SIPP & Pension guidance - IM Private Clients

[Intelligent Money]

JulianPH said:

alfaspud said:

Thanks Julian.

Re-reading my OP I wasn’t clear that these are two scenarios separate in both purpose and timing.

The first scenario would be to take a small sum to use/take advantage of this year’s personal allowance. My thought was to use UFPLS for this, and it appears to fit well with “you take whatever amount you require, with 25% of this being treated as coming from your tax free cash”.

The second would be in about a year’s time, and flexi-drawdown as outlined by yourself above would be appropriate. My question is to confirm that accessing one type of benefit - e.g. UFPLS as above – does not prevent me accessing the remaining uncrystallised funds using another e.g.flexi-drawdown, or another UFPLS. My understanding the IM SIPP allows this – is that correct?

Dave

Hi Dave

No, you have to pick the one you want to use at outset.

You can take as much as you like, whenever you like, using either. The only difference is how it is treated for tax.

• With UFPLS everything is deemed to be a combination of tax free cash and taxable income.

• With drawdown you decide what you are withdrawing from the tax free cash pot and what is coming from the taxable income pot.

Drawdown therefore offers greater tax planning flexibility, which may be what you are seeking.

Hope that helps!

I think there is a bit of confusion between the question and the answer here. Let me use an example to try and bring some clarity

£100k total pension pot

£20k drawn as UFPLS (£5k is tax free £15k taxed as income)

£80k of the pot remains uncrystallised

This remaining £80k pot can be accessed at any time in the future in whatever format you want, so you could take another UFPLS, you could take all or some of it into drawdown, purchase an annuity etc

Hope that helps

Nik

[alfaspud]

Intelligent Money said:

I think there is a bit of confusion between the question and the answer here. Let me use an example to try and bring some clarity

£100k total pension pot

£20k drawn as UFPLS (£5k is tax free £15k taxed as income)

£80k of the pot remains uncrystallised

This remaining £80k pot can be accessed at any time in the future in whatever format you want, so you could take another UFPLS, you could take all or some of it into drawdown, purchase an annuity etc

Hope that helps

Nik

Hi Nik,

Thanks for clarifying – your example reflects my intent and answers my concerns / questions

I have a related question to this - what’s the latest date I can request a UFPLS payment for this tax year, or has that date already passed?

Dave

[Intelligent Money]

alfaspud said:

Intelligent Money said:

I think there is a bit of confusion between the question and the answer here. Let me use an example to try and bring some clarity

£100k total pension pot

£20k drawn as UFPLS (£5k is tax free £15k taxed as income)

£80k of the pot remains uncrystallised

This remaining £80k pot can be accessed at any time in the future in whatever format you want, so you could take another UFPLS, you could take all or some of it into drawdown, purchase an annuity etc

Hope that helps

Nik

Hi Nik,

Thanks for clarifying – your example reflects my intent and answers my concerns / questions

I have a related question to this - what’s the latest date I can request a UFPLS payment for this tax year, or has that date already passed?

Dave

Hi Dave

Now would be good! Early Easter this year isn't helping with timelines to get things completed before Tax Year end!

Nik

[JulianPH]

Bonefish Blues said:

Why does the former exist at all then Julian, if that's not a daft question?

Mainly for the reasons Nik highlighted above (which I failed to include in my answer!).

[Jockman]

Whilst we’re on the subject……

If we get a Labour government and they enact their policy to reactivate an index linked lifetime allowance will they do the decent thing and free up the tax free lump sum to continue at 25% or will we end up with the worst of both worlds namely a moving LTA but a static TFLS?

Yeah, I know the acronyms are probably a bit old school.

[Car bon]

Too late - TFLS is already frozen even with no LTA. I can't see it ever being raised again.

[alscar]

Car bon said:

Too late - TFLS is already frozen even with no LTA. I can't see it ever being raised again.

Conversely could Labour reduce or abolish the 25% ?
They announced they would reverse the LTA abolition almost instantly but in reality I assume this isn't as simple as they think ?

