Pension Question
Discussion
I have the following question, which if anyone knows the answer to, I would be grateful. I will use illustrative number to explain my question.
If at age 55, I decide to take 25% tax free lump sum from my pension, as follows:
Pension value £500,000
Tax free lump sum take £125,000
Pension value after lump sum taken £375,000
If after having taken the lump sum at 55, the remaining value of my pension (£375,000) grows so that say by the age of 60 my pension value has increased from £375,000 to say £775,000, am I able to take 25% of the growth I.e. £100,000 (25% of the £400,000 growth) as another tax free lump sum?
Thanks
If at age 55, I decide to take 25% tax free lump sum from my pension, as follows:
Pension value £500,000
Tax free lump sum take £125,000
Pension value after lump sum taken £375,000
If after having taken the lump sum at 55, the remaining value of my pension (£375,000) grows so that say by the age of 60 my pension value has increased from £375,000 to say £775,000, am I able to take 25% of the growth I.e. £100,000 (25% of the £400,000 growth) as another tax free lump sum?
Thanks
One question to ask yourself is do you need the £125,000 for a specific purpose at 55?
If not then you may be better off going the UFPLS route and taking smaller lump sums on a regular basis (annually, quarterly or monthly) and leaving everything else to grow.
Which will ultimately give you the opportunity to receive a larger amount of tax free cash over the long term.
If not then you may be better off going the UFPLS route and taking smaller lump sums on a regular basis (annually, quarterly or monthly) and leaving everything else to grow.
Which will ultimately give you the opportunity to receive a larger amount of tax free cash over the long term.
Edited by WayOutWest on Friday 1st December 21:52
clubsport said:
You may not have much handle on the mechanics of pension drawdown, but you have the portfolio management side nailed!
Please let us in on the investments that will make 15.62% consistently over the 5 yeat period between 55 to 60 years old?
I was assuming the OP means to make maximum permitted pension contributions for the last 5 years before final retirementPlease let us in on the investments that will make 15.62% consistently over the 5 yeat period between 55 to 60 years old?
If I were doing this, to keep things clear, I would probably make payments into a new pension scheme after drawing down the first lump sum
clubsport said:
You may not have much handle on the mechanics of pension drawdown, but you have the portfolio management side nailed!
Please let us in on the investments that will make 15.62% consistently over the 5 yeat period between 55 to 60 years old?
Agreed with above you won't see that growth , it's unrealistic, unfortunately.Please let us in on the investments that will make 15.62% consistently over the 5 yeat period between 55 to 60 years old?
WayOutWest said:
One question to ask yourself is do you need the £125,000 for a specific purpose at 55?
If not then you may be better off going the UFPLS route and taking smaller lump sums on a regular basis (annually, quarterly or monthly) and leaving everything else to grow.
Which will ultimately give you the opportunity to receive a larger amount of tax free cash over the long term.
Agreed, and I will consider this option, thanks for highlighting it.If not then you may be better off going the UFPLS route and taking smaller lump sums on a regular basis (annually, quarterly or monthly) and leaving everything else to grow.
Which will ultimately give you the opportunity to receive a larger amount of tax free cash over the long term.
Edited by WayOutWest on Friday 1st December 21:52
mikef said:
I was assuming the OP means to make maximum permitted pension contributions for the last 5 years before final retirement
If I were doing this, to keep things clear, I would probably make payments into a new pension scheme after drawing down the first lump sum
What are the benefits of making future payments into a new pension scheme please? You are right, I would look to use the full £60,000 allowance each year.If I were doing this, to keep things clear, I would probably make payments into a new pension scheme after drawing down the first lump sum
gsr121 said:
What are the benefits of making future payments into a new pension scheme please? You are right, I would look to use the full £60,000 allowance each year.
There are no benefits.If you wish to continue contributing at that level, the UFPLS option is not available to you. Drawing pension (not tax free cash) triggers the Money Purchase Annual Allowance which limits contributions to £10,000 pa.
You can still receive the tax free cash in stages though rather than the whole lot at once.
Rufus Stone said:
There are no benefits.
If you wish to continue contributing at that level, the UFPLS option is not available to you. Drawing pension (not tax free cash) triggers the Money Purchase Annual Allowance which limits contributions to £10,000 pa.
O
You can still receive the tax free cash in stages though rather than the whole lot at once.
The scenario I am considering is only to take up to 25 % tax free at 55. I understand this won’t trigger the MPAA of £10,000. If you wish to continue contributing at that level, the UFPLS option is not available to you. Drawing pension (not tax free cash) triggers the Money Purchase Annual Allowance which limits contributions to £10,000 pa.
