part crystallise pot

ianc2003

is there any benefit to part crystallising a pension pot. I have a £400k pot and will be taking state pension in three months time. I estimate needing aprox $24000 pa to live on including state pension, so approx. £18k from the pension pot.


I would use some TFA to clear debts of approx. 10k.


I am considering crystallising 25% of the fund to give me £25k tax free and drawing on the remaining £75k. this should last approx. 4 -5years. with some £10 - £15k for holidays


Do the uncrystallised and crystallised funds perform differently regarding the future behaviour of the two pots?


Is this a realistic plan?

ermine

It's a reasonable thing to do, and you could consider a third way called UFPLS where you drawdown money and 25% of what you drawdown is tax-free. This gives your pension pot time to grow and may give you a larger pension and tax-free amount. It all depends on how you think you will do in the pension investments. You don't say what it is invested in, so it is impossible to say.

Have you talked to pensionwise, the government pensions advice line? Working out the merits of the options isn't easy if you come to the subject cold. With a pension amount that size you could also consider independent financial advice. There are inheritance tax opportunities with pensions, financial advice could pay for itself if that matters to you.

ianc2003

I am investing in True Potential cautious SIPP based on advice from an FA. He is no longer affiliated to them and I would like a second opinion. But am wary of paying for another financial advisor.

dunstonh

Have you worked out whether deferring the state pension and using the 75% element of the personal pension is a better option?

I estimate needing aprox $24000 pa to live on including state pension, so approx. £18k from the pension pot.

If you need £24k a year, what you are going to do when the personal pension money has run out and you have just state left?

Linton

Crystallised and non crystallised funds invested in the same funds will provide the same return.

Why only £6K from your SP - wont it be around £8K?

After the first 5 years you would appear to have £300K left plus some investment return. That may not be sufficient to safely provide you with a steady £18K/year (6% of the pot) inflation linked for the rest of your life if you are of average health particularly if you are 100% invested in a cautious portfolio.

ianc2003

Yes my mistake it would be 8k SP. Another thing I am not sure about is SERPS. I was given a pension estimate by Uk govin 2012 that mentioned an extra £30 per week from second pension. Yes I was contracted out for a period, not sure how long. This additional pension is not now mentioned in my new pension estimate, merely that I contracted out. Some or most so far of my contemporaries seem to be getting an extra amount on top of the new SP.

If one is only contracted out for some time should you not receive some af the additional pension, may this be mentioned when I finally get my pension in March.

Regarding my drawdown. How much should I expect to take to expext it to last. Currently it is not performing well only .6%up since july.

Linton

ianc2003 wrote: »

Yes my mistake it would be 8k SP. Another thing I am not sure about is SERPS. I was given a pension estimate by Uk govin 2012 that mentioned an extra £30 per week from second pension. Yes I was contracted out for a period, not sure how long. This additional pension is not now mentioned in my new pension estimate, merely that I contracted out. Some or most so far of my contemporaries seem to be getting an extra amount on top of the new SP.

If one is only contracted out for some time should you not receive some af the additional pension, may this be mentioned when I finally get my pension in March.

Regarding my drawdown. How much should I expect to take to expext it to last. Currently it is not performing well only .6%up since july.

SERPs was merged into the new state pension. It is no longer an extra. What happened is that in April 2016 a calculation was made comparing the pension accumulated under the old rules including SERPS and what would have been accumulated under the new rules without SERPs and with a reduction due to contracting out. The larger of the two was taken as a basis for thge new SP. So no-one lost out from what they would have got if there had been no change in the rules.

The effect is that people with significant SERPs may receive extra beyond the new SP and those with significant contracting out may get less than the new SP, but not less than they would have received under the old scheme.

You should get an up to date State Pension forecast - see https://www.gov.uk/check-state-pension

Linton

ianc2003 wrote: »

....
Regarding my drawdown. How much should I expect to take to expext it to last. Currently it is not performing well only .6%up since july.

It must be a really cautious portfolio, it hasnt even matched inflation. I suggest you review your investments with some urgency.

From a quick and very crude calculation....

If your investments match inflation and assume you die at 95 (75% chance of dying earlier) you would get 300000/30=£10K/year increasing with inflation. This is a gross figure - you would need to deduct tax.

Over the past 10 years I calculate a typical very cautious fund as having returned about 4.1%/year and inflation has been about 2.4%/year. These suggest a drawdown of around £12K inflation linked gross.

Note that these calculations assume that the return is steady. Any significant fluctuations would reduce the safe amount of drawdown. This means that higher equity investments would not provide a proportionately higher drawdown. I would have thought that £18K (6%) would be beyond any safe drawdown figure no matter what you invested in.