Taking TFLS "because you can..."

Ciprico

Edit - Apologies - this should be in Pensions, not investments...)

What are people's opinions of taking TFLS well before retirement....?

I'm over 55, in full time work, and anticipate being so for the foreseeable future...

I have never had a "proper" company pension, but along the way have regularly saved in several schemes including

1/ L&G Stakeholder £150k
2/ Standard life SH £500k (currently contributing)
3/ HL SIPP £40k

I have never taken anything from any of them...

Having a general conversation down the pub about pensions (like you do!) - the topic cropped up as to why would anyone not take the TFLS, when it can be pulled out, and put straight back into say a VLS fund in a SIPP. (or even same pension company/fund)

(I appreciate HL is not the cheapest for VLS/SIPP)

Due to salary sacrifice I am a standard rate tax payer, so no implicit tax benefit unless I find myself out of work.

Current contribution are about half the £40k pension limit

The rationale being:

1/ the govmt may stop the TFLS at anytime
2/ fee saving of low cost Vanguard over actively managed pension fund (though maybe a bit late to start thinking about this now!)

Are there any other aspects I should take into consideration, or is this, as it seems, a no brainer....?

(I feel I will be able to resist the urge to buy a Lamborghini)

LobsterMemory

Maybe worth a read

https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/pension-lump-sum-recycling

SonOf

What are people's opinions of taking TFLS well before retirement....?

Very simple. If you dont need it and there is no justifiable reasons for doing so then you shouldnt take it.

Having a general conversation down the pub about pensions (like you do!) - the topic cropped up as to why would anyone not take the TFLS, when it can be pulled out, and put straight back into say a VLS fund in a SIPP. (or even same pension company/fund)

Did your pub friends consider recycling rules?
Did they consider that this will stop you using phased flexi-access drawdown in future (one of the best methods for drawing income and should result in a greater amount of tax free cash payable over the long term?

1/ the govmt may stop the TFLS at anytime

Yet every pension change since the 25% was introduced has actually increased the availability of the tax free cash. Not reduce it.

Remember that capital injections aid the economy. So, stopping the tax free cash would hurt the economy.

Plus, of all the tax benefits, tax free cash is not on the main costs to the treasury. Salary sacrifice is mushroomed in cost over the last decade and would be an earlier target. Plus, higher rate relief is more likely to go.

2/ fee saving of low cost Vanguard over actively managed pension fund (though maybe a bit late to start thinking about this now!)

illogical. Pensions, ISAs and unwrapped can hold the same funds at the same costs. So, there is no reason whatsoever to move wrappers because of a certain investment fund.

Ciprico

Hmm OK - makes sense, so apart from recycling, ie using proceeds to bulk out ISA's etc, are there compelling reasons not to take TFLS, on the basis
future governments could withdraw the feature....

Ciprico

OK - thanks for the comments - I am persuaded to "do nothing" !

Great forum !

seacaitch

123mat123 wrote: »

OK - thanks for the comments - I am persuaded to "do nothing" !

Perhaps the thing you should do is to review your existing personal pensions and investments, since you listed as one of your motivations for crystallising a pension being to deploy the lump sum money into other, possibly cheaper funds and platforms.

As SonOf states, you can do all of that anyway.

So, decide how you'd like your overall pension investments to look and set about implementing that via whatever provider or fund transfers/switches are required to achieve it.

Alexland

SonOf wrote: »

Very simple. If you dont need it and there is no justifiable reasons for doing so then you shouldnt take it.

Yup but in the OPs case there might be a justifiable reason to take it now as the growth above inflation on the existing pension investments and further contributions might give them future lifetime allowance issues?

Alex

SonOf

Yup but in the OPs case there might be a justifiable reason to take it now as the growth above inflation on the existing pension investments and further contributions might give them future lifetime allowance issues?

If you look at the quote you used for my response, you will see it says "...and there is no justifiable reasons...". (noting I should have said are instead of is )

Tax planning is one of those justifiable reasons. However, the OP did not give reasons that are justified.

xylophone

I have never had a "proper" company pension,

Do you mean that none of your employers have offered a DB pension scheme?

What does your current employer offer?

Ciprico

I don't think the £1M total pension limit will be an issue - but will monitor.

Over the years some employers have contributed into private pension - working mainly for US companies, most offered no pension at all.

Current employer reluctantly pays legal minimum into new pension set up a year or so ago as per new regulations. (They were not able/prepared to pay into existing SH pension)

...but they are happy for me to sacrifice as much as I want, which I take full advantage of.

clivep

The other thing to consider is inheritance tax.

Our son has been nominated as beneficiary for our pensions. If we took tax free cash then it would get hit by 40% tax before being passed on.

This obviously depends on the value of your estate. If it's over the IHT threshold and you don't need the cash then I can see no good reason for taking a lump sum.