O
You can still receive the tax free cash in stages though rather than the whole lot at once.
mikef said:
I was assuming the OP means to make maximum permitted pension contributions for the last 5 years before final retirement
If I were doing this, to keep things clear, I would probably make payments into a new pension scheme after drawing down the first lump sum
So say I had 8 pension schemes with 50k in each, from 8 different employments, I could take 12.5k out of each of 7 of them from 55, tax free but keep paying into the 8th whilst i continue to work and when I'm ready take 25% of that one tax free? If I were doing this, to keep things clear, I would probably make payments into a new pension scheme after drawing down the first lump sum
Pit Pony said:
So say I had 8 pension schemes with 50k in each, from 8 different employments, I could take 12.5k out of each of 7 of them from 55, tax free but keep paying into the 8th whilst i continue to work and when I'm ready take 25% of that one tax free?
Yes.Assuming you will be 55 before 04/2028 that is. It's going up to age 57 then.
Edited by Rufus Stone on Saturday 2nd December 07:45
WayOutWest said:
One question to ask yourself is do you need the £125,000 for a specific purpose at 55?
If not then you may be better off going the UFPLS route and taking smaller lump sums on a regular basis (annually, quarterly or monthly) and leaving everything else to grow.
Which will ultimately give you the opportunity to receive a larger amount of tax free cash over the long term.
Under the current legislation that is a good option.If not then you may be better off going the UFPLS route and taking smaller lump sums on a regular basis (annually, quarterly or monthly) and leaving everything else to grow.
Which will ultimately give you the opportunity to receive a larger amount of tax free cash over the long term.
Edited by WayOutWest on Friday 1st December 21:52
But who knows if the tax free sum will still be in option in the coming years? Feels like it is ripe for a HMG tax raid to me.
My understanding is that you have to take out ever so slightly less than the 25% - or possibly more accurately absolutely no more than 25%. So to play safe, aim for something like 24.5%.
Remember too, that the TFLS is restricted to 25% of what the lifetime allowance used to be - which I think is £1,073,000.
However, the above may not be 100% correct, so ask someone qualified.
Remember too, that the TFLS is restricted to 25% of what the lifetime allowance used to be - which I think is £1,073,000.
However, the above may not be 100% correct, so ask someone qualified.
skeeterm5 said:
WayOutWest said:
One question to ask yourself is do you need the £125,000 for a specific purpose at 55?
If not then you may be better off going the UFPLS route and taking smaller lump sums on a regular basis (annually, quarterly or monthly) and leaving everything else to grow.
Which will ultimately give you the opportunity to receive a larger amount of tax free cash over the long term.
Under the current legislation that is a good option.If not then you may be better off going the UFPLS route and taking smaller lump sums on a regular basis (annually, quarterly or monthly) and leaving everything else to grow.
Which will ultimately give you the opportunity to receive a larger amount of tax free cash over the long term.
Edited by WayOutWest on Friday 1st December 21:52
But who knows if the tax free sum will still be in option in the coming years? Feels like it is ripe for a HMG tax raid to me.
They would probably have to introduce two different pension tax regimes to run in parallel, and that in itself would be a nightmare to implement and administer.
What they could however do is reduce the maximum cap on Tax Free Lump Sums which was sneakily introduced at £268,275 when the LTA was abolished. Much simpler. For sure I doubt that will ever be increased in line with inflation, certainly under a Labour govt.
WayOutWest said:
It is always possible. But the problem there is they would effectively be introducing a retrospective tax. As it wouldn't be fair on the UFPLSers vs those of the same age who had crystallised everything and taken the full 25% in one go.
They would probably have to introduce two different pension tax regimes to run in parallel, and that in itself would be a nightmare to implement and administer.
What they could however do is reduce the maximum cap on Tax Free Lump Sums which was sneakily introduced at £268,275 when the LTA was abolished. Much simpler. For sure I doubt that will ever be increased in line with inflation, certainly under a Labour govt.
While I agree with what you say there is a risk that we are crediting HMG with decision making that includes ‘fairness’ and ‘sensible’………They would probably have to introduce two different pension tax regimes to run in parallel, and that in itself would be a nightmare to implement and administer.
What they could however do is reduce the maximum cap on Tax Free Lump Sums which was sneakily introduced at £268,275 when the LTA was abolished. Much simpler. For sure I doubt that will ever be increased in line with inflation, certainly under a Labour govt.
I suspect that they will explore this route and probably do it by saying it will change in x years time giving people in the position you mention the time to take the remainder.
Anybody reaching 55 beyond that date will simply be tough.
Edited by skeeterm5 on Saturday 2nd December 15:58
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