Help with drawdown strategy
Comments
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Thinking about the methods suggested by James and Dunston, is there generally any advantage in terms of fees charged between the following 3 options:
- Crystallise as you draw each month - 'Pure Dunston' method. No crystallised funds ever held in pension.
- Crystallise and draw a year's income in one go, liaising with HMRC to get your tax back. Again no crystallised funds in pension. 'Lumpy Dunston'
- Crystallise a big lump then take drawdown from crystallised funds held within the pension - The James method.
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Just depends on the pricing of the pension place being used, no fixed rule that one is cheaper or more expensive than the other. I suggest the one I do partly because it tends to be what is well supported in DIY pensions but no problem to do it a different way of the desired pension supports the desired option.
Entirely possible to mix and match, if the pension supports it. Can do say initial lump sum to pay into ISA then regular monthly payments of part taxed and part tax free as described by dunstonh. That's the sort of approach that's likely to be best if the chosen pension platform supports it, I just know it's not particularly common on the consumer DIY platforms to let it be done without making a request by hand every month.0 -
So exactly the same as UFPLS. Why used phased FAD rather than UFPLS?If you needed £8000 from the SIPP. That is 666pm. You would crystallise £666pm and 75% would be taxable and 25% would be tax free.
I would used phased FAD if I wanted to leave crystallised funds inside the pension. If I didn't, I would use UFPLS, that's what it's for.If there was no other income, you could crystallise enough to use up the personal allowance with the 75% chunk. That way you can draw £11,500 tax free under your personal allowance and the 25% part would be on top of that and not taxable. You can then put any excess you dont spend into the S&S ISA.
Phased flexi-access drawdown only crystallises what you draw each month. So, everything left behind is uncrystallised. And that uncrystallised pot has all options open to it in future.
By far the most common method we use as advisers is phased flexi-access drawdown. Yet most of the consumers we deal with know nothing about that method.
Or is that some providers can't cope with multiple UFPLSs through normal cumulative PAYE (so you have to mess around with tax refunds)? Otherwise, what's the advantage of using phased FAD where you withdraw the crystallised part against simply taking a UFPLS?0 -
Slight correction above.Phased is just a fancy name for doing it in stages. Doesn't have to be monthly, you can easily do something like crystallising £80k at the start of the year to get £20k for the ISA and 60k in a taxable pension pot. Then you can set up regular payments from that 60k each month to use your remaining personal allowance. Add crystallising some more to get extra income.
The reason I describe it this way is that it's relatively uncommon for consumer SIPP places to offer the option of taking regular monthly payments of part tax free and part taxable. Not unheard of, I think Standard Life offers this for consumers but their product is unattractive for other reasons.
So far as the 25% tax free lump sum goes, you must take all of the 25% at the time you crystallise a portion of the pot. If you want to crystallise £100k you mus take 25k tax free lump sum then, if you take just 20k tax free lump sum you lose the ability to take the extra 5k from this chunk later. You aren't forced to take the whole 25%, it's fine to take just 20k tax free lump sum when crystallising 100k, it's just wasteful.0 -
The difference between the 3 methods will likely be trivial, possibly small differences in fees and in the amount of admin, as with everything it'll be a compromise between the best value method and the easiest method. But nothing to get too hung up on. Give one a try and switch to another if it's too much hassle.Thinking about the methods suggested by James and Dunston, is there generally any advantage in terms of fees charged between the following 3 options:- Crystallise as you draw each month - 'Pure Dunston' method. No crystallised funds ever held in pension.
- Crystallise and draw a year's income in one go, liaising with HMRC to get your tax back. Again no crystallised funds in pension. 'Lumpy Dunston'
- Crystallise a big lump then take drawdown from crystallised funds held within the pension - The James method.
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Phased is just a fancy name for doing it in stages.
Phased is the term that has been used for over a decade for people doing it that way.The reason I describe it this way is that it's relatively uncommon for consumer SIPP places to offer the option of taking regular monthly payments of part tax free and part taxable.
