It's time to start digging up those Squirrelled Nuts!!!!

Anonymous101

Sea_Shell said:

In April 22, DH will pull out his 25% cash free lump sum from his DC pensions, which we think will be in the region of £42,500 (depending on pension growth in the interim).

I'm interested to hear why you've decided to pull out the 25% TFLS rather than leave it within the pension wrapper and benefit from the 25% spread over the drawdown? Especially given your overall cash and debt positions. I would have thought leaving the 25% in would be the more efficient route? 

Sea_Shell

Anonymous101 said:

Sea_Shell said:

In April 22, DH will pull out his 25% cash free lump sum from his DC pensions, which we think will be in the region of £42,500 (depending on pension growth in the interim).

I'm interested to hear why you've decided to pull out the 25% TFLS rather than leave it within the pension wrapper and benefit from the 25% spread over the drawdown? Especially given your overall cash and debt positions. I would have thought leaving the 25% in would be the more efficient route? 

It's twofold.   Firstly to get it all out tax free, before other pensions kick in.

Plus we then have control of it within our ISA, and he can pass half to me!

We'll probably pick an equivalent fund to the remaining pension balance, so keeping it invested, as if it was still within the pension.

Any growth on the 25% will then also be tax free.

Anonymous101

I'm not quite following, perhaps I misunderstood the rules around TFLS and drawdown. As I understand it if you left it in the pension you'd still be entitled to 25% tax free on every drawdown so would work out 25% of a larger figure?
Perhaps with the annual amount you're drawing down being around the tax threshold it might be a particular of your circumstances that drawing the TFLS first doesn't make much difference.

Sea_Shell

Anonymous101 said:

I'm not quite following, perhaps I misunderstood the rules around TFLS and drawdown. As I understand it if you left it in the pension you'd still be entitled to 25% tax free on every drawdown so would work out 25% of a larger figure?
Perhaps with the annual amount you're drawing down being around the tax threshold it might be a particular of your circumstances that drawing the TFLS first doesn't make much difference.

At zero growth the maths are the same either way.   

But if you achieve reasonable growth over the next 10 years, the growth on the 25% remains tax free (If in an ISA).

The lower drawdown rate (on the 75%) is not that much under what we require for our annual spends.  Might just need a small top up from other ISA funds.

We also gain flexibility over our money.

Anonymous101

All valid points SS.

I've often wondered about the logic of drawing vs not drawing the 25%. Perhaps getting it all into ISA's would be a problem for some either due to the value exceeding £40k or (and I'm certain this wouldn't apply to you) is that having a large sum of cash does prompt a lot of people to spend more extravagantly than normal.

enthusiasticsaver

Sea_Shell said:

shinytop said:

Sea_Shell said:

I think that's enough heating chat for now.

We've been debating what to do with our 5yr bond cash, spare cash, small pots, and tax free lump some next year.

It looks like we're going to end up investing £21,500 outside of ISAs, which should be fine given a CGT allowance of £12,300.


Also, does anyone else use a 0-35 "cautious" fund instead of pure cash?

We used Premium Bonds for a similar amount.  I have thought about using cautious funds but having thought about it, I stuck with cash/PBs.  While I don't need a return on this money, I'd be upset if it lost a chunk of value. 

The fund we have our eye on (or something similar) is the 7IM Cautious S Acc.     In the last 12 months it dropped by 7% in mid-March, which was a lot less than our other funds we hold, and is now 6% up on the year.    

I think this makes sense.  We topped up our Sipps and stocks and shares isas in September when our National Savings Income Bonds announced the drop in rates from November.  Good job we did it then as the stock market seems to have boomed since then presumably due to the vaccine breakthrough and US election maybe. We do  still hold around £20k in cash which is just in a Yorkshire internet saver but they are also dropping their rates so we may look at moving some into a very cautious fund. £10k is earmarked for our Canada holiday next year should it go ahead and £5k for a family holiday delayed from this year.  We also don't need it to earn so am not worried about moving it for better rates now.  Keeping £12k back for your expenditure for the next 9 months is definitely imperative for you though I would say given that is your only source of income just in case the stock market crashes next year. Sounds like you are well set up though for the next few years with lots of income streams coming into play. 

cfw1994

Anonymous101 said:

All valid points SS.

I've often wondered about the logic of drawing vs not drawing the 25%. Perhaps getting it all into ISA's would be a problem for some either due to the value exceeding £40k or (and I'm certain this wouldn't apply to you) is that having a large sum of cash does prompt a lot of people to spend more extravagantly than normal.

Must admit, I always felt the only reasons to take the TFLS all up front would be if you were approaching the LTA, or if you felt a future government might lower that relief. 
The latter is entirely within the bounds of possibility, I would guess!

Sea_Shell said:

At zero growth the maths are the same either way.    
But if you achieve reasonable growth over the next 10 years, the growth on the 25% remains tax free (If in an ISA).

The lower drawdown rate (on the 75%) is not that much under what we require for our annual spends.  Might just need a small top up from other ISA funds.
We also gain flexibility over our money.

The numbers would be a 'wash', as you say....but I don't think the bit I've highlighted in bold would make a difference either?
If you got that same reasonable growth within the pension, then you would have an equally larger TFLS amount allowed in the future too (assuming no changes to the rules!).
Either way, taking it out allows you to reinvest into ISAs & have a different control over the funds.

Sea_Shell

"If you got that same reasonable growth within the pension, then you would have an equally larger TFLS amount allowed in the future too (assuming no changes to the rules!)."

But how does that help you get it all out, tax free, if that is your goal.   

Surely if all the growth remains within the pension, and you still only draw up to your personal allowance, plus the tax free %, then you can still only draw £16,666 * each year, so it will take longer to get it all out, and could clatter into other pensions, pushing you into paying tax.   

Yes, I can see that if you were wanting or needing to pull out larger sums, then leaving the pot whole would be the thing to do, but for our circumstances, we think this is the best way.

* or £18,333 if utilising a PA transfer.

Anonymous101

For your situation I think taking the TFLS and then the PA each year is the way to go.
When the time comes I think its something I'll consider too.

If one is trying to get it all out tax free, which is ideal for me, then they are better reducing the pension balance with the TFLS as the whole balance needs to pulled through a Personal Allowance size hole, and that would take much longer if you were needing to pull the growth on the TFSL through there too.

Sea_Shell

As I said up thread, I'll be doing a full round up of the end of year figures...at the end of the year!!!

But prompted by another thread, I've just looked at the swing in our portfolio between the middle of the slump in March 2020 and the recovery that seems to have taken place up until now.   

That swing is just shy of £80,000!   We were down £56,000 from Dec 19 to March 20, and then back up again, increasing by £24,000 in the process.

I know it's just all "on paper" and no gains are real until realised, but still, that's some recovery.