Managing invesments in crystallised and uncrystallised parts of pension

hyperhypo

I'm having trouble getting my head around how to manage the uncrystallised part of my Fidelity SIPP.

The uancrystallised portion was created by a redundancy payment and represents c. 20% of the overall value. 

I'd consolidated former serps and workplace scheme and taken the 25% in order to fund a period of unemployment prior to commencment of a db scheme starting in may 2022...the crystallised part (no income yet taken) are a bit of a mish mash of mixed asset funds, both active and passive, roughly 60/40, with 20% left in cash.

Excepting a need to withdraw some cash in next tax year up to allowance, i'd intended to leave any further drawdown until my SP age ...5 years hence.

And drawdown variable (c. 3 - 4%) to add to income from DB and SP thereafter.

I'd parked the uncrystallised element in a Vanguard 2020 Target fund, whilst i'm working out how to arrange things. I hadn't anticipated having to deal with this uncrystallised element.

Whether to invest in higher volatility funds assuming leaving for > 5years  and potentially get a higher tax free amount at some future date, or indeed to the opposite , keeping it more or less as is or in some WP trusts (PNL , CGT perhaps).

I'm also tempted to simply crystallise it now and use the cash as income up to start of db scheme in May 2022, and leave untouched again until SP at 2025.

I'm sure there must be a sensible rationale for handling this that i'm missing...has anyone been through a similar situation ?

TVAS

You are asking the wrong question. What are your plans or the next 12 - 24 months? Then I can suggest what you could do with the crystallised funds. However if you do not need the income you can leave it as is. However taking tax free cash until your DB start is a good idea no tax the remaining fund is still invested. 
 
When you start taking income from the SIPP always consider taking a payment in Month 12 March if you can if you take whatever the personal tax allowance is in month 12 as an income payment there is no tax, if you take above the personal tax allowance any overpaid tax is paid sooner. If you do exactly the same in Month 1 April you will pay more tax and will have to wait until the next tax year if you are due a refund. WHY?

Because your personal tax allowance is divided into 12 so in Month 1 April you get 1/12th in March you get 12/12ths assuming you have had no income payments in between. So it acts as cumulative each 12th gets added to the next month if it is not used.  

Please note when your DB is in payment any income payment from your SIPP is added to the DB income. The state pension is paid gross but it is taxable so that will be added to your income. The tax code will be adjusted by the SIPP provider and DB scheme provider to account for the fact that you have 3 sources of pension income albeit one, the SIPP income can be taken on an ad hoc basis. Good luck.
 

hyperhypo

TVAS...thanks for your comments. I had appreciated the fact that my tax allowance needs to be effectively shared between the db and any drawdown from the DC scheme...i'd assumed that it would also need to be shared between SP too. I'm under impression that a "BR" code is what's needed to do this but will check closer to time.

And i've already fallen foul of getting redundancyt payment in Month 1 of a new financial year...even though it related to employment finished in M12 of the previous tax year. In fact i've just claimed back a hefty lump of overpaid tax in that respect, on assumption that i'm unlikely to earn any income until the end of this current tax year. Don't get made redundant early in the tax year ......

My real issue is whether of not to treat the uncrystallised/crystallised amounts differently in terms of fund choice.

I suspect i may simply crystallise the remaining 20% , and use the tax free element as income support into the next tax year...and possibly drawdown my 2021-22 personal allowance as well, on assumption i have no other income.  I wouldn't need to make that latter decision until later in the next tax year though..i appreciate it limits any further contributions (£4k limit) but i think any more significant payments are unlikely now. Which is one reason why i'd left some cash uninvested.

Doing this preserves some cash buffer to be used in conjunction with the bulk of the invested crystallised funds, with no further drawdown on here until 2025. Fidelity's charging model appears to favour use of ETFs / ITs rather than the current open ended funds i'm invested in, so that's my next challenge.

Albermarle

Fidelity's charging model appears to favour use of ETFs / ITs rather than the current open ended funds i'm invested in, so that's my next challenge.

You should only move from funds to ITs/ETF's if it suits your investments strategy, not just because the platform charge works out a bit cheaper . Also you can switch funds without cost , but buying ETF's and IT's costs £10 each time and 0.5% stamp duty for the IT's. Also some funds , especially tracker ones , are cheaper than the ETF equivalent and of course IT's are managed so will never have a very low OCF.

In fact with Fidelity I have a mixture of all three, but I do benefit from a reduced platform charge for funds due to the benefit of being above the level where the platform charge is reduced to 0.2% . So overall I pay about 0.1 %.

hyperhypo

I realise i put the cart before the horse, but i originally moved because platform because i felt the s/w was so much better...the usability factor. Having spent years working in IT i didn't want to use a pension system which appeared written like some unloved in-house company software, even if it was at 0.23% platform.

Fidelity gave me £500 for moving. so i've been given a bit of a bung to offset the current open fund charges. .i'm  just  under their limit for getting funds a bit cheaper.

As for strategy,  that's up for a bottom up review !  A part of me was even tempted to pay them for advice ...they appear to charge £3.5 for any single pension action (even CETV transfers it seems) but i'm going to ask if a lesser transactional fee might apply for a review of "funds in drawdown".

Albermarle

I received a mail from them yesterday indicating they were promoting their financial advice service more . Clear fees of 1% initial and 0.5% ongoing . However the financial advisors are tied to Fidelity so can only recommend Fidelity . Whether that means they can recommend  non Fidelity investments as long as you use the Fidelity platform ,  or it means you are really restricted to Fidelity investments as well as the platform, you would have to read the T's and C's.
Also it is all done over the phone/zoom unless you can visit their office in Central London ( when it reopens) so a bit impersonal. 
Fidelity gave me £500 for moving. 
I have done that twice in two years , with pension and ISA transfers 

hyperhypo

I'll check in with them tomorrow...i don't receive emails from them but may have opted out...i wonder if your offer of 1/0.5% relates to the fact that you're over the £funds held threshold for their basic fee structure. I'll find out.

I'm certainly not averse to paying for advice either , but have often struggled lately to find someone who will provide some transactional advice viz:

" i have e.g. £200k  i want to invest in Funds/ETFs/IT's to provide an aspirational drawdown of c. 4% from 2025 on (e.g.) Fidelity, mitigated using an external cash buffer of n years drawdown, to supplement DB and SP income"