[Car bon]

alscar said:

Conversely could Labour reduce or abolish the 25% ?
....

I think (hope) they'd at least have to phase it out. It would be hard to justify removing it from anyone over 55 who could have already taken it etc.

[pingu393]

Car bon said:

alscar said:

Conversely could Labour reduce or abolish the 25% ?
....

I think (hope) they'd at least have to phase it out. It would be hard to justify removing it from anyone over 55 who could have already taken it etc.

Which 25% is this? Is it the tax-free 25% on crystallisation?

[alscar]

Car bon said:

I think (hope) they'd at least have to phase it out. It would be hard to justify removing it from anyone over 55 who could have already taken it etc.

Quite - I guess I was thinking more of when some or none of the 25% had been taken as clawing it back from those that had already taken 100% of the 25% might be a push.

[alscar]

pingu393 said:

Which 25% is this? Is it the tax-free 25% on crystallisation?

Yes although obviously you don’t necessarily have to take the 25% total in one go.

[pingu393]

alscar said:

pingu393 said:

Which 25% is this? Is it the tax-free 25% on crystallisation?

Yes although obviously you don’t necessarily have to take the 25% total in one go.

I predict there will be a run on the pension funds as everyone tries to take their 25%.

It probably won't be too bad for IM, as most would do a transfer from SIPP to ISA or GIA, but it could collapse some of the others.

[mikeiow]

pingu393 said:

alscar said:

pingu393 said:

Which 25% is this? Is it the tax-free 25% on crystallisation?

Yes although obviously you don’t necessarily have to take the 25% total in one go.

I predict there will be a run on the pension funds as everyone tries to take their 25%.

It probably won't be too bad for IM, as most would do a transfer from SIPP to ISA or GIA, but it could collapse some of the others.

Collapse?
Feels a bit strong. Most pension funds are in pretty big institutions (Aviva, L&G, etc).

[markiii]

markiii said:

At 51 I'm praying they don't fk with it off the bat

[pingu393]

mikeiow said:

pingu393 said:

alscar said:

pingu393 said:

Which 25% is this? Is it the tax-free 25% on crystallisation?

Yes although obviously you don’t necessarily have to take the 25% total in one go.

I predict there will be a run on the pension funds as everyone tries to take their 25%.

It probably won't be too bad for IM, as most would do a transfer from SIPP to ISA or GIA, but it could collapse some of the others.

Collapse?
Feels a bit strong. Most pension funds are in pretty big institutions (Aviva, L&G, etc).

There are LOTS of people who haven't touched their pensions, but could if they wanted.

Many people in their 60s are putting off the day, and haven't needed to crystallise. If the 25% allowance is going to be removed, they will crystallise. That's LOTS of people withdrawing 25% of their pensions in a VERY short time. The only penalty will be that they can only invest £4k from then on.

We may also end up with those aged 60 to 67/68 not working and then they will not be paying income tax nor NI. They probably have enough NI years already to get the full state pension, so no harm to them.

Personally, I'd crystallise the 25% of my SIPP, take my civil service pension (I was contemplating deferring it) and live a tax-free life without working.

[Jockman]

pingu393 said:

There are LOTS of people who haven't touched their pensions, but could if they wanted.

Many people in their 60s are putting off the day, and haven't needed to crystallise. If the 25% allowance is going to be removed, they will crystallise. That's LOTS of people withdrawing 25% of their pensions in a VERY short time. The only penalty will be that they can only invest £4k from then on.

We may also end up with those aged 60 to 67/68 not working and then they will not be paying income tax nor NI. They probably have enough NI years already to get the full state pension, so no harm to them.

Personally, I'd crystallise the 25% of my SIPP, take my civil service pension (I was contemplating deferring it) and live a tax-free life without working.

Taking your TFLS won’t affect your contribution level unless you go into drawdown.

Thereafter the MPAA has now risen to £10k I believe.

[alscar]

pingu393 said:

There are LOTS of people who haven't touched their pensions, but could if they wanted.

