Part crystallized/non crystallized pension query

zagfles

Bemma wrote: »

I didn't want to start a terminology debate but thanks to all as my understanding of the rules is much clearer now. Which was the intent of the post. I can now do the calcs on the scenarios that suit me.

Don't worry about it. It's the usual here Glad you're clear on the rules, they're really not that complicated and have been explained well by shinytop.

zagfles

dunstonh wrote: »

Taking zero income but a lump sum is flexi-access drawdown. Just as taking £1 or £100 or £1000 or whatever income would be.

Phased is the sequencing of withdrawals. Most typically the taking of income (which could be annually or monthly or other) where each monthly (or other) payment is made up of the 75/25%. e.g. £1000pm income which is £250pm tax free as the 25% and £750 as the 75%.

So basically UFPLS. Or part crystallisation and taking the whole 75% quite soon after which is very similar.

However, it can be other methods, Such as taking the 25% as a sequence of payments before the 75% is taken.

Terminology is not consistent across the board. Different providers and sites will refer to different methods in different ways. However, a certain person here deciding to make an issue over what I call it seems to have diverted from the point I was making is that phased flexi-access drawdown of 75/25 income would not be available if the 25% is taken early on.

Of course it is. The OPs example only crystallises a small part of the pot, he'll have a remaining "Uncrystalized pot: £400k" with which he can do exactly that.

That is a very popular method and can be very tax efficient over the lifetime. It is lost or severely reduced (as new contributions will have 25%) if the 25% is taken as a lump sum up front.

It can be a bit more tax efficient if you are going to invest the TFLS unwrapped, or for IHT/benefits reasons, or less efficent if LTA issues, but otherwise it's pretty much the same. Taking the 25% out and putting it into an ISA invested in the same stuff you end up with the same result as phasing, peripheral issues aside.

The OP taking zero income and 25% at 55 is just single drawdown. It isn't phased as there is no phasing.

The crystallisation is phased. He's only taking 25% of part of the pot, not the whole pot. Therefore phased

pensionpawn

shinytop wrote: »

I’m a bit confused about drawdown terminology. I thought there were 3 ways of taking money from a DC pension.

1. Flexi-access drawdown - You crystallise all of it. 25% is tax free and the rest is in a drawdown fund, where it will be taxed as income when you withdraw it.
2. UFPLS - You crystallise/withdraw a chunk where 25% is tax free and 75% is taxed. The 75% is taxed as income at the point you crystallise/withdraw the chunk. The remainder stays uncrystallised.
3. Phased Flexi-access drawdown. You crystallise a chunk. 25% of that chunk is withdrawn tax free and the rest is in a drawdown fund, where it will be taxed as income when you withdraw it. The remainder of your total fund stays uncrystallised. You can repeat 3 or do 2 or 1.

Have I missed something? It doesn’t help that the terminology isn’t consistent but I suppose it doesn’t really matter what you call it. I can see where 2. wouldn’t be the right thing to do in terms of income tax. I’m struggling a bit to see where 3 beats 1 as long as you’re equally careful about when you spend tax free/taxable income. Is it because tax could be due on any investment gains of your TFLS once it’s outside the pension?

I maybe wrong however I thought this was possible:

£200k pot
1. Crystallise £100k, take £25k TFLS leave remaining £75k for future drawdown. Annual allowance remains at £40k. £100k uncrystallised.
2. £100k uncrystalised pot increases to £120k via organic growth and contributions (ensuring recycling rules are not breached).
3. Crystallise £40k, take £10k TFLS leave remaining £30k for future drawdown (£105k total). Annual allowance remains at £40k. £80k uncrystalised.
4. £80k uncryslatised pot increases.... etc
5. Repeat 3-4 until your cumulative TFLS withdrawals reach 100% of pot / LTA

Surely it's just one system with the key point to note, certainly for me, is that you do not have to convert all of your pot into TFLS / drawdown in one go and that this may be repeated many times, with organic growth / contributions increasing the size of the uncrystallised sub-pot.

