Planning Drawdown

kidmugsy

I take my capped drawdown as one lump per pension year. My pension year is not aligned with the tax year so that if it suits me, I can draw nil in one tax year and double the normal in the next. I've used this manoeuvre once already and it saved me some tax, hurray!

kidmugsy

P.S. It was someone on MSE who told me that the two "tranches" or "pots" are referred to as "arrangements".

peterg1965

A question for the IFAs, at the point of crystallisation, how do you and HMRC know what portion of LTA has been used? Is there a formal letter from the pension provider and/or HMRC to say what % has been used?

Then after crystallisation you can continue to grow the remaining 75% pension pot (assuming 25% Tax free taken) to whatever size you can/want and this has no bearing on subsequent pension crystallisation's.

gadgetmind

kidmugsy wrote: »

P.S. It was someone on MSE who told me that the two "tranches" or "pots" are referred to as "arrangements".

The financial industry delights in having loads of terms for the same thing, and overloading terms such as "bond" with many different meanings.

I've seen pension pots called "arrangements", "schemes", "policies", "plans", and many other things besides.

My Group Personal Pension web site regularly uses three different terms and sometimes two different ones on the same page.

Camdoon

GhIFA wrote: »

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.

I will fall into the category of having over £20k work and state pension. In addition I have £15k in a Standard Life stakeholder pension and £40k in Scottish Widows AVCs. I am considering merging these and using flexible drawdown as required. Anything I have read talks about taxing the drawdown but makes no mention of the 25% tax free. Also is 25% of any growth tax free or how does that work? Sorry if these have been answered before.

xylophone

http://www.evolvefp.com/articles-a-opinion/157-flexible-drawdown-a-year-on-was-all-the-fuss-worthwhile might be worth a look.

jamesd

gadgetmind wrote: »

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

Consider the effect of starting say three chunks at 16 month intervals. You now have staggered GAD calculations for both the three yearly calculations before 75 and the annual ones after 75. That can help to smooth out variations in the capped income level due to capital value or rule changes.

GhIFA

Gatser wrote: »

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?

Your plan will then consist of two parts - the crystallised fund (i.e. approx £150k after taking tax free lump sum), and the non-crystallised fund (still approx £200k).

You can crystallise further funds whenever you want from the remaining crystallised fund. In your example, whilst the overall value of the plan has increased by £30k, if this has been split evenly between the crystallised and uncrystallised funds, then you will have a further £215k available to you to crystallise.

Hope that helps.

gadgetmind

jamesd wrote: »

You now have staggered GAD calculations for both the three yearly calculations

How do drawdown providers track this? Do they keep everything in separate pots (as most (all?) do for crystallised versus uncrystallised) or is it all hypothecated?

I guess you also get hit with 3x the GAD calculation fees?

What happens if you switch drawdown provider?

Sorry for all the questions!

Gatser

GhIFA wrote: »

Your plan will then consist of two parts - the crystallised fund (i.e. approx £150k after taking tax free lump sum), and the non-crystallised fund (still approx £200k).
You can crystallise further funds whenever you want from the remaining crystallised fund. In your example, whilst the overall value of the plan has increased by £30k, if this has been split evenly between the crystallised and uncrystallised funds, then you will have a further £215k available to you to crystallise.
Hope that helps.

Errrr.... I think so thanks.... but just to check...

I am thinking there must be an "approved" method for apportioning the total investments value between Crystallised(C) & Non Crystallised(NC) "pots"?
Your answer suggests that this is done by allocating in proportion to N:NC.

However... I would argue that following the withdrawal of the £50k TFC we are left with Investments of £350k, split as:
C = £150k and NC £200k (ie 43%:57%)
Therefore any change in Investments value should be allocated 57% to the NC pot.

Am I correct?

I am not an IFA.... just a stubborn accountant! Cheers!!:beer: