Crystalisation questions...

Ciprico

I'm not there yet, but wanted to know what happens after you cystalise your pension.
I realise the crystalised part is separated into 25% tax free and 75% taxable elements and some aspects maybe platform dependent...
1/ Do you have to liquify before crystalising.
2/ Once crystalised but not actually drawn out, can those funds be re-invested (so still on the same platform etc), and if so I assume any gains are now taxable, ie are the proceeds in essemtially a general investment account 
3/ Is the measurement regards LTA taken as a running total of crystalised pension ?
4/ If one is approaching LTA - could one cystalise entire pension just before reaching LTA to avoid future market risk and the extra 20% LTA charge...?
(I appreciate this would not be the best thing to do in most circumstances, but would like to understand the theory)
Many thanks for clarifying the above

Linton

1) Crystralisation means taking the TFLS.  Obviously you need to convert that bit to cash, not the whole pension. Or part of pension if you are doing a partial crystalisation.
2) As in (1) you need to take the TFLS out of the pension in order to crystalise.  What you do with the TFLS is up to you.

Dont know about TLA, not a problem I have.

garmeg

Can try to answer 4 ...
4) Yes but note that there is a further LTA test at age 75 (maybe also on earlier death) on the increase in those crystallised funds - so take enough drawdown income so that value of crystallised funds @ 75 <= value of crystallised funds when they were crystallised (this does NOT include the PCLS taken at that point).

Ciprico

Linton said:

1) Crystralisation means taking the TFLS.  Obviously you need to convert that bit to cash, not the whole pension. Or part of pension if you are doing a partial crystalisation.
2) As in (1) you need to take the TFLS out of the pension in order to crystalise.  What you do with the TFLS is up to you.

Dont know about TLA, not a problem I have.

Thanks Linton, so "crystalising" and "taking out of pension" are fundamentally the same thing..

zagfles

123mat123 said:

I'm not there yet, but wanted to know what happens after you cystalise your pension.
I realise the crystalised part is separated into 25% tax free and 75% taxable elements and some aspects maybe platform dependent...
1/ Do you have to liquify before crystalising.
2/ Once crystalised but not actually drawn out, can those funds be re-invested (so still on the same platform etc), and if so I assume any gains are now taxable, ie are the proceeds in essemtially a general investment account 
3/ Is the measurement regards LTA taken as a running total of crystalised pension ?
4/ If one is approaching LTA - could one cystalise entire pension just before reaching LTA to avoid future market risk and the extra 20% LTA charge...?
(I appreciate this would not be the best thing to do in most circumstances, but would like to understand the theory)
Many thanks for clarifying the above

1) I think you always need the 25% in cash, don't think any providers allow in-specie PCLS, or even if it's allowed. The rest can remain invested.

2) The tax free part is always drawn out. So that is now outside the pension. The rest remains in the pension, and so no tax on dividends or growth (other than LTA, see below). But any withdrawals are taxable as income.

3) Every time you crystallise, there's a BCE. (benefit crystallisation event). So eg if you have £400k pot and fully crystallise, the £100k tax free lump sum and the £300k moved into drawdown are both BCEs, and you'll get a statement giving you the % of the LTA you have used.

4) Yes, often a good idea. But there is a second LTA charge you need to be aware of on the growth of crystallised pot in drawdown. If it's higher at age 75 than it was when it was crystallised, there's a BCE on the difference. Can be avoided by drawing down enough so that it's the same or lower at 75.

There's loads of helpful articles if you google LTA BCE

Ciprico

garmeg said:

Can try to answer 4 ...
4) Yes but note that there is a further LTA test at age 75 (maybe also on earlier death) on the increase in those crystallised funds - so take enough drawdown income so that value of crystallised funds @ 75 <= value of crystallised funds when they were crystallised (this does NOT include the PCLS taken at that point).

Thanks Garmeg,
So you can crystalise, take the 25% TFLS and spend it, leaving the 75% in a crysalised state in the pension, still benefiting from tax free gains... (so not quite what I wrote in my response to Linton? above)

Linton

123mat123 said:

Linton said:

1) Crystralisation means taking the TFLS.  Obviously you need to convert that bit to cash, not the whole pension. Or part of pension if you are doing a partial crystalisation.
2) As in (1) you need to take the TFLS out of the pension in order to crystalise.  What you do with the TFLS is up to you.

Dont know about TLA, not a problem I have.

Thanks Linton, so "crystalising" and "taking out of pension" are fundamentally the same thing..

