Take or Leave it

dunstonh

NorthernGeezer wrote: »

By "elsewhere" I meant anything other than the usual investments associated with a pension.

You really need to say what these are then because pensions have the same investments as ISAs (gilts, bonds, equities and property, even some cash options).
So, no different there.

Cash savings is really the only other alternative. However, you wouldnt take 25% out of your pension just to put it in cash savings as that would be daft (in most cases).

The general rule of thumb is to take no more out of your pension than you need to unless there is a justification (which can include tax efficiency). So, unless there is a need for that 25%, you would likely leave it.

kidmugsy

dunstonh wrote: »

However, you wouldnt take 25% out of your pension just to put it in cash savings as that would be daft (in most cases).

There might be nothing daft about it. What's wrong with a 75:25 equity:cash portfolio, rebalanced annually (say)? It might do pretty well. I don't see why 80:20 or 60:40 equity: bonds is OK but 75:25 equity:cash is "daft".

dunstonh

kidmugsy wrote: »

There might be nothing daft about it. What's wrong with a 75:25 equity:cash portfolio, rebalanced annually (say)? It might do pretty well. I don't see why 80:20 or 60:40 equity: bonds is OK but 75:25 equity:cash is "daft".

Maybe do that within the pension then. Not need to crystallise the pension and take 25% now.

Let's say the fund is £100k now. 25% is 25k. If the money is not required it sits in a bank account getting naff rates. Plus, you dont get any more 25% TFC.

Let's say no money is required from the pension for 10 years and the fund doubles. If the TFC was taken that is £150k but no more TFC can be taken. It it wasn't taken, that is £50k tax-free cash money available instead of the £25k 10 years earlier.

There are plenty of people who are taking the TFC for no justification at all and just sticking it in a 1% savings account for the next decade or so. That is the daftness I am really on about.

kidmugsy

dunstonh wrote: »

Maybe do that within the pension then.

But the interest rates on cash within pensions may well be derisory. (I know it is in mine.) Rebalancing doesn't require that the money all be within the same wrapper. The cash could be within the wrapper of the savings allowance, for example, or the wrapper of the spouse. If the markets fall rebalancing could consist of putting some of the cash into an S&S ISA and buying equities there.

It's at least as easy to make the case that being 100% in equities at an age beyond 55 is daft.

ffacoffipawb

dunstonh wrote: »

Maybe do that within the pension then. Not need to crystallise the pension and take 25% now.

Let's say the fund is £100k now. 25% is 25k. If the money is not required it sits in a bank account getting naff rates. Plus, you dont get any more 25% TFC

The fear being, I think, the withdrawal of the 25% tax free cash. Gordon Brown renamed it as PCLS without the tax free moniker. It is still tax free now, but can see Corbyn's party wrecking the economy if they gain power (God help us) and having to scrabble around for cash from the populace.

NorthernGeezer_2

So, are we saying the only viable alternative which 'could' accrue more outside of a pension is cash?
I'm with Kidmugsy on this one, cash-in-a-pension rates are really non existent so if you can get a better deal outside its maybe worth considering.
The big question is, what are the best alternatives available where to stick it?

gf1966

Perhaps I'm missing something with the original question but my understanding was that you could take benefits from a Defined Contribution Pension either by Entering Drawdown or taking Uncrystallised Funds Pension Lump Sum (UFPLS) and under both circumstances you automatically get the 25% cash free lump sum.

Have I understood that correctly?

Does this question about whether or not to take the 25%tax free lump sum only apply to Defined Benefits Pension?

MK62

Perhaps I'm missing something with the original question but my understanding was that you could take benefits from a Defined Contribution Pension either by Entering Drawdown or taking Uncrystallised Funds Pension Lump Sum (UFPLS) and under both circumstances you automatically get the 25% cash free lump sum.

Have I understood that correctly?

Not quite, with drawdown, each tranche of your uncrystallised funds that you then crystallise, has up to 25% tax free cash available (though you don't have to take it).
Each tranche can be anything from the scheme minimum up to 100%.

With UFPLS, each withdrawal is from uncrystallised funds, and each withdrawal is 25% tax free (you have no option not to take it).

Does this question about whether or not to take the 25%tax free lump sum only apply to Defined Benefits Pension?

It applies to both DB and DC schemes, but the method of calculating the maximum tax free cash is different for a DB schemes (and the commutation factor - or how much annual pension you give up in exchange for the lump sum - often makes taking the cash not worthwhile)

gf1966

Thank you!

Not quite, with drawdown, each tranche of your uncrystallised funds that you then crystallise, has up to 25% tax free cash available (though you don't have to take it).

Is there a reason why you wouldn't want to take the 25% tax free cash under these circumstances?