zagfles

pensionpawn wrote: »

I maybe wrong however I thought this was possible:

£200k pot
1. Crystallise £100k, take £25k TFLS leave remaining £75k for future drawdown. Annual allowance remains at £40k. £100k uncrystallised.
2. £100k uncrystalised pot increases to £120k via organic growth and contributions (ensuring recycling rules are not breached).
3. Crystallise £40k, take £10k TFLS leave remaining £30k for future drawdown (£105k total). Annual allowance remains at £40k. £80k uncrystalised.
4. £80k uncryslatised pot increases.... etc
5. Repeat 3-4 until your cumulative TFLS withdrawals reach 100% of pot / LTA

Surely it's just one system with the key point to note, certainly for me, is that you do not have to convert all of your pot into TFLS / drawdown in one go and that this may be repeated many times, with organic growth / contributions increasing the size of the uncrystallised sub-pot.

Other than recycling the TFLS, which you'd have to be be careful about so as not to contravene recycling rules, what do you hope to gain from this? What do you mean "100% of the pot", you can only get 25% of the pot tax free whatever method you choose, it might be 100% of the pot size at an earlier date before the pot grew or was added to, but why is that relevant at all? It might be 200% of the pot size at an earlier date!

shinytop

pensionpawn wrote: »

I maybe wrong however I thought this was possible:

£200k pot
1. Crystallise £100k, take £25k TFLS leave remaining £75k for future drawdown. Annual allowance remains at £40k. £100k uncrystallised.
2. £100k uncrystalised pot increases to £120k via organic growth and contributions (ensuring recycling rules are not breached).
3. Crystallise £40k, take £10k TFLS leave remaining £30k for future drawdown (£105k total). Annual allowance remains at £40k. £80k uncrystalised.
4. £80k uncryslatised pot increases.... etc
5. Repeat 3-4 until your cumulative TFLS withdrawals reach 100% of pot / LTA

Surely it's just one system with the key point to note, certainly for me, is that you do not have to convert all of your pot into TFLS / drawdown in one go and that this may be repeated many times, with organic growth / contributions increasing the size of the uncrystallised sub-pot.

I understood this was possible too. I think it's just that it's been deemed to be convenient/easier to explain to people by attaching labels/names to the different approaches. Remember that the contributors to this board are likely to be more financially inclined than average - although maybe that's the problem

zagfles

shinytop wrote: »

I understood this was possible too. I think it's just that it's been deemed to be convenient/easier to explain to people by attaching labels/names to the different approaches. Remember that the contributors to this board are likely to be more financially inclined than average - although maybe that's the problem

Also I think there's a tendancy for people to overcomplicate things or work out that if you do things in a certain way you get a better result, or a loophole.

A bit like the supposed loophole of putting £3600 gross into a pension and getting it straight back out again making an instant profit. It's not a loophole, it's the way the system works, any money put into a pension at any time gets the same advantageous treatment, it just becomes very obvious when you get that advantage immediately.

pensionpawn

zagfles wrote: »

Other than recycling the TFLS, which you'd have to be be careful about so as not to contravene recycling rules, what do you hope to gain from this? What do you mean "100% of the pot", you can only get 25% of the pot tax free whatever method you choose, it might be 100% of the pot size at an earlier date before the pot grew or was added to, but why is that relevant at all? It might be 200% of the pot size at an earlier date!

I'm merely suggesting that this 'phased' approach (to coin a phrase....) is an option. Two potential benefits being:
1. You can withdraw roughly 133% of your personal tax allowance each year tax free.
2. As you observed, the actual capital that can be liberated from the unused portion of the 25% TFLS can rise in value. In theory the fund could rise at a rate that permits a lower TFLS percentage to liberate the same value of cash. This can be repeated until the cumulative TFLS percentages reach 100%.