What to do with my PCLS that is tax efficient

desrese

I wrote a similar question a week or so ago, but it was very poorly written and had no replies

PCLS = £148,844 All taken from the DC scheme, but includes money from the DB scheme.

£80K in 19/20 SS ISA for the wife and me. How can I invest the remaining £68,844.

In my previous post I supplied lots of information which I thought was relevant, but it clearly was not, so I’m keeping this post to a bare minimum and hopefully you can ask all the relevant questions.

Retiring in 7 months age 61

DB
£15,800 + Temp. pension of £2,929 until NRD + A protected rights pension of £1,601 a year from a transfer in.

DC

£341,000

NoMore

I think because both in this post and your previous post, its not exactly clear what your question is ?


Why are you taking the PCLS ? What are you going to use the money for ?

Sailtheworld

Why not work a couple of extra years and max out pension contributions? It's something that would've been better planned ahead to avoid falling foul of recycling rules but there's probably scope.

Or just stick it in the bank until next April (it's only 6 months away) and the ISAs can soak up another £40k.

desrese

I am going to use the money for retirement income, but hopefully in a tax efficient way.

It was easy when I thought I only had £85k PCLS from the DC scheme. It fitted nicely in a S&S ISA allowance 19/20 maybe VLS 60.

Now I have been thrown the very welcome curve ball of drawing both pension schemes PCLS from the DC scheme.
I hope that is what you mean?

desrese

Sailtheworld wrote: »

Why not work a couple of extra years and max out pension contributions? It's something that would've been better planned ahead to avoid falling foul of recycling rules but there's probably scope.

Or just stick it in the bank until next April (it's only 6 months away) and the ISAs can soak up another £40k.

I have considered just putting it in the bank as you said and want to look at all the options available to me. In fact with my limited knowledge, it was my only option.

Work is making me ill (40 years of shift work) so continuing is out of the question

zagfles

If you would like to put it in the S&S ISA but can't as it's more than the ISA limit, why not invest it unwrapped? Split between you are you wife, about £35k each, likely that dividends will be within the £2k dividend allowance, keep an eye on growth to avoid CGT, sell in stages if necessary to make sure you don't exceed the £12k allowance.

So you could well be able to invest unwrapped and pay no tax.

Triumph13

So if I have this right, your PCLS was bigger than expected because you were able to leverage the DB scheme. £80k has gone into presumably the 18/19 and 19/20 ISAs for both of you, not just the 19/20 as that would only take £40k. What to do with the remaining £68k that you would like to invest the same way?
Simplest thing is just open a taxable account for each of you with someone like iweb. Say you got 4% yield that's about £1400 each which is below the £2k dividend allowance so no tax to pay. Move to ISAs over the next 2 years if you so wish.
ETA zagfles beat me to it!

SonOf

I am going to use the money for retirement income, but hopefully in a tax efficient way.

Why do you need to take the PCLS as a lump then?
Why not use it as part of the income draw (phased flexi-access drawdown)?

Pensions are "more" tax free than ISAs. So, you should only take out what you need or if there are other justifiable reasons (such as tax efficiency)

desrese

I didn’t realise we could invest unwrapped and not exceed the £12k allowance and it may well be the easiest route.

@Triumph13 yes you are exactly right in understanding what I was trying to say and zagfles only beat you by a minute!

If I did use phased flexi-access drawdown, will it work like this?

Open a SIPP with the £341k.

£148k (the whole PCLS) placed uncrystallised in my new SIPP. £80k taken out for the first 2 years ISA allowance and the remaining £68k stays in, but invested until the next ISA year is available.
Thanks for everyone’s help so far.

SonOf

If I did use phased flexi-access drawdown, will it work like this?

Open a SIPP with the £341k.

£148k (the whole PCLS) placed uncrystallised in my new SIPP. £80k taken out for the first 2 years ISA allowance and the remaining £68k stays in, but invested until the next ISA year is available.

Recycling rules could come into play. Plus, you would need sufficient income (or be a company director using company funds) or have sufficient income to utilise carry forward.

If you have taken the whole PCLS up front then you cannot used phased flexi-access drawdown. Putting aside the issue of sometimes conflicting terminology and that phasing can refer to different things, the most common wording for phased flexi-access drawdown is to draw 75/25% with each payment. e.g. setting up an income each month where 75% is taxable and 25% is free.

Ideally, you should have been looking at the potential solutions before you drew the PCLS out. You have potentially made things less efficient by looking at it afterwards.

Triumph13

Just read your original post and seen that you haven't actually retired yet. That possibly makes things easier.
Your first step is to talk to your pension scheme and make sure that they will allow partial transfers of your DC scheme. What you want to do is transfer all but £63k ish of your DC funds out to a SIPP. That £63k can then be taken as TFLS when you start your pension and stuffed into ISAs over 2 years.

For the remaining balance in the SIPP you crystallise it in lumps over the next few years. Each time you crystallise a lump of say £100k you reduce your uncrystallised funds within the SIPP by £100k and replace them with £75k of crystallised funds and £25k of tax free cash outside the pension of which everything you don't need for your income can be stashed in an ISA. Repeat until all funds are crystallised and you have take your full TFLS. Simples!