Taking 25% tfls to reinvest in isa

merlin321

Hi, recently retired and have transferred a modest DC pension to aj bell. Intention is to re-invest this, so would it not be prudent to take the tfls and invest in the same fund, but as an isa?  My concern is that the tax free option could be withdrawn by the government at any time. Especially as the extra borrowing the state has had to make to finance covid19 will have to be paid for by raising taxes.

Paul_Herring

My concern is that the tax free option could be withdrawn by the government at any time.

Any government withdrawing the PCLS is unlikely to remain there for very long.
Doubly so, if they made it retrospective.

and invest in the same fund, but as an isa? 

Out of interest, how do you plan to protect yourself against them withdrawing ISA's?

cfw1994

Paul_Herring said:

My concern is that the tax free option could be withdrawn by the government at any time.

Any government withdrawing the PCLS is unlikely to remain there for very long.
Doubly so, if they made it retrospective.

and invest in the same fund, but as an isa? 

Out of interest, how do you plan to protect yourself against them withdrawing ISA's?

Well....on the first point: we do live in absolutely extraordinary times.  

I agree it is highly unlikely to happen....but I understand the caution of the OP.   

If they are close to the LTA, that could be another fair reason to do precisely that.

On the second point...they could stop ISAs (anyone remember PEPs?!)....but I cannot see them retrospectively taking them out of their tax-free status.    & of course PEPs were replaced by even more advantageous ISAs

We have done this to some extent ourselves both sides of April this year, albeit the ISAs are in slightly different funds...ones we believe (hope!) will guard against dips but offer more chance of gains.  A quick way to “safeguard” £80k from the vagaries of future pension fiddling for a couple, imho.   

Of course, everyone makes their own choices.....and we do live in utterly extraordinary times......

Thrugelmir

Difficult to see raiding of pension lump sums a politically sound choice. Given that auto enrollment is making traction and changing the mindset towards retirement savings. 

gm0

Need to think through your consumption plans, health and IHT position most carefully.

Pension is priviledged ISA is not (inside estate). 
So taking it from one to the other if not needed as capital or quickly for consumption or gifting (PET) i.e. to hold similar assets in a worse tax wrapper gives the typical adviser teeth grinding syndrome.

LTA can be a reason to crystallise early and hard so the growth doesn't get charged.

Another case is if you have limited pension options and want to achieve some portfolio diversification by using other providers for ISA recycling.  (Say an insured pension scheme with cheap equity funds but a poor choice of bonds and/or cash options which you want to keep but you still need to build the portfolio

Downside of two larger pools of money once the recycling is done (which can take a while) is a mild increase in difficulty on asset disposal and balancing as you can't shift back from ISA to Pension.

I would also take the view ISA and Pension "hedges" political risk to a degree but it is far from impossible it will all get revisited and merged at some point into something slightly worse - tax code entropy.

dunstonh

 My concern is that the tax free option could be withdrawn by the government at any time.

Why would they do it?  It has been found many times in research that the TFC benefits the economy.    If you look at all the pension changes since 1988 (when personal pensions were introduced), they have increased the payment of tax free cash. Not reduced it.

Especially as the extra borrowing the state has had to make to finance covid19 will have to be paid for by raising taxes.

Salary sacrifice or higher rate relief would be easier targets and more effective.   Along with the annual allowance being reduced.   However, debt with inflation may well be the chosen option.

shortseller09

gm0 said

LTA can be a reason to crystallise early and hard so the growth doesn't get charged.

Would you mind clarifying, unless the crystallised pot is drawn down, it is still LTA liable is it not?

Paul_Herring

shortseller09 said:

gm0 said

LTA can be a reason to crystallise early and hard so the growth doesn't get charged.

Would you mind clarifying, unless the crystallised pot is drawn down, it is still LTA liable is it not?

Only on the 75% that remains after withdrawal of the PCLS, not the 100% had it not.

merlin321

Thanks for replies, yes never considered that isa privileges could be withdrawn also. But suppose it may be worth doing to keep under the £85000 limit in case aj bell go bust. (very unlikely I know).
Another issue, have transferred from Aviva in cash, Minus the small property fund, thats stuck at the moment.
Am reluctant to reinvest untill after impending crash that seems likely. I know timing the markets is not recommended, maybe drip feeding 10k per month would be better. 

Albermarle

The tax free cash is very popular for people with small and large pensions . Seems highly unlikely it would be removed . As said there are softer targets .

dunstonh

Am reluctant to reinvest untill after impending crash that seems likely. I know timing the markets is not recommended, maybe drip feeding 10k per month would be better. 

It may be better but historically phasing results in lower returns in the majority of periods.

And what crash are you referring to?