Planning Drawdown

Gatser

Have you got any HINTS, TIPS & TRAPS you would like to share on the subject of Pension Drawdown please?

* How do pension companies "mark" those crystallised funds that have had the 25% TFC taken from them?

* Is there a "Best Time" to start drawdown? ie to coincide with the tax year?

* Someone said you can take the drawdown as one lump sum rather than in instalments, is that correct or dependant on the pension company?

thanks... :cool:

mania112

1) They 'mark' the funds usually by having a seperate tranche (pot) for [un]crystallised. Everything else work in the same way as each other - same investments, etc.

2) Depends on your own tax situation, doesn't usually matter too much because more often than not your tax position improves when you leave work and start drawdown (you get less)

3) Income can always be taken annually, quarterly, monthly and Ad-Hoc(ly)...

GhIFA

The third option that you mention (taken as one lump sum) is Flexible Drawdown. This is only available if you have other sources of secure pension income (annuity already in payment, final salary pension in payment, state pension just as examples) in excess of £20,000pa. If you meet these criteria you can withdraw funds from you flexible drawdown pot as you please - however, you are still only entitled to 25% of the fund tax free - the rest will be treated as taxable income, and taxed accordingly.

gadgetmind

I'm planning to use drawdown but need to go around the sun another five times until HMG will allow me to access my money.

My preference will be to take my entire year's GAD allowance in a single bite at the start of the pension year (which I'll probably align with the tax year) as I can then invest/save outside of the pension.

I understand that the period during which the drawdown limit applies, the pension year if you like, starts when you crystallise. I think that if you crystallise in stages, all the bits in drawdown can have different years!

Perhaps someone else can confirm/refute this?

Gatser

GhIFA wrote: »

The third option that you mention (taken as one lump sum) is Flexible Drawdown.

Sorry I may have not been clear.

The 3rd point was asking about taking 25% TFC, then the INCOME in one annual payment. (Which I understand is possible)
I would prefer to have all the income in one hit, although I suppose it could then be exposed to a tax charge if it was all received in April?

Gatser

gadgetmind wrote: »

I'm planning to use drawdown but need to go around the sun another five times until HMG will allow me to access my money.

I suppose that means I must be getting ready to ignite my landing boosters! :j

GhIFA

Gatser wrote: »

Sorry I may have not been clear.

The 3rd point was asking about taking 25% TFC, then the INCOME in one annual payment. (Which I understand is possible)
I would prefer to have all the income in one hit, although I suppose it could then be exposed to a tax charge if it was all received in April?

Yes, you can do this. Apologies for the confusion.

GhIFA

gadgetmind wrote: »

I'm planning to use drawdown but need to go around the sun another five times until HMG will allow me to access my money.

My preference will be to take my entire year's GAD allowance in a single bite at the start of the pension year (which I'll probably align with the tax year) as I can then invest/save outside of the pension.

I understand that the period during which the drawdown limit applies, the pension year if you like, starts when you crystallise. I think that if you crystallise in stages, all the bits in drawdown can have different years!

Perhaps someone else can confirm/refute this?

Gadgetmind, each part of the plan crystallised will be treated as a separate tranche of money, which will have it's own three year income period, and likely a differing maximum GAD income to the others. Hope that clarifies, assuming I've interpreted the query correctly, if not then that's probably of no use whatsoever!

gadgetmind

GhIFA, yes, that's how I thought it worked, so thanks for the clarification.

All jolly complicated and a good argument against phased drawdown unless you've got good reasons to go this way.

System

GhIFA wrote: »

Gadgetmind, each part of the plan crystallised will be treated as a separate tranche of money,

There is a debate on Motley Fool about this. Opinion seems to be divided as to whether the crystalised and uncrystalised bits can have separately identified investments or whether they have a fixed proportion of the total pool of investments.
The distinction might be especially important where some was invested in property and some in straight funds.
Does someone know the definitive answer? It seems a pretty basic point of principle.

Gatser

What I do not understand, using an example:

YEAR1
Funds / Cash = £400k
So we chose to crystallise £200k, taking 25% TFC
This gives:
Funds/Cash = £350k
And records showing Crystallised £150k (in Drawdown)
NonCrystallised £200k

YEAR 4 (Review)
Now Funds/Cash valued at £380k
Can we now crystallise another £230k?