Drawdown pension. Do I have to take lump sum?

lohr500

Hi all,
I have a meeting planned shortly with an IFA to discuss early retirement options. In preparation for the meeting I have been trying to get up to speed with various options.

For the money purchase element, I am liking the idea of a drawdown pension, so I can retain the capital in the pot.

Based on a modest risk strategy I would like to draw down a monthly value that should allow the pot to remain at the same value. ie just draw down the interest on the pot.
Then the pot would be available for my wife & children in the event of my death.

But what about the initial 25% tax free lump sum?
I don't need a lump sum right now.

Questions :

Do I have to take the lump sum?
If not, is it beneficial to take it anyway and re-invest to generate additional pension income from the interest.
Or is it best left in the drawdown investment pot?

Or is it far more complicated, based on total taxable income?

I plan to discuss this with my IFA, but some insight ahead of the meeting would be useful.

Thanks.

xylophone

https://www.pensionwise.gov.uk/en/take-cash-in-chunks

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/ufpls/

https://www.moneymarketing.co.uk/ufpls-vs-drawdown/

wjr4

1) It is not interest within the pension, it is investment gain or losses.
2) You can take the tax-free cash in one lump sum, monthly/quarterly/annually as 'income' or ad-hoc. You need to take SOME tax-free cash to be able to take taxable income.
3) What is your current income? For example, you could take £1000 pm from the pension, £250 of this is tax-free and £750 is taxable but if this is your only income it will be paid tax-free. Personal allowance is £12,500 for 2019/20.

crv1963

As above.

What provision have you made for stopping or reducing draw down when the markets fall?

Money taken from pension pot and placed in other savings/ investments then become subject to inheritance tax if the estate is large enough. So depending on your pension pot size you may need to look at IT with your IFA.

For us we plan having 6 months income needs as cash, a further 6 months as Premium Bonds, if we were solely dependent on a DC pot we would increase the Premium Bond level to 12 months income needs.

Theoretically a couple could leave 2.65 million tax free to their heirs if they had managed to plan and save effectively, but few either have the means or have been able to balance savings to do so. We certainly haven't!

dunstonh

But what about the initial 25% tax free lump sum?

Use it to meet your objective. i.e. monthly income.

If not, is it beneficial to take it anyway and re-invest to generate additional pension income from the interest.

There is no interest payable.

The general rule of thumb is to not take money out of the pension unless there is a justification for doing so.

lohr500

A belated thanks for all the responses.
Following discussions with my IFA, I have now determined the optimum pension planning strategy to suit my needs.