax is - assume it stays at 12,570 - that's about 150k. So you have 75k left. Then from 67 onwards, 3k per year, so another 25 years.
All that is just at todays rates with todays rules - who knows what growth there might be and what changes in pension rules or tax thresholds.....
Where as I understand if I go for UFPLS then I can with draw £16760.0 a year, until I claim state pension anyway, without being taxed. Based on the calculator below.
https://www.direct.aviva.co.uk/MyTools/PensionWith...
Yes - but it's 25% either way - you either take it as a lump sum up front, or a bit each year.
It can simplify the maths just to think in todays money.
So you can either take 25% now = 75k or you can take 25% of whatever you draw down each year.
The current political climate shows state pension increasing with inflation, but tax thresholds remaining lower - so the state pension & income tax threshold are converging. Therefore you may have money 'trapped' in your pension where you can only get the 25% tax free by withdrawing money where you pay tax on the other 75%.
Clearly things may change - but I'd rather take the lump sum and invest it separately.
It can simplify the maths just to think in todays money.
So you can either take 25% now = 75k or you can take 25% of whatever you draw down each year.
The current political climate shows state pension increasing with inflation, but tax thresholds remaining lower - so the state pension & income tax threshold are converging. Therefore you may have money 'trapped' in your pension where you can only get the 25% tax free by withdrawing money where you pay tax on the other 75%.
Clearly things may change - but I'd rather take the lump sum and invest it separately.
Edited by Carbon Sasquatch on Sunday 8th January 15:03
m_cozzy said:
This is based on flexi-access drawdown & me taking 25% tax free on day 1 on rather than UFPLS? Limiting my all withdrawals to 12.5k before being taxed.
Where as I understand if I go for UFPLS then I can with draw £16760.0 a year, until I claim state pension anyway, without being taxed. Based on the calculator below.
https://www.direct.aviva.co.uk/MyTools/PensionWith...
There is one slight difference.Where as I understand if I go for UFPLS then I can with draw £16760.0 a year, until I claim state pension anyway, without being taxed. Based on the calculator below.
https://www.direct.aviva.co.uk/MyTools/PensionWith...
Under flexi-access the pension provider will be issued with a tax code to use.
Under UFPLS emergency tax will be deducted at source and you will need to reclaim it from HMRC.
The end result is the same, just more admin agro with UFPLS.
Also consider the pension providers charges between the two methods.
Any family to leave money to?
you may not care when you go but they may need the best that is available to them.
Having retired at 50 myself I have a long while to wait on SP
but all lump sums as soon as they are available TAX free I always think they are better off under my control, rather than relying on any pension company or government not to make it less easy on any remaining family to have access to any Monies. I may be worrying for no reason bu tthats another view point for you.
you say you are cheap to run annually but surely you deserve a decent life even if paying TAX is less desirable.
Don't die rich and live a basic life enjoy it you earned it and are worth it.
When I hit 55 this year I will take the 25% that is available to me on my 2nd works pension and get it in a cash ISA or PBs or spend it.
you may not care when you go but they may need the best that is available to them.
Having retired at 50 myself I have a long while to wait on SP
but all lump sums as soon as they are available TAX free I always think they are better off under my control, rather than relying on any pension company or government not to make it less easy on any remaining family to have access to any Monies. I may be worrying for no reason bu tthats another view point for you.
you say you are cheap to run annually but surely you deserve a decent life even if paying TAX is less desirable.
Don't die rich and live a basic life enjoy it you earned it and are worth it.
When I hit 55 this year I will take the 25% that is available to me on my 2nd works pension and get it in a cash ISA or PBs or spend it.
Rufus Stone said:
m_cozzy said:
This is based on flexi-access drawdown & me taking 25% tax free on day 1 on rather than UFPLS? Limiting my all withdrawals to 12.5k before being taxed.
Where as I understand if I go for UFPLS then I can with draw £16760.0 a year, until I claim state pension anyway, without being taxed. Based on the calculator below.
https://www.direct.aviva.co.uk/MyTools/PensionWith...
There is one slight difference.Where as I understand if I go for UFPLS then I can with draw £16760.0 a year, until I claim state pension anyway, without being taxed. Based on the calculator below.
https://www.direct.aviva.co.uk/MyTools/PensionWith...
Under flexi-access the pension provider will be issued with a tax code to use.
Under UFPLS emergency tax will be deducted at source and you will need to reclaim it from HMRC.
The end result is the same, just more admin agro with UFPLS.
Also consider the pension providers charges between the two methods.
No family. Any remaining will be going to animal charities.
I really dont miss out on doing what I want to do! I have no desire for pointless trinkets or unnecessary possessions. Free time is far more valuable to me than money.
Plus the joy I will get not giving the gov any more money will be immeasurable.
I just need to best understand how to maximize my tax free pension income.
I really dont miss out on doing what I want to do! I have no desire for pointless trinkets or unnecessary possessions. Free time is far more valuable to me than money.
Plus the joy I will get not giving the gov any more money will be immeasurable.
I just need to best understand how to maximize my tax free pension income.
Carbon Sasquatch said:
One benefit, under current rules, of leaving it in a pension is that it's outside of inheritance tax. If that's not a concern, then I'd be more tempted to take the 25% up front in case the rules change. The other benefit is CGT protection, so you'd likely want to put it into ISA's as quickly as possible, or do something else to manage any gains.
Also don't forget that any state pension also forms part of your taxable income, so whilst you can initially draw £12,570 from the pension before tax, that will reduce once the state pension kicks in.
Hi carbon , the rule change thing concerns me too but my thinking was that they’d have to give notice of a change to the current 25% grab? Also don't forget that any state pension also forms part of your taxable income, so whilst you can initially draw £12,570 from the pension before tax, that will reduce once the state pension kicks in.
As you know I’m coming to pension age soon so i need to keep an eye on this esp with this government drive to get retirees back to work
LeoSayer said:
Have you been maximising your pension contributions whilst you are working? I realise you only have 3 months to go but doing so further reduces the amount of tax you pay under your plan.
You haven't mentioned investments but this needs attention if you are to avoid sequence risk.
I have been totally maxing my contributions via salary sacrifice & utilizing the previous 3 years of underpayments to allow overpayments above the 40k limit.You haven't mentioned investments but this needs attention if you are to avoid sequence risk.
I pretty much dont pay tax currently due to this, a few quid + NI each month.
My only other investments as I mentioned are ISA, recently moved into cash with virgin at 3.88% due to the volatile nature of the previous s&s isa, so no worries there.
I have 10k available still to use this year which will hopefully be the end of march bonus
Edited by m_cozzy on Monday 9th January 12:32
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