Benefit Crystallisation event and LTA

MK62

Madeinireland wrote: »

Yes MK62 - I agree that their charges sheet says what you said. He did say this on the phone and that when I transfer it in, if I were to want to go into drawdown, I would have to complete a specific form so effectively wouldn’t go into drawdown until I did that - hence all my questions about whether this was a separate event in terms of LTA.

Actually if I take the tax free lump sum isn’t it the case that I could also elect to buy an annuity so I presume I can’t have automatically elected for drawdown?

Perhaps, but if the pot is already crystallised before transfer then there is no tax free lump sum left to take, and the crux of the matter is then whether II will deem the crystallised pot to be chargeable as a "drawdown" account, regardless of whether you then elect to take income from it, or use it to purchase an annuity.

If the pot has been crystallised before transfer, it can't become uncrystallised again - it stays crystallised before, during and after transfer.
If it's uncrystallised before transfer, then II's standard charges would apply, as it would then also be uncrystallised after transfer.....even if you then elect to immediately crystallise it.

What is your pot's current status? Crystallised, part-crystallised, or uncrystallised?

Madeinireland

It’s not happened yet but when it does the fund would be a crystallised fund as the tax free lump sum would have been taken out when taking my DB scheme.

II have confirmed they can take a crystallised fund but as you say it depends if they deem it in drawdown which the guy on the phone said they would not.

So David in your description you have assumed I went into drawdown when crystallising but I didn’t - so how do you think that plays out. I fully accept I won’t get another 25% tax free and that the fund is already counted in my LTA calculation but I really don’t want to invoke charges from the platform provider on drawdown until I really need to.

Thanks...

Albermarle

I went into drawdown when crystallising but I didn’t - so how do you think that plays out.

Could it be that the remaining crystallised pot is technically there for drawdown but as you are not actually taking any funds from it then ii will not charge you for drawdown ?

Regarding SIPPS not charging for drawdown . I think only HL and Fidelity have no charges at all for a SIPP , drawdown , UFPLS payments etc .

Madeinireland

Hi Albermarle,

Yes that could be the position from II. I will have to check with them again.

Thanks...

jamesd

If you've taken benefits - the tax free lump sum is a benefit - then the money is likely to end up in a (crystallised) flexi-access drawdown account. Even if nothing is being drawn. But not all providers split their accounts into uncrystallised and crystallised and I don't know how they do it.

Reaching age 75 is a benefit crystallisation event. So you can't avoid that one except by dying first. So it might be best too try to limit the age 75 cost by doing some crystallising sooner, within the lifetime allowance, if any is available.

The lifetime allowance is only calculated for the part you take benefits from, so if you had 600k total and took benefits of 25k tax free lump sum from 100k of it only the LTA for 100k would be calculated, not all 600k.

Madeinireland

Hi James,

The fund will be made up of two parts.

1. £78k which will be residual AVC from my company pension which would be transferred as a crystallised fund.
2. £88k which will be an uncrystallised fund - currently in another SIPP from another provider.

I intend crystallising the £88k to remove £22k tax free. At that point I think I would used up something like 99% of my LTA. I will do that with the other provider before I transfer it.

I want to effectively then combine the funds but ideally not draw anything out of them and leave then for my kids to inherit as and when I exit stage right. I also at this point don’t want to attract an annual charge from a provider over and above the annual platform costs. I note that once you start drawing on the fund II introduce an additional £120 per annum charge. I’m assuming they won’t charge this as I haven’t started to use drawdown but this is something I’m not sure about.

I’m also aware that as the fund grows (hopefully) I may need to withdraw something to keep it within the £142k limit so as to avoid a LTA charge at 75 (or I may choose to just accept this charge). After 75 I’m assuming it’s free to grow as much as it likes as there is no further LTA charge? Or is there one when I die?

Thanks...

EdSwippet

Madeinireland wrote: »

I note that once you start drawing on the fund II introduce an additional £120 per annum charge. I’m assuming they won’t charge this as I haven’t started to use drawdown but this is something I’m not sure about.

At this point, I guess only Interactive Investor can tell you for sure (or more accurately, can tell you something but you might not be sure about it even so!).

As for how they handle a mix of crystallised and uncrystallised pensions ... somewhat eccentrically -- and unhelpfully, in my opinion -- they keep everything in the one single account, and just record what proportion of that account is crystallised and what proportion is not.

At least, this is how they described it to me when I asked six or seven months ago now. I'd call that sub-optimal. I want to keep different investments in my crystallised and uncrystallised pension elements, but Interactive Investor's way of handling things simply won't support that. In practice I may not be in a situation where I have both lots intermingled in Interactive Investor for too long, but even so it just feels wrong. Shrug. Maybe they'll revisit this when they consume Alliance Trust. I think it survived their swallowing TD Direct Investing though, so maybe not.

jamesd

Madeinireland wrote: »

After 75 I’m assuming it’s free to grow as much as it likes as there is no further LTA charge? Or is there one when I die?

Only some uncommon things affecting some DB events that don't apply to your situation.

shinytop

EdSwippet wrote: »

At this point, I guess only Interactive Investor can tell you for sure (or more accurately, can tell you something but you might not be sure about it even so!).

As for how they handle a mix of crystallised and uncrystallised pensions ... somewhat eccentrically -- and unhelpfully, in my opinion -- they keep everything in the one single account, and just record what proportion of that account is crystallised and what proportion is not.

At least, this is how they described it to me when I asked six or seven months ago now. I'd call that sub-optimal. I want to keep different investments in my crystallised and uncrystallised pension elements, but Interactive Investor's way of handling things simply won't support that. In practice I may not be in a situation where I have both lots intermingled in Interactive Investor for too long, but even so it just feels wrong. Shrug. Maybe they'll revisit this when they consume Alliance Trust. I think it survived their swallowing TD Direct Investing though, so maybe not.

Hmmm, I might have to have a think about whether II is right for me then. A pain as I've already set things in motion to use them. Have you looked into alternatives that do what you want (and have similar low costs)?

EdSwippet

shinytop wrote: »

Hmmm, I might have to have a think about whether II is right for me then. A pain as I've already set things in motion to use them. Have you looked into alternatives that do what you want (and have similar low costs)?

The only one I had looked into was Alliance Trust Savings, and since they are about to be swallowed up by Interactive Investor using them will be no help.

Flat fee options are thin on the ground here. iWeb would probably be the next place to look. Their own fees are low, but their pension administrator is YouInvest, and that bumps up the total cost of an iWeb SIPP in drawdown to somewhat above Interactive Investor's. Not by an intolerable amount, just an annoying one.

Barring that, for me ETFs are a viable option for replacing the OEICs I currently have in my pension. That opens up options like Hargreaves Lansdown. I'm somewhat ideologically biased towards completely flat fee providers though, so would prefer not to go that route unless pushed. Changing all my investments purely to use a platform efficiently feels like a complete capitulation to some marketing nitwit's idea of product pricing, and I'm smarter than falling for that!