£780k pot how much would you drawdown each year

Gerbert

AlanP wrote

"That's the way it works, when you take a PCLS it is paid to you by the provider/platform."

In that case a follow-up question occurs to me, concerning the practicalities. Presumably the PCLS amount is calculated on a particular date as 25% of the entire SIPP, and presumably I am then responsible for liquidising enough of the assets in the SIPP into the cash part as I see fit, ready for the transfer. But what if, by the time I have done this, the value of the entire SIPP has gone down? Do I have to (am I allowed to?) take as tax-free cash what would then be more than 25% of the value of the SIPP at that point?

(BTW what is the standard way of quoting previous posts on this site?)

AlanP_2

Gerbert wrote: »

AlanP wrote

"That's the way it works, when you take a PCLS it is paid to you by the provider/platform."

In that case a follow-up question occurs to me, concerning the practicalities. Presumably the PCLS amount is calculated on a particular date as 25% of the entire SIPP, and presumably I am then responsible for liquidising enough of the assets in the SIPP into the cash part as I see fit, ready for the transfer. But what if, by the time I have done this, the value of the entire SIPP has gone down? Do I have to (am I allowed to?) take as tax-free cash what would then be more than 25% of the value of the SIPP at that point?

(BTW what is the standard way of quoting previous posts on this site?)

BLUE QUOTE button below the post you want to quote :beer:

I've not got to the drawdown stage myself so not sure how it works in practical terms.

Fermion

So the alternative answer is that crystallising and taking 25% entails literally removing that 25% entirely from the SIPP. That's a bother.

I am glad I asked the same question twice now. Is everyone on board with that answer? Fermion too?

Yes I agree - you have to take it out of the SIPP wrapper, but of course you can reinvest it in a different S&S ISA or simply a managed fund or S&S wrapper. This is what I did with my 25% lump sum, sold funds and shares to get to sufficient cash in the SIPP but then afterwards invested in other non SIPP wrapper. I assumed what you meant was to reinvest back into the same funds in a separate wrapper.

Interestingly, if you only go for partial drawdown (less than 100% ) then your drawdown provider will move the residual drawdown pot into a separate drawdown wrapper. Your residual uncrystallised will stay in the original SIPP wrapper. I left £1000 in my SIPP and went for partial drawdown so I could continue to invest £2880/per annum in my SIPP and get tax relief.

GSP

Sorry guys I'm lost with the latest posts, but glad it may have hopefully helped someone.

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!

Another question, very unlikely but say if rates shot up and annuities became very attractive to buy. Can both crystallised and uncrystallised money be used to buy these.
Thanks

zagfles

GSP wrote: »

Sorry guys I'm lost with the latest posts, but glad it may have hopefully helped someone.

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!

Another question, very unlikely but say if rates shot up and annuities became very attractive to buy. Can both crystallised and uncrystallised money be used to buy these.
Thanks

Yes. Generally with uncrystallised you'd take the 25% PCLS and buy the annuity with the 75%

Gerbert

Fermion wrote: »

Interestingly, if you only go for partial drawdown (less than 100% ) then your drawdown provider will move the residual drawdown pot into a separate drawdown wrapper. Your residual uncrystallised will stay in the original SIPP wrapper. I left £1000 in my SIPP and went for partial drawdown so I could continue to invest £2880/per annum in my SIPP and get tax relief.

These 'wrappers' are purely logical constructs, correct? How the moneys are allocated to investments is unaffected by moving them from one wrapper to another? And am I right in thinking that in this case any increase in value of the investments in the new 'drawdown wrapper' are tax-free just like in the original SIPP? Is a new drawdown wrapper set up for each partial crystallisation, or can they be amalgamated? (I can't see any advantage in having lots of them)

The realisation that I cannot leave the PCLS all invested in the SIPP has rather shifted my thinking. I had planned to take rather modest UFPLS amounts to live on each year until crystallising everything when the total pot value got close to the LTA, and then extracting enough from the drawdown fund each year until age 75 to prevent that limit being exceeded. But that gives me the problem of what to do with such a large PCLS all at once, given the £20K annual limit on S&S ISAs. Lazily I had hoped to leave it where it was.

Now I'm inclined to think it is better to go for phased (partial) crystallisation over 5-6 years, taking enough PCLS each year to cover living expenses plus £20K to go into a S&S ISA. A back of an envelope calculation suggests the difference would be that there would be correspondingly less PCLS at the end of the period than in the UFPLS route - but it would all be safely tucked away in a S&S ISA - and correspondingly more in the drawdown fund. It should still be possible to siphon off any gains each year (at basic rate tax) to avoid LTA trouble at age 75.

But I feel I should apologise to GSP for hijacking his/her thread like this. Once I have come to a settled conclusion about what to do I shall start one of my own, to see if anyone can unsettle it again.

GSP

No probs Gerbert.

Reading many of the posts the suggestions are either to keep money invested in the fund if its not being used, or take it out as soon as possible to keep away from LTA.

The question is which advice is right?

Gerbert

What I take away from all this is that (assuming one is not yet 75) the fund should be left invested unless and until it gets to the point where there is a danger of it hitting the LTA, and then should be crystallised - either in one go or bit by bit - so that you can

(a) pull out PCLS(s) from the tax-free SIPP wrapper (into eg a tax-free ISA wrapper) so that any growth there no longer counts in pushing you towards the LTA; and

(b) monitor the drawdown fund and each year withdraw whatever is necessary to prevent the total fund value(*) exceeding the LTA

(*) ie not just the drawdown fund value but the total fund, including the total of the PCLS(s) and anything yet uncrystallised (plus whatever other DB entitlements one might have of course)

And after the age of 75 the drawdown fund can be left to grow without limit without ever having to be tested against the LTA again, should you wish it to eg for tax-efficient inheritance purposes (though who knows what legislation the govt will have passed into law by then...).

GSP

Thanks for this Gerbert.
When would you say the danger point is of hitting the LTA.
Thanks

Gerbert

GSP wrote: »

Thanks for this Gerbert.
When would you say the danger point is of hitting the LTA.
Thanks

In post #63 of this thread, jamesd remarked that a pension fund of 81.8% of the LTA is "perilously close" (sorry, I don't know how to link to this directly). I take it that his judgement on this sort of thing is considerably better informed than my own, but FWIW that sounds about right to me

My own experience of my own occupational pension scheme over the last two decades is that gains of 20% or more in a single year have occurred three times out of twenty, which is not that uncommon (though the largest - 30% - was to some extent a recovery from the immediately preceding financial crisis of 2007-8 which lost 17% of the value over two years, and I imagine such a high figure as 30% is unlikely to occur except in such very unusual circumstances). So anyway I reckon that if my pension pot is within 80% of the LTA in any one year, I really shouldn't be too surprised if in the next year it crashes through it: that would require a 25% increase in one year, which is unusual but not unheard of. So the point at which the fund gets to 80% of the LTA strikes me as the latest point one should want to put off crystallising at least some of the fund.

OTOH of course, it has also happened that my pension pot has lost 20% of its value in one single year. This happened during the dotcom crash of 2000-3. In fact over those three years the fund lost 36% of its nominal value - more if you take inflation into account.

I have no idea if my experience is typical. I suggest you look through your own records, if you still have them, to see what happened over the last 20 years or so, and use that to inform your sense of what is possible or likely.

I read today that Jeremy Grantham of GMO apparently thinks that the current bull market might well go into overdrive in the next year or so, only to then lose fully half its value in an almighty crash that brings the world economy to its knees. The final crisis of capitalism, and the end of western democracy, or something. Who knows?

(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)