Taking small sums from pension - unclear language

legalfreak

I wonder if someone more knowledgeable, can help me -  a newbie - understand the following sentences from the moneyadviceservice website:

1. ' You take cash from your pension pot whenever you need it. For each cash withdrawal normally the first 25% (quarter) will be tax-free, but the rest will be added to your other income and is taxable. '

I understand the bit about the first quarter being tax-free but isn't saying that they add the rest to my 'other income' misleading because the assumption (my assumption?) is that only 25% is being taken out and the rest left invested with the pension? Only if the remainder is taken out then I understand that it is taxable because it is 'added to [my] other income.

2. Further down it says 'Because your pot hasn’t been reinvested to produce an income, its investments could fall in value – so you’ll need to have it reviewed regularly.'

Why wouldn't the rest of the pot (after withdrawal of a 25% lump sum) stay reinvested? Are they not mixing up the lump sum with the remainder?

Sorry to be so pedantic with my questions but I'm just someone trying to navigate the pensions maze on a DIY basis and there is so much complexity imho from the Pension companies' documents let alone the government websites which are meant to help us.

TVAS

1. UFPLS = say your fund is 100,000 but you only want to take 10k you can crystallise 10k 2.5k tax free cash 7.5k income which is added to other income earned in that year.

2. Flexi Access Drawdown = you can take 25% of your total fund as tax free cash only no income no further tax to pay.

3. The rest of the pot will stay invested which means the fund can go up as well as done hence the need for regular reviews. They should have said because you do not have an annuity which is guaranteed income so the investment is no concern of yours.

You can take to Pensionwise and have a face to face or 45 mins telephone call with an experienced pension professional. Have all your documents handy when you speak to them.

legalfreak

Thank you. Isn't this answer is meant for the other thread about the difference between UFPLS and FAD?

squirrelpie

Your original question is so vague that it's impossible for anybody to answer. Without a link to the actual text on the website, and some pointer to the 'other thread' how is anybody supposed to understand anything you wrote?

Albermarle

I agree with the OP that the info from the Money Advice service is pretty confusing/potentially misleading.

Notepad_Phil

legalfreak said:

Sorry to be so pedantic with my questions but I'm just someone trying to navigate the pensions maze on a DIY basis and there is so much complexity imho from the Pension companies' documents let alone the government websites which are meant to help us.

If you look further down the page then you'll see it say "Taking cash sums is just one of several options you have for using your pension pot to provide a retirement income." and then "For an overview of all of your options and where to get help and advice see our guide Options for using your pension pot."

That options page then has a link to https://www.moneyadviceservice.org.uk/en/articles/income-drawdown which is the option that I think you are looking for where you take the whole 25% as a tax-free amount. In your case you'll then leave the 75% in funds, whereas other people might start taking a regular income from it.

Albermarle said:

I agree with the OP that the info from the Money Advice service is pretty confusing/potentially misleading.

It's trying to simplify a very complex area and I think that someone could definitely be confused/misleld if they just read a page or two of its contents.

tichtich

TVAS said:

2. Flexi Access Drawdown = you can take 25% of your total fund as tax free cash only no income no further tax to pay.

According to an answer I  was given in another thread, you don't have to take 25% of the total fund. You can take 25% of a lesser amount. The other 75% of that amount remains in the fund, crystallized. I think that's probably the option the OP is looking for.

tichtich

P.S. After writing the above, I read in another thread that maybe some providers don't let you draw 25% of less than the full pot (with flexi-access drawdown). So I checked with my own provider (Vanguard) and they do allow it. Good. They also have a very clear explanation of the subject, I thought, which might be helpful even if you're not with them:
https://www.vanguardinvestor.co.uk/investing-explained/flexible-income

legalfreak

Thank you all for your responses. I still believe that the language is not very clear, although by linking to other pages one can piece the story together. Some posters know more about the subject and this I think does not give them a newbie's perspective. Grateful that Albemarle agrees with me on the difficulties with moneyadvice.