Yes - "crystallised" is the state of the pension.  It gets into that state by removal of the TFLS.

garmeg

123mat123 said:

garmeg said:

Can try to answer 4 ...
4) Yes but note that there is a further LTA test at age 75 (maybe also on earlier death) on the increase in those crystallised funds - so take enough drawdown income so that value of crystallised funds @ 75 <= value of crystallised funds when they were crystallised (this does NOT include the PCLS taken at that point).

Thanks Garmeg,
So you can crystalise, take the 25% TFLS and spend it, leaving the 75% in a crysalised state in the pension, still benefiting from tax free gains... (so not quite what I wrote in my response to Linton? above)

Any increase in the crystallised value will be measured against any remaining LTA at age 75 though.

Albermarle

123mat123 said:

garmeg said:

Can try to answer 4 ...
4) Yes but note that there is a further LTA test at age 75 (maybe also on earlier death) on the increase in those crystallised funds - so take enough drawdown income so that value of crystallised funds @ 75 <= value of crystallised funds when they were crystallised (this does NOT include the PCLS taken at that point).

Thanks Garmeg,
So you can crystalise, take the 25% TFLS and spend it, leaving the 75% in a crysalised state in the pension, still benefiting from tax free gains... (so not quite what I wrote in my response to Linton? above)

Yes that is correct . Also if you only take part of the TFLS ( or take all of it and then later add new contributions), then you will be left with uncrystallised and crystallised parts of your pension. Some providers keep these clearly separate and you can even have different investments within each ( if you want to) Other providers just have one pot with a % figure of what is crystallized and what isn't. 

zagfles

Albermarle said:

123mat123 said:

garmeg said:

Can try to answer 4 ...
4) Yes but note that there is a further LTA test at age 75 (maybe also on earlier death) on the increase in those crystallised funds - so take enough drawdown income so that value of crystallised funds @ 75 <= value of crystallised funds when they were crystallised (this does NOT include the PCLS taken at that point).

Thanks Garmeg,
So you can crystalise, take the 25% TFLS and spend it, leaving the 75% in a crysalised state in the pension, still benefiting from tax free gains... (so not quite what I wrote in my response to Linton? above)

Yes that is correct . Also if you only take part of the TFLS ( or take all of it and then later add new contributions), then you will be left with uncrystallised and crystallised parts of your pension. Some providers keep these clearly separate and you can even have different investments within each ( if you want to) Other providers just have one pot with a % figure of what is crystallized and what isn't. 

Linton said:

123mat123 said:

Linton said:

1) Crystralisation means taking the TFLS.  Obviously you need to convert that bit to cash, not the whole pension. Or part of pension if you are doing a partial crystalisation.
2) As in (1) you need to take the TFLS out of the pension in order to crystalise.  What you do with the TFLS is up to you.

Dont know about TLA, not a problem I have.

Thanks Linton, so "crystalising" and "taking out of pension" are fundamentally the same thing..

Yes - "crystallised" is the state of the pension.  It gets into that state by removal of the TFLS.

Crystallisation is nothing like the same as "taking out of the pension", you can crystallise without taking anything out and you can take out with crystallising (UFPLS, even though a BCE occurs, nothing is crystallised), and you can "take out" of already crystallised funds.

Removing the TFLS does not cause crystallisation, it's the other way round, it's crystallisation that causes the availablity of the option of a TFLS. If you tell your provider you want to crystallise, they will give you the option of up to 25% TFLS. If you tell them you don't want it all, they could fully crystallise only giving you part of the TFLS you're entitled to. You then can't have any more tax free cash. It's an option, with DB is often sensible not to take the option (due to bad commutation rate), with DC it rarely is.

So you need to understand cause and effect here, otherwise you could lose out (although most providers will double check if you're doing something that appears silly). You decide to crystallise the whole, or part of your pot. As a result, you have the option of 25% of the part you decide to crystallise as tax free cash.

[Deleted User]

In HL they create another account for you called SIPP Income Drawdown (although you don't have to take income straight away)
On my SIPP account before crystallisation I sold some funds to get approx the 25% cash. Then via an online form, you select which investments are going over and what percentage.
Two days later the cash appears in your bank account and the funds (IT's OEICs, ETF whatever) appear in the new account with a Transaction type of transferred. There may be a small amount left in the original SIPP account due the movement of fund prices and the cash you kept based on the 25% you wanted being too much.
You now have two accounts and are now charged fees on both (if there are still non-cash funds in the uncrystallised account)
the SIPP Income Drawdown account has more menu options such as Withdraw money and Drawdown information.