TFLS in stages?

JohnCelt wrote: »

If I put my pension pot in an income downdrawn sheme or SIPP, can I take the tax free lump sum in stages over a 4 year period? My plan would be to use my State pension and some income downdrawn to reach the tax free allowance of 10k p.a. then top that up with a further 10k p.a. from my £40k tax free allowance. Thanks

If you use phased drawdown and only crystallise a section of your pension, then yes you could do that.

This was offered to me when I went into drawdown - to be frank I didn't/don't get why phasing the tax free cash over a period instead of taking it asap in a lump might be a good thing

It can be the most beneficial way of doing it. Indeed, from next year, it may well be the best way.

if you've the patience can you please set out why spreading out taking the tax free cash over a longer period can be better than taking it all at once as soon as you go into drawdown?

Say you want an income of £x a year. You only crystallise enough of the pension so that the tax free lump sum forms part of that and the rest if made up of income. You only pay income tax on the income part. Not the tax free lump sum. So, you reduce the tax paid.

Plus, as you have only crystallised part of the pension, the uncrystallised part retains its full tax free death benefits (unlike crystallised funds)

I'm surprised your Scot Wid tied sales agents didnt explain this to you. Or perhaps they are not authorised to do phased drawdown. Most tied agents are not.

...and that part of the income will be tax free as it comes from the 25% lump sum entitlement.

even if you can't fit it in ISAs, unwrapped may be just as good. ISAs/pensions provide no tax saving on dividends for basic rate tax payers (though they do save tax on interest and property income dividends (PIDs)). and most ppl are unlikely to pay CGT (due to the large annual CGT allowance).

But then you would be paying tax on all the income and not have a tax free amount. Plus, you would have increased the taxation on death. And you would have taken the money out of a tax free wrapper to put into a taxable one (if above ISA allowance amount). Most people have bonds in their portfolio and gain from those being in the pension or ISA.

o be fair I was told it could be done and the mechanics of it were minutely explained but not how I could benefit -

Thats the problem when you dont get proper advice but get a menu type advice. They present the options for you to choose. Whereas you should be told what is best for you.

but eyeball to eyeball across the kitchen table with a woman wearing false eyelashes, stilettos and a power suit ........ I went for what I understood.

lol