any reason not to crystallise?

aldershot

I'm 55, retired 18 months ago and not planning to have earned income again so cannot make further large SIPP contributions.

I have a final salary pension of around £21,000 pa at 62 so in under 7 years and £182 pw (£9,500 pa) in state pension at 67.

The DB pension is going to use 420,000 of my LA. If we assume the LA rises at 2%pa, it will be around £1.16m in 2025 and i will therefore need about 36% for this pension.

I have £525,000 in HL and £119,000 with Aegon (from old employer) in DC funds. These are mainly in equity funds so have slipped around 10% in the past quarter. I am thinking I should use this pull back to crystallise these funds or at least the HL one which should just keep me at or about the LA. Markets may go up or down but i cannot see the LA becoming significantly higher then forecast anytime soon given current politics.

I intend to drawdown £50,000 from the HL SIPP from next tax year to use up my 20% tax band as this seems the most tax efficient for the next 6 and a bit years. I don't need it to last into old age as we have other tax wrapped and unwrapped assets.

Is there any reason not to crystallise straight away now?

zagfles

aldershot wrote: »

I'm 55, retired 18 months ago and not planning to have earned income again so cannot make further large SIPP contributions.

I have a final salary pension of around £21,000 pa at 62 so in under 7 years and £182 pw (£9,500 pa) in state pension at 67.

The DB pension is going to use 420,000 of my LA. If we assume the LA rises at 2%pa, it will be around £1.16m in 2025 and i will therefore need about 36% for this pension.

Surely the DB pension is revalued with inflation? Or are you assuming it will be £21k pa after revaluation?

I have £525,000 in HL and £119,000 with Aegon (from old employer) in DC funds. These are mainly in equity funds so have slipped around 10% in the past quarter. I am thinking I should use this pull back to crystallise these funds or at least the HL one which should just keep me at or about the LA. Markets may go up or down but i cannot see the LA becoming significantly higher then forecast anytime soon given current politics.

I intend to drawdown £50,000 from the HL SIPP from next tax year to use up my 20% tax band as this seems the most tax efficient for the next 6 and a bit years. I don't need it to last into old age as we have other tax wrapped and unwrapped assets.

Is there any reason not to crystallise straight away now?

There are reasons not to crystallise, mainly that you'll end up with a large amount in unwrapped assets, but the LTA issue is likely to outweigh any negatives of crystallising.

Marcon

Are you likely to have any IHT issues (hopefully not for ages yet!)?

aldershot

zagfles wrote: »

Surely the DB pension is revalued with inflation? Or are you assuming it will be £21k pa after revaluation?

It’s accruing at a fixed 5% pa (lucky me) so the forecast is accurate for 2025. I did check this with the administrators last year.

aldershot

Marcon wrote: »

Are you likely to have any IHT issues (hopefully not for ages yet!)?

To be honest we might in the distant future but there’s a lot of water to flow under the bridge before then. I’m rather hoping we can spend it all over the next 30 years.

I think spending unwrapped cash whilst not using any tax allowances or 20% bands will just leave potential for higher rate tax in the future.

Albermarle

You do not mention the 25% TFLS you can take from each pension.
For the DB one it will not make much, if any difference . However for the DC pots , taking around £160K in Tax free cash now as a first step could be the best idea .

anselld

aldershot wrote: »

The DB pension is going to use 420,000 of my LA. If we assume the LA rises at 2%pa, it will be around £1.16m in 2025 and i will therefore need about 36% for this pension.


Is there any reason not to crystallise straight away now?

Bear in mind that any portion of the LA which has been used by crystallisation is no longer indexed.

Ie if you crystallised £650k today only the remaining 380k inflates leading to circa £430k remaining LA in 2025.

anselld

... also ...

If you crystallise now to try to take advantage of a low market you will be withdrawing the 25% TFLS from the market at the same low point (if that proves to be the case).

What will you do with the TFLS funds to make sure you are not penalising yourself by exiting the market on a low?

Audaxer

aldershot wrote: »

To be honest we might in the distant future but there’s a lot of water to flow under the bridge before then. I’m rather hoping we can spend it all over the next 30 years.

I think spending unwrapped cash whilst not using any tax allowances or 20% bands will just leave potential for higher rate tax in the future.

If you took out £50k from the SIPP each year and you don't want to keep it as unwrapped, could you not just reinvest what you don't need to spend into an S&S ISA (up to £20k pa each for you and your other half)? You can reinvest it in the same funds as was in your SIPP, so just effectively moving funds from your SIPP to a tax fee S&S ISA each year.

aldershot

anselld wrote: »

... also ...

If you crystallise now to try to take advantage of a low market you will be withdrawing the 25% TFLS from the market at the same low point (if that proves to be the case).

What will you do with the TFLS funds to make sure you are not penalising yourself by exiting the market on a low?

I wasn’t necessarily intending to take the 25% out now. I have enough cash in the fund for the first year and I was considering taking it annually so £16,666 on top of £50k pa and leaving the rest accruing and then convert £66k pa to cash.

I’m so close to the LA I feel I have to do something.

aldershot

Audaxer wrote: »

If you took out £50k from the SIPP each year and you don't want to keep it as unwrapped, could you not just reinvest what you don't need to spend into an S&S ISA (up to £20k pa each for you and your other half)? You can reinvest it in the same funds as was in your SIPP, so just effectively moving funds from your SIPP to a tax fee S&S ISA each year.

Yes. Doing that already moving unwrapped cash to ISA funds. Eventually it’s just a matter of juggling cash and funds from their various wrapped and unwrapped places and having enough to live on.