Are you sure? I don't know the DIY providers as well as you but the IFA side of things sees virtually all providers offer that option. So, that would be a surprise as generally, the DIY providers have newer software and are able to code changes easier than the bigger companies.Thinking about the methods suggested by James and Dunston, is there generally any advantage in terms of fees charged between the following 3 options:
Shouldnt be any difference in charges. Not with the IFA providers. However, I will those who know more about the DIY providers verify that side of things.So exactly the same as UFPLS. Why used phased FAD rather than UFPLS?
Phased is the term that has been used for the last 20 years.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Erm, yes. That wasn't the question.Phased is the term that has been used for the last 20 years.
Phased FAD and UFPLS are different options. You seem to be suggesting using phased FAD but taking out the entire crystallised part at the same time as the tax free part.
Why? That's exactly what a UFPLS does. So why not just do that? The OP mentioned using UFPLSs in her OP. Anyone would think you're trying to confuse her by suggesting a more complicated way of achieving exactly the same thing!
Unless there is some advantage to using phased FAD and taking the crystallised part at the same time? Which was my question.0 -
Phased FAD and UFPLS are different options. You seem to be suggesting using phased FAD but taking out the entire crystallised part at the same time as the tax free part.
I think you may not know what phased drawdown is. Take a read and it will probably answer the questions you have.Why? That's exactly what a UFPLS does. So why not just do that? The OP mentioned using UFPLSs in her OP. Anyone would think you're trying to confuse her by suggesting a more complicated way of achieving exactly the same thing!
Your option is more complicated. Phased is much more convenient than UFPLS (which is ad-hoc or one off).Unless there is some advantage to using phased FAD and taking the crystallised part at the same time? Which was my question.
Already answered in the thread.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Nope. I know what phased FAD is. It's crystallising part of the pension, taking the TFLS, but not necessarily withdrawing all of the taxed part (though you can).I think you may not know what phased drawdown is. Take a read and it will probably answer the questions you have.
So how does it differ? Crystallising or phasing is also generally ad-hoc. Or is it just an admin thing - some providers allow you to set up monthly phased crystallisation but not monthly UFPLS?Your option is more complicated. Phased is much more convenient than UFPLS (which is ad-hoc or one off).
Basically the end result is the same, so it might be worth the OP having a word with her provider as to which is the easiest option admin wise.0 -
My OH and myself are approaching retirement in the next few years. Ahead of that I am trying to understand which method to use to access our SIPP's either Flexi–access drawdown or Uncrystallised Funds Pension Lump Sum (UFPLS).
Our SIPP's are approaching £300,000 each and we have ISA's of 250,000 each. We would like to ideally live off the natural yield from the mixture of funds, IT's, REITs we have until we hit State pension age and then either use that and reduce how much we are taking from our SIPP so we can leave something for our children or perhaps defer SP for a few years and then reduce withdrawals from SIPP.
What I cannot get my head round is how to take the yield from the SIPP's. We do not need a tax free lump sum ( mortgage free) and will have 2-3 years of planned annual spending in cash (£30,000 pa is our target) Do I crystallise them in one go? , in stages? How do I maintain the % allocation to funds if some are crystallised and some are not. We are currently with Interactive Investor but would consider moving if it makes managing this easier.
What method, flexi-drawdawn or UFPLS would suite our requirements best and how do we put these into practice.
TIA
Gallygirl
to OP .
you have heard a range of responses and your options are hopefully clearer!
your target of 3% drawdown from 1.1 million total fund should prove straightforward and not onerous. As others have said , use up your respective allowances before tax , then drawdown as required to meet your income needs.
In your shoes, I would see an IFA who would map this out for you and meet your objectives?
You don't say your ages or exactly when you will both stop work but "several years away" suggests you are in your 60's now with perhaps 3 or 4 years to go? obviously you both need to factor in when your State Pensions start. (and any other Pensions you may have?)
me and Mrs MG did a similar exercise a couple of years back and so far so good!
we are with fidelity and we just draw down untaxed funds from a cash account.
we have 5 accounts (two personal pensions , two ISA's and one Cash/investment account)
Its all managed by our IFA and we have reviews annually . I have confidence in them and the returns basically speak for themselves . there is a cost but you ask yourself could i do better ? do I want the hassle?
good luck ! you are well set up for the future.get a good IFA in place0
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