Taking 25% PCLS

NeilC1965

What are the pro's / cons of taking the 25% Pension Commencement lump sum?(Tax free)
Leave invested to assist with continued growth in my DC pot i'e leave all in the DC fund or take out the full 25% to do whatever with? Or somewhere in between?
I'm curious as to what people's views on this are and what their strategy is for retirement.

Spreadsheetman

I will be using UFPLS drawdown (annually) where 25% of each chunk is tax-free. I don't need to take a PLCS as I have cash/isas outside the pension.

dunstonh

What are the pro's / cons of taking the 25% Pension Commencement lump sum?(Tax free)

Taking it up front means you cant use phased flexi-access drawdown. (i.e. each income and future withdrawal being split 25%/75%). A very popular method that can get more out of your pension tax-free over the long term.

or take out the full 25% to do whatever with?

It really depends on what this "whatever" is. Is the "whatever" better or worse than leaving it in the pension?

westv

I'll probably take it all when I retire to add to savings and then pay off mortgagd + cost of moving to more expensive house + having a cash fund.

OldMusicGuy

Retired last year, UFPLS for me. No point having a large lump sum of cash unless there is something specific you need it for.

westv

OldMusicGuy wrote: »

Retired last year, UFPLS for me. No point having a large lump sum of cash unless there is something specific you need it for.

Investing in old music?

aldershot

I think you have to factor some political risk in here. I am about to move to drawdown (next tax year, next week to take advantage of the uplift in the LTA) and have opted for the max tax free cash out. I don't need the cash today (I have other cash) but I think the political winds are blowing leftwards and the risk of a tightening tax regime, maybe limiting the amount of tax free cash that can be taken is greater than zero. This may be a bit of a panic reaction, but I like cash in the bank even if it ends up unwrapped for a while. £40k pa can get rewrapped between us anyway.

dunstonh

but I think the political winds are blowing leftwards and the risk of a tightening tax regime, maybe limiting the amount of tax free cash that can be taken is greater than zero.

Despite the fact that both Labour and Conservative have increased the availability of tax free cash over the years and it helps the economy to do so. There has also been no suggestion from either party that they would restrict it.

This may be a bit of a panic reaction,

Yes

lisyloo

NeilC1965 wrote: »

What are the pro's / cons of taking the 25% Pension Commencement lump sum?(Tax free)
Leave invested to assist with continued growth in my DC pot i'e leave all in the DC fund or take out the full 25% to do whatever with? Or somewhere in between?
I'm curious as to what people's views on this are and what their strategy is for retirement.

Pros - take it whilst available. Small risk it could be withdrawn.
If you can drawdown flexibly then you can use it to live on if equities drop.

Cons - you may have to pay tax on interest if it exceeds isa and tax free savings allowances

jamesd

Spreadsheetman wrote: »

I will be using UFPLS drawdown (annually) where 25% of each chunk is tax-free. I don't need to take a PLCS as I have cash/isas outside the pension.

Two potential disadvantages of that vs PCLS and flexi-access drawdown account:

1. it immediately triggers the money purchase annual allowance cut to £4,000 a year of new defined contribution pension contributions. A consideration for those who may work.

2. no control over tax free and taxable split. Makes it harder to do things like funding investment ISAs with tax free money.

jamesd

NeilC1965 wrote: »

What are the pro's / cons of taking the 25% Pension Commencement lump sum?(Tax free)
Leave invested to assist with continued growth in my DC pot i'e leave all in the DC fund or take out the full 25% to do whatever with? Or somewhere in between?

I'll assume that the money is still to be invested, not spent.

1. the crystallised pot still in the pension becomes subject to benefits means tests and court judgements like money outside a pension
2. lifetime allowance calculations are done and could reduce or increase the potential charge depending on pot values
3. a crystallised pot must be transferred in full, no partials allowed
4. pension inheritance is outside the estate and either tax free when taken or added to takers income as withdrawn. This benefit is lost for the money withdrawn
5. investments like peer to peer lending are currently easier and cheaper outside a pension than inside and some can be used to generate useful income with risk types different from other investments
6. additional pension tax relief can be obtained by living on the money and within limits making higher pension contributions

Any money you just spend reduces your future income and providing for that need is why the money was put into the pension.

Broadly I think that taking the PCLS early is likely to be a good move for many asking here but it's hugely dependent on personal circumstances and objectives and it would be a bad idea for very many people due to benefits effects and smallish pots.