Part crystallized/non crystallized pension query

Bemma

I'm looking for some clarity on crystallized and non crystallized pension pots.

At age 55…

If I have a pension pot of £500k, I believe I can crystallized part of it… say £100k, taking a TFLS of £25k and leaving the remaining £75k as crystallized funds. This would result in:
Uncrystalized pot: £400k
Crystallized pot: £75k
TFLS now outside on pension of £25k

I want to continue working and contributing more than £3.6k to my pension until aged 60.

I believe this is allowed as long as I don’t drawdown from my pension, is this correct?
Does my pension then exist as two 'notional' pots, one crystallized and one non crystallized, but are really just one pot of £475k?
What happens to on going growth, is this split pro-rata across the two pots?

Thanks in advance for any clarity.

Bemma

AlanP_2

You have it right essentially. Your provider will manage the internal allocation of growth so you will see it split across them as you say.

OK to carry on contributing but be aware of Recycling Rules for the TFLS - https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/

If not increasing compared to what you are doing now should be no problem at all. You will be limited to £4k a year if you take even 1p of taxable income from your pot over and above the TFLS.

Bemma

Thanks.

Sorry, I thought the amount after MPAA was 3.6k. Thanks for correcting that.

Will any further contribution go into the non crystallized pot or will there be a third pot for new funds?

I suppose this doesn't matter and my provider will manage the split between crystallized and non crystallized funds.

dunstonh

What happens to on going growth, is this split pro-rata across the two pots?

Think of it as having two segments. With some providers, you can actually invest both segments differently and they clearly mark it. With others they do not. However, behind the scenes, they are two segments.

Remember that drawing your tax free cash this way will prevent you from utilising phased flexi-access drawdown later on (or severely handicap it at least). This method is very popular and you should consider the impact of you drawing the lump sum now.

Albermarle

Remember that drawing your tax free cash this way will prevent you from utilising phased flexi-access drawdown later on (or severely handicap it at least). This method is very popular and you should consider the impact of you drawing the lump sum now.

Dunston- Could you explain this comment a bit further please.
I thought with flexi access drawdown you could usually take some of the tax free money ( as opposed to taking all of it at once) and then an appropriate amount would be then crystallised . As this is what the OP intends to do , then why does it cause an issue later ?

dunstonh

I thought with flexi access drawdown you could usually take some of the tax free money ( as opposed to taking all of it at once) and then an appropriate amount would be then crystallised .

Correct.

As this is what the OP intends to do , then why does it cause an issue later ?

By taking all, some or most of the 25% TFC it either prevents or reduces the ability to use phased flexi-access drawdown. That method uses the 25% as part of the income provision. That can be a very tax efficient method in retirement and result in more tax free cash being issued over time.

So, by taking 25% early up front, it prevents phased flexi-access from being used later on unless significant contributions are made after the 25% is taken to replace it.

If that method is not going to be used then its not a problem. We dont know what the planned retirement income method is.

Bemma

I have a few years to go, currently 49, but plan to fairly drastically increase my contributions in a few years, possibly 'flushing' some savings through my pension, which I could reinstate at 55 if desired. I'm trying out a few models on my spreadsheet to validate my options.

At 53+ I may max out at £40k contributions per year for a few years.
The lump sum removed at 55 will be a fairly small amount of my pot. Significant contributions will continue until 60 (possibly £40k per year via salary sacrifice, which cost me less than £20k net - mix of 40/20% Tax, 2/12% NI, 7% employers NI and saving on HICBC ).
My salary sacrifice is generous with 7% of employers NI on top on my contribution (maybe that's normal!)
I'm watching the LTA and the recycling rules.

At 60 I would most likely use flexi access an uncrystalized a pot around £800k.

zagfles

dunstonh wrote: »

Correct.



By taking all, some or most of the 25% TFC it either prevents or reduces the ability to use phased flexi-access drawdown. That method uses the 25% as part of the income provision. That can be a very tax efficient method in retirement and result in more tax free cash being issued over time.

So, by taking 25% early up front, it prevents phased flexi-access from being used later on unless significant contributions are made after the 25% is taken to replace it.

If that method is not going to be used then its not a problem. We dont know what the planned retirement income method is.

Eh? OP is talking about using phased flexi-access drawdown! As described in the OP!

dunstonh

zagfles wrote: »

Eh? OP is talking about using phased flexi-access drawdown! As described in the OP!

I am not seeing any reference to phased flexi-access drawdown in there. The post says it is drawing 25% but leaving 75% in place.

Perhaps you would be so kind to point out where it says the 75% is being drawn?

westv

dunstonh wrote: »

I am not seeing any reference to phased flexi-access drawdown in there. The post says it is drawing 25% but leaving 75% in place.

Perhaps you would be so kind to point out where it says the 75% is being drawn?

The OP said they have a pot of £500k
They were considering crystalising £100k and taking £25k tax free

zagfles

dunstonh wrote: »

I am not seeing any reference to phased flexi-access drawdown in there. The post says it is drawing 25% but leaving 75% in place.

Of part of the pot! Not all. That's "phased". Or what would you call it?

Perhaps you would be so kind to point out where it says the 75% is being drawn?

You don't need to draw the 75% as well. That's a UFPLS (or equivalent to one).