£780k pot how much would you drawdown each year

k6chris

[QUOTE=Gerbert;73674475

(I tried to post a link but "as a new user" I am not permitted to. Anti-spam precaution apparently. Fair enough. You can google if you are interested)[/QUOTE]

https://www.bloomberg.com/news/articles/2018-01-03/gmo-s-grantham-says-stocks-could-be-heading-for-a-melt-up

Gerbert

That's it, thanks!

GSP

Thanks very much Gerbert. Seems I don't have to do anything right now then.

With so many so called experts getting forecasts wrong now it seems, trying to forecast up to 10 years out when their six month attempt is wrong, I am pretty sceptical of these now, but they can't be ignored.

Gerbert

On further reflection though it strikes me that if one intends to phase one's crystallisations over a number of years (as I am inclined to think I should do myself), waiting for the total value to go above 80% of the LTA may be a bit late. That's because a high, say 20%, rise in value in the following year (unusual, but by no means unthinkable) would put you immediately on 96% and give you no choice but to crystallise everything immediately, contrary to your plan.

Once again, reviewing the ups and down of my own pension fund over the last 20 years (as they say: your experience may differ), I see that over no four-year period has the total rise in value been more than 33%, EXCEPT in the immediate aftermath of a crash (dotcom and financial). (BY "immediate aftermath" I mean the following two years, where the market is - I take it - reconsidering its recent negative overreaction). So given that we are not in that immediate aftermath position, beginning a phased drawdown over 4 years when the fund gets to 75% of the LTA should mean that one can complete it without hitting the LTA. No guarantees though, obvs.

That agrees with jamesd's suggestion in the post I referenced before: "I suggest you consider crystallising with 25% of the lifetime allowance each year", except that I think he meant 25% of the uncrystallised funds, given his analysis just before that.

What I don't understand though is why he then recommended, in the event of a big drop in the market, crystallising everything that remains immediately. I should have thought that if that happened, you could relax, as your fund would then be significantly further from the LTA and the pressure to crystallise would be correspondingly reduced.

jamesd seems to have left the thread, but maybe someone else could explain what he was getting at there?

jamesd

GSP wrote: »

Does this mean I actually have to spend a million pounds before I was taxed for exceeding the allowance?

No, the tax is either at crystallisation or age 75. If you have any uncrystallised money at 75 that's also checked against the allowance, like any growth in value of crystallised bits. So you can't avoid the lifetime allowance by not crystallising. That one is BCE 5b, here's the full list of BCEs.

GSP wrote: »

Also, would should my IFA know all this information you have posted? He will be retiring himself in the next five years, maybe sooner. I wonder what his appetite is for coming up with advice of this magnitude, and a plan.

As for westv's comment, I should be the one awake all night.

He'll know this and more. Probably hasn't yet run the numbers to recognise that you have a lifetime allowance issue to solve. At least you have a good problem.

goRt wrote: »

This is an area too complex for a forum and you should seek professional advice, use pension Wise's free facility or read and digest this:
https://www.gov.uk/guidance/pension-schemes-value-your-pension-for-lifetime-allowance-protection

Any mistakes were corrected. This stuff isn't too complicated for this forum. GSP is ineligible for Individual Protection 2016 but might be eligible for Fixed Protection 2016 and if eligible that would preserve the lifetime allowance at £1.25 million. Close timing since GSP was made redundant in early 2016. GSP, did you have any pension contributions made by anyone in your name on or after 6 April 2016?

goRt wrote: »

I did post up the correct position earlier in this thread but was ignored.

I doubt that your post was ignored, there just wasn't a need to write more about it because it was right.

goRt wrote: »

The simple/safe approach is to take your 25% PCLS now which crystallises your entire pot. Then bleed off from the SIPP all the fund growth each and every year. That way you avoid the issue on the LTA test at 75. This applies to people with 'large' funds like yourself.

That unnecessarily increases the amount that hasto be managed outside the pension immediately. GSP still has enough margin available to spread it out a bit, particularly if eligible for FP2016. It's not too bad, just not really necessary.

GSP wrote: »

Overall, interesting to read earlier the suggestion to keep all the money invested, while others suggest taking out as soon as possible. What to do!

Taking it out of the pension doesn't mean not investing it, just investing the withdrawn money outside the pension. You can and should do both withdrawing and keeping it invested.

GSP wrote: »

if rates shot up and annuities became very attractive to buy. Can both crystallised and uncrystallised money be used to buy these.

Yes but you wouldn't do it. The tax free lump sum ca be used to buy a non-pension annuity where most of the income is tax free. You'd lose that tax benefit if you bought with uncrystallised money.

GSP

Hey, and thanks jamesd.
No there haven't been any contributions since April 2016.

jamesd

GSP wrote: »

Seems I don't have to do anything right now then.

With so many so called experts getting forecasts wrong now it seems, trying to forecast up to 10 years out when their six month attempt is wrong, I am pretty sceptical of these now, but they can't be ignored.

You do. The problem with predictions is that they are about the future. I know that at current US equity valuations there's at least a 25% chance a year of a big drop. The problem is that doesn't say when, it's just a probability. There also has to be some sort of triggering event.

Since I can't know when, hedging is needed. A big drop is great for someone at risk from the lifetime allowance. But I can't know whether one will come along at a convenient time. So in case the not soon enough happens I suggest doing quite a bit each year. That way you're in decent shape whichever way the future turns out.

jamesd

GSP wrote: »

No there haven't been any contributions since April 2016.

Excellent! Time for you to read up on and apply for Fixed Protection 2016 to get back to the £1.25 million lifetime allowance. The existing percentage used can be recalculated once you tell the pension scheme your registration number for it. Very useful extra margin for you.

Carry on with starting to crystallise more, though.

And of course discuss with your IFA that you think you're eligible and want to apply. If they don't see why, explain about growth and the age 75 test.

jamesd

Gerbert wrote: »

What I don't understand though is why he then recommended, in the event of a big drop in the market, crystallising everything that remains immediately. I should have thought that if that happened, you could relax, as your fund would then be significantly further from the LTA and the pressure to crystallise would be correspondingly reduced

Markets bounce back up again, typically within a year or three. So to get the lifetime allowance benefit you need to crystallise during the down time, not wait. Which means crystallising all that remains if a drop comes along at a convenient time.

GSP

Thanks jamesd and thank you also Gerbert.

Although I haven't made any contributions since April 2916, does it make any difference that I transferred out of my db pension last Summer and started to drawdown.
Thanks.