Another draw-down question

Tabby_cat

Hi All, Apologies if this has been covered before but I've a question r.e. draw-down.
I'm currently heading towards 55 in February. My aim is to take about £16k per year from my pension tax free, until state pension kicks in, in 12 years time.
The way I see it, I can use either:
1) Use UFPLS and draw £16k p.a.
2) Use flexi draw-down and crystallise £64k and take £16k tax free.
3) Full draw down but I'm not keen on this option. I don't need the full 25% of my pot so I understand it's better to leave it invested.

Is there a forth option? Could I use flexi draw-down and crystallise £16k and take the lot?
Are there any advantages/disadvantages with doing this over 1) or 2)?

Many Thanks in advance for all comments

NottinghamKnight

The answer will depend on your other income and tax situation as well as what your provider is able to offer though you can of course transfer to another provider.

MK62

There is the 4th option, as you said, but in practice it's little different from taking an UFPLS......apart from the fact that your pot would be part crystallised, whereas with UFPLS it's still uncystallised.

I'd prefer the UFPLS option, due to it's simplicity......

On some platforms an UFPLS is cheaper, but check the charges at your platform .......some might decide that once you've crystallised, you are in drawdown, regardless of whether you take any income - and might charge an annual drawdown fee accordingly.......though on other platforms it's irrelevant as they don't charge explicitly for drawdown/UFPLS.

Thrugelmir

What options does your provider offer and what are the costs involved? 

green_man

I’m in pretty much the same situation and have chosen option 1.  I have thus partially chosen my SIPP provider based on the cost structure of doing that. (Halifax SIPP).  Option 2 or 3 can always then be done later if so desired. Costs for these tend to be more thought for little benefit (for me).  

Systems and processes for supporting a proper fully flexible drawdown don’t seem to be widely implemented yet. I suspect part of this could be related to the regulators rules that seem to be ensuring people don’t overdraw their pots.

Tabby_cat

Thanks all for your comments so far.
I should have said, I've not been working for 2 years now and have been living off of savings. 
I'll need to check with Scottish Widows r.e. charges but I've been assured they can do whichever option I choose.
@MK62 Thanks for the heads up r.e possible annual draw-down fee. I'll be sure to check that.
@green_man Would you know and be willing to share the relevant costs for each option from your Halifax SIPP? Then when I speak with SW I'll have a reference point of what others charge.

Albermarle

You will probably find that SW do not charge for any kind of withdrawals or drawdown.( or investment fund internal transfers)
These larger traditional pension companies , tend to just have a platform/admin/management charge, plus a charge for the investment funds . Sometimes there is just one charge to cover everything.
Do you actually know what the normal charges are ? Usually best to ask them on the phone direct as the paperwork can be confusing .
With pension providers like Halifax SIPP , they have a very low basic charge but often there are extra charges for drawdown etc 

zagfles

Option 2 doesn't seem sensible if you've got no other income, why take £16k TFLS when you have your personal allowance to use up. I'd go for UFPLS, or alternatively phased drawdown eg crystallising £16k each year taking £4k TFLS and £1k per month income.

To compare platform charges download snowman's excellent spreadsheet which has a tab for drawdown charges https://forums.moneysavingexpert.com/discussion/5583030/coolly-comparing-investment-platform-charges-snowmans-spreadsheet/p1

jamesd

Your income tax personal allowance is use it or lose it, so use it every tax year. That currently means 12.5k taxable so 16.667k total as minimum UFPLS. The bit above spending should be reinvested in a stocks and shares ISA.

Next point is whether after 12 years of this you'll still have a pot and whether the personal allowance above state pension will let you get it all out with no tax bill. If it won't, you might think about future tax rates. I think they will be higher so I've been withdrawing at my full basic rate tax limit so I get today's rate. Excess can be gradually moved into ISA.

Tabby_cat

@jamesd Interesting point r.e. future tax rates. That's food for thought. I might have to start a new spread sheet to see what effect it has at various rates of tax. 

Thanks all for your time and contributions.

Dazed_and_C0nfused

If you are married and have applied for your Marriage Allowance you would either need to adjust the amount you take (£11,250/£15,000 rather than £12,500/£16,666) or you would have £250 tax to pay (£237.50 if Scottish resident for tax purposes).