Many people in their 60s are putting off the day, and haven't needed to crystallise. If the 25% allowance is going to be removed, they will crystallise. That's LOTS of people withdrawing 25% of their pensions in a VERY short time. The only penalty will be that they can only invest £4k from then on.

We may also end up with those aged 60 to 67/68 not working and then they will not be paying income tax nor NI. They probably have enough NI years already to get the full state pension, so no harm to them.

Personally, I'd crystallise the 25% of my SIPP, take my civil service pension (I was contemplating deferring it) and live a tax-free life without working.

I think the issue more than potential collapse of some funds ( which I am not sure I see particularly ) is timing.
If Labour win and if they decided to either play with the LTA and / or Tax fee element would that be retroactive ,immediate or at some future date ?
I am having this conversation with my FA now as whilst no-one knows if there is a chance to do some proactive planning then I would rather do it now !

[Intelligent Money]

alscar said:

pingu393 said:

There are LOTS of people who haven't touched their pensions, but could if they wanted.

Many people in their 60s are putting off the day, and haven't needed to crystallise. If the 25% allowance is going to be removed, they will crystallise. That's LOTS of people withdrawing 25% of their pensions in a VERY short time. The only penalty will be that they can only invest £4k from then on.

We may also end up with those aged 60 to 67/68 not working and then they will not be paying income tax nor NI. They probably have enough NI years already to get the full state pension, so no harm to them.

Personally, I'd crystallise the 25% of my SIPP, take my civil service pension (I was contemplating deferring it) and live a tax-free life without working.

I think the issue more than potential collapse of some funds ( which I am not sure I see particularly ) is timing.
If Labour win and if they decided to either play with the LTA and / or Tax fee element would that be retroactive ,immediate or at some future date ?
I am having this conversation with my FA now as whilst no-one knows if there is a chance to do some proactive planning then I would rather do it now !

Very difficult to do any proactive planning when you don't know what you are planning for!

As you say no one knows what may be included in a Labour finance bill. Any previous changes to pension legislation have always been applied with the ability for you to protect benefits that have already accrued so I would think that any changes made will follow that pattern.

That would mean that you have adequate time to plan after the details of the changes have been released. As an example should the 25% tax free element be changed (and rumours of its change have only been around for the last 15 years) then it is likely that you will have the option to protect access to any tax free cash that you have accrued before the changes are implemented. Any benefits that accrue after that date will be subject to the new rules.

LTA is a prime example of this. When it was introduced in 2006 there were two types of protection included in the legislation to help anyone with benefits above the LTA at the time and make sure they weren't disadvantaged by the changes.

Cheers

Nik

[alscar]

Intelligent Money said:

Very difficult to do any proactive planning when you don't know what you are planning for!

As you say no one knows what may be included in a Labour finance bill. Any previous changes to pension legislation have always been applied with the ability for you to protect benefits that have already accrued so I would think that any changes made will follow that pattern.

That would mean that you have adequate time to plan after the details of the changes have been released. As an example should the 25% tax free element be changed (and rumours of its change have only been around for the last 15 years) then it is likely that you will have the option to protect access to any tax free cash that you have accrued before the changes are implemented. Any benefits that accrue after that date will be subject to the new rules.

LTA is a prime example of this. When it was introduced in 2006 there were two types of protection included in the legislation to help anyone with benefits above the LTA at the time and make sure they weren't disadvantaged by the changes.

Cheers

Nik

Thanks for your placating words Nik.
I suppose my thoughts are also about trying to " protect " the tax saving at 75 which the abolition of the LTA has given me especially as I was already under 2014 fixed protection but as you say if time given then maybe I'm over thinking it unnecessarily.

[Mr Pointy]

pingu393 said:

I predict there will be a run on the pension funds as everyone tries to take their 25%.

It probably won't be too bad for IM, as most would do a transfer from SIPP to ISA or GIA, but it could collapse some of the others.

Why would there be a collapse? Banks collapse because they loan deposits out to make money & hence don't have all the deposited cash on hand. Pension funds use your deposit to buy an asset (stock, fund etc) & always have that asset to sell.