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

ukdw

cfw1994 said

Sea_Shell said:

"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.

Simple example.   Say you had 80k in the pot.
Take 20k out - leaves 60K that is subject to tax (ignore whether you filter it out as 12k pa to be tax free - that applies to any of the taxable numbers here)
Invest 20k into S&S ISA in the same funds the pension was in.
Imagine that ISA - those funds - double: now worth 40k.   So did the pension fund - now worth 120k.     
That gives you 40K you can now take tax-free at will from the ISA, & the pension is taxable.
    versus
Leave the 80k pot to grow: it doubles.   160k.   
You can take 25% out as TFLS.  40k.   Leaving 120k to be drawn as taxed income.

So: net result the same - that's why I said it was "a wash".   
I still think it makes sense if you are approaching the LTA, or if you felt a future government might lower that relief.   
Of course, they could raise relief: maybe they will realise that the LTA is artificially encouraging skilled people to retire early & raise it (it has certainly impacted my views, even if I am not that skilled!)

Are you thinking that you would have MORE by taking the TFLS out?   Have I got something wrong above?!

My biggest worry on PCLS's was always the introduction of an upper limit on 25% tax free lump that is below the LTA - at say a maximum of say £25k or £50k lump sum - which would still be large enough to not affect the majority of pensioners.

I suspect that if they ever change tax relief levels to increase the 20% rate and lower the 40% rate, then that would be a good time for a lowering of the maximum PCLS level to be slipped in without too much fuss.

Ganga

Notepad_Phil said:

Sea_Shell said:

Can I just check one more thing...
    
Based on current personal allowance of £12,500, does that mean that if I transfer 10% of mine, taking DH to £13,750, he could drawdown £18,333 pa gross, tax free?  £1527 per month?

Yes if you're talking about marriage allowance (which I presume you are) - though of course your own personal allowance would be reduced.

If a persons allowance before tax is £13750 how can they draw £18333 tax free ?

Notepad_Phil

Ganga said:

Notepad_Phil said:

Sea_Shell said:

Can I just check one more thing...
    
Based on current personal allowance of £12,500, does that mean that if I transfer 10% of mine, taking DH to £13,750, he could drawdown £18,333 pa gross, tax free?  £1527 per month?

Yes if you're talking about marriage allowance (which I presume you are) - though of course your own personal allowance would be reduced.

If a persons allowance before tax is £13750 how can they draw £18333 tax free ?

Because 25% of the £18333 is tax-free (i.e. £4583) which leaves £13750 to be taken within the personal allowance.

Audaxer

Sea_Shell said:

cfw1994 said:

Sea_Shell said:

"Are you thinking that you would have MORE by taking the TFLS out? Have I got something wrong above?!”
It's not about having MORE, it's about (for us) getting it ALL out TAX FREE, as quickly as possible!
If the pot were much bigger, we wouldn't be able to do that within 10 years.

A laudable aim....but I don’t think it makes any difference taking it up front: that was what I was trying to illustrate!

I think I get it...I've had coffee!!!

So if you had a pot of £166,660 and kept it all in the pension, you could drawdown £16,666 pa over 10 years and get it all out.
If you'd already taken 25%, your pot would be £125,000, so you could then only drawdown £12,500 pa, still taking 10 years.

If the pot doubled (ooh wouldn't that be nice!!), then the time taken for both pots to be emptied would be the same, i.e. would double too, to 20 years regardless.    ANY growth would extend the withdrawal period (or shorten it in a falling market!)

If as you say, the pot doubled with growth to £333,320, I think it would be an advantage to take the 25% tax free cash which would amount to £83,330. So with that in addition to the £12,500 drawn per year, I think that means you would be able to get more out in tax free cash in the first 10 years if you wanted to?

Ganga

Notepad_Phil said:

Ganga said:

Notepad_Phil said:

Sea_Shell said:

Can I just check one more thing...
    
Based on current personal allowance of £12,500, does that mean that if I transfer 10% of mine, taking DH to £13,750, he could drawdown £18,333 pa gross, tax free?  £1527 per month?

Yes if you're talking about marriage allowance (which I presume you are) - though of course your own personal allowance would be reduced.

If a persons allowance before tax is £13750 how can they draw £18333 tax free ?

Because 25% of the £18333 is tax-free (i.e. £4583) which leaves £13750 to be taken within the personal allowance.

Notepad_Phil said:

Ganga said:

Notepad_Phil said:

Sea_Shell said:

Can I just check one more thing...
    
Based on current personal allowance of £12,500, does that mean that if I transfer 10% of mine, taking DH to £13,750, he could drawdown £18,333 pa gross, tax free?  £1527 per month?

Yes if you're talking about marriage allowance (which I presume you are) - though of course your own personal allowance would be reduced.

If a persons allowance before tax is £13750 how can they draw £18333 tax free ?

Because 25% of the £18333 is tax-free (i.e. £4583) which leaves £13750 to be taken within the personal allowance.

I see , this is a one off payment from the pension pot not something that you can do every year .

swindiff

No reason why you can't do that every year.

Ganga

swindiff said:

No reason why you can't do that every year.

Can you take 25% tax free every year ? i thought you could only do this once up to a max of 25% ,sorry if i am wrong.

Sea_Shell

Ganga said:

swindiff said:

No reason why you can't do that every year.

Can you take 25% tax free every year ? i thought you could only do this once up to a max of 25% ,sorry if i am wrong.

You can either take 25% of the whole pot, up front, but then that's it, everything else is taxable.
Or you can leave the pot gross and take smaller chunks each with 25% tax free.

DT2001

fred246 said:

It's a bit of a balancing act for us. The original plan was to empty a SIPP tax free. Now we realise that could just lead to a big inheritance tax bill. If we die with 2 good SIPPs that might be the best for our children as they don't form part of our estate. We can only withdraw until 67 and need enough money to keep contributing to 75. A lot depends on investment returns.

If you do not use the SIPP will you not utilise your personal allowance at all?
Can you put your ISA’s (assume that is alternative to SIPP) into natural income funds and pass on some wealth utilising excess income IHT relief whilst drawing down SIPP’s?
Or could you buy whole of life insurance to cover expected IHT?
My MIL used a combination and then IHT property relief took her below the threshold which hilights that whilst we plan the govt. moves the goalposts regularly sometimes to our advantage sometimes not!

Joeygirl72

Only just found this thread, very interesting.
this is what me & my DH are doing.
great to see another lady on here, so interested & fired up about money & how it can work for the future .
bit easier for us to take a ‘contrarian’ view of managing finances In this way, as we have no children or dependents at all. ( we have sold our house & rent)....
i wonder, are you invested in income generating funds within your ISA’s.  I am, I have switched many funds to dividend paying & when the dividends pay I buy more shares/ units in them.  When we start taking the income in 2022/23, I will just start diverting these to the bank, to spend.