New Pension Rules

EdGasket

Your_Hero wrote: »

No you've not understood me correctly at all.

Drawdown will effectively allow you to freely draw what you like, i.e. the capped limits are removed. Since you've take the tax-free cash out already, the remainder is fully taxed as income under PAYE. So you can still withdrawal your ad-hoc capital anytime, it just gets taxed. Your whole pot is crystallised now and a different set of rules apply upon death.

The other withdrawal method allows you to draw out any amount and take your tax-free cash with it in stages, i.e. 25% of whatever you take it tax-free. The rest of the pot is not crystallised.

Well that was exactly my point. The second method you describe effectively makes Drawdown redundant doesn't it? Why would anyone continue to choose drawdown? ..or are you saying that only drawdown lets you take the entire 25% of the pension tax-free in one go?

Your_Hero

EdGasket wrote: »

...or are you saying that only drawdown lets you take the entire 25% of the pension tax-free in one go?

Yes. This is why drawdown won't be made redundant as well as the other reasons I stated in my earlier posts (#2 and #6).

The only time UFPLS and drawdown will result in the same outcome is when you go for the full tax-free cash withdrawal and crystallise the whole pot.

EdGasket

So if I want to take out 25% tax free and then a little capital each year so as not to exceed my tax-free allowance, then that also should be tax free but it must all be done under 'drawdown' albeit with no calculations as to how much I can take out each year?

Alternatively I could take out £13,333 each year tax free under UFPLS assuming a £10K tax-free allowance and no other taxable income. Is that correct also? (25% = 3,333 and the remaining 10K is also tax free as it does not exceed the tax threshold)

Assuming either way I can manage, which is the better option?

Your_Hero

EdGasket wrote: »

So if I want to take out 25% tax free and then a little capital each year so as not to exceed my tax-free allowance, then that also should be tax free but it must all be done under 'drawdown' albeit with no calculations as to how much I can take out each year?

Alternatively I could take out £13,333 each year tax free under UFPLS assuming a £10K tax-free allowance and no other taxable income. Is that correct also? (25% = 3,333 and the remaining 10K is also tax free as it does not exceed the tax threshold)

Correct.

Assuming either way I can manage, which is the better option?

There is no 'better' option otherwise it would make one of them redundant as you say. It depends on your personal circumstances, preferences, death benefits etc. We also have to wait until the new law comes into force to see what the full regulation looks like.

Judwin

EdGasket wrote: »

Alternatively I could take out £13,333 each year tax free under UFPLS assuming a £10K tax-free allowance and no other taxable income. Is that correct also? (25% = 3,333 and the remaining 10K is also tax free as it does not exceed the tax threshold)

You can take out £14533 tax free this year by 'recycling' £2880 net / £3600 gross into the pension.

Withdraw £18133
Take 25% tax free = £4533
Take £10000 PA = £10000
Take £3600 taxed at 20% = £2880 nett
Put £2880 nett back into the pension = £3600 gross

Total amount in your pocket = £4533 + £10000 = £14533
Total reduction in your pension pot = £18133 - £3600 = £14533

Next years personal tax allowance is £10500, so next year you can take £15200 tax free.:beer:

Cheers
Judwin

EdGasket

I don't understand why you suggest Crystallise £18133?

According to the following website, under UFPLS none of the pension is crystalised:

http://www.scottishlife.co.uk/scotlife/web/site/Adviser/News/August2014/1408UFPLSexplained.asp

gadgetmind

Your_Hero wrote: »

The only time UFPLS and drawdown will result in the same outcome is when you go for the full tax-free cash withdrawal and crystallise the whole pot.

So, 99% of the time? (Or is "phased drawdown" really that popular?)

Your_Hero

EdGasket wrote: »

I don't understand why you suggest Crystallise £18133?

According to the following website, under UFPLS none of the pension is crystalised:

http://www.scottishlife.co.uk/scotli...Sexplained.asp

He means just withdraw £18,133.

gadgetmind wrote: »

So, 99% of the time?

I wouldn't say that as they're two distinct methods of withdrawing your funds.

People tend to take the full tax-free cash but leave the (crystallised) funds invested and draw the level of income required over many years. Only traditional drawdown can do this currently.

Under UFPLS, if you take the full tax-free cash, you're effectively withdrawing the whole pot out in one go and so the taxable 75% portion will be treated as income for the year. This would be disastrous for a large pension fund.

gadgetmind wrote: »

Or is "phased drawdown" really that popular?

It's a similar withdrawal method to phased drawdown but under a less complex set of arrangements, lower cost and no pot is crystallised.

gadgetmind

Thanks for the clarification.

It seems to be that UFPLS might have well been called "USELESS" as it doesn't seem to provide anything that the new uncapped drawdown and phased crystalisation can't.

Or is UFPLS (pronounced "USELESS" :-) just to make life a bit easier for pension companies who still use FORTRAN and punched taped on their computer systems?

Anyone on such a platform has probably got grim fees and lacklustre investment options, so moving and using drawdown (with phasing if they must) if probably a better option for most.

Judwin

EdGasket wrote: »

I don't understand why you suggest Crystallise £18133?

According to the following website, under UFPLS none of the pension is crystalised:

http://www.scottishlife.co.uk/scotlife/web/site/Adviser/News/August2014/1408UFPLSexplained.asp

Sorry, yes, I mean withdraw using UFPLS, not crystalise.

The point I was trying to make is that by recycling £2880/£3600 into the pension, you can withdraw an extra £1200 tax free over and above the obvious amount of PA + 25%.

Cheers
Judwin