any reason not to crystallise?

StellaN

Linton wrote: »

In you case it doesnt really make any difference as your husbands 25% can be ISA'ed in 1 year. The OP has a much larger pension pot so the lump sum is more of a problem.


One option that may make sense for some people is to defer taking their SP in order to extract more from a DC pot at a low or zero tax rate. This is again more for people with a very large DC pot where it may not be possible to extract all of the money without paying higher rate tax.

Yes, I thought so but my husband had a chat with the government pension wise advice service and they recommended UFPLS because he should keep most of it still invested in his pension! I was surprised at this because there is no IHT issues and he will need to drawdown after his state pension kicks in so surely the best method is to withdraw as much as possible from the SIPP over the next seven years into the ISA accounts?

aldershot

anselld wrote: »

My understanding in your example is that the 25% becomes outside the pension wrapper. Depending on your pension provider they may have the facility to leave it invested but that investment would be subject to tax (income, cgt, iht) in the same way as any other unwrapped investment. So effectively you have "taken it out" as far as the pension is concerned, even if you haven't converted to cash in bank.

This is useful. I think there is some confusion around using the term “cash”. I will go and ask HL but does anyone have experience of leaving the 25% invested as it is today? Eg let’s say I have £500,000 invested in a single fund. If I move it to drawdown, can it remain fully invested and would it then get split into 2 accounts, one as a flexible drawdown and the other as just an investment outside any wrapper?

aldershot

To answer my own question and to complete the thread for anyone else, I have received a drawdown illustration from HL and when moving from the SIPP to a drawdown account, you get one shot at taking tax free cash and that’s it. There has to be enough cash in the account to fund it or they won’t move the account across until there’s is. You don’t have to take the 25% of course and you don’t have move the whole SIPP to drawdown in one go either but you cannot leave the tax free amount invested, it has to be available in cash. You can of course then reinvest this amount as one sees fit, but you will have execution risk as you cash out and back in, not negligible as markets seem to be happy to move around by 2-4% on a daily basis.

EdSwippet

aldershot wrote: »

... when moving from the SIPP to a drawdown account, you get one shot at taking tax free cash and that’s it. ... You don’t have to take the 25% of course ...

Right. And it's very hard to think of any normal circumstance in which not taking the 25% tax free would be the better course of action.

aldershot wrote: »

.... you will have execution risk as you cash out and back in, not negligible as markets seem to be happy to move around by 2-4% on a daily basis.

I usually try to counter out-of-market risk by front-running the investments I am swapping into using a cash float from elsewhere. For some reason, markets always shoot upwards more or less vertically every time I am forced to cash for a period! I can see how this would be pretty tricky to do for a PCLS of around £160k though, which could be about what you'll be facing.

Crystallising in six to eight chunks over a reasonably short period might be doable -- if you can stand the repetitive paperwork, that is -- either with a proportionally smaller cash float or simply as a crystallisation form of 'pound-cost averaging' (surely markets cannot rise vertically on each of these chunks?!). Alternatively, maybe look at using options or futures as a way to hedge against sizeable market rises while in cash; although personally I have never resorted to these.