Pension drawdown - how hands on do you need to be?

WackieO

I'm considering my options for taking my pension pots at 57 and am wondering about pension drawdown but wanted to know on hands on you need to be in managing the investments?  

Also, regarding the 25% lump sum which I believe is tax free - is this still tax free if you have an income coming in?  I have a small salary for some part time work plus some income from a rental property. 

Thanks in advance. 

Dazed_and_C0nfused

The 25% tax free lump sum is tax free.

Doesn't matter whether you take 25% up front or 25% of each payment as the TFLS tax free does mean tax free.

eskbanker

I'd suggest the discussion about how to manage drawdown would be better handled as a continuation of your existing thread, which already has some background about those pensions:

https://forums.moneysavingexpert.com/discussion/6328240/drawing-down-on-pension-early-mid-fifties/p1

Malchester

I use UFPLS with PensionBee to take a monthly income from my pension (only a small pension pot) and I take 25% tax free and 75% taxable each month. PensionBee do not have a system for taking automatic regular withdrawals (some companies do) but it literally takes e 2 minutes to request the withdrawal which I do on 6th of each month. It then takes 6 or 7 days then for the money to be in my account - and that's all I have to do. I have chosen a very low risk plan (they have about 5 or 6 options for plans which is quite limited) and, as the money is to fund me for the next 2 1/2 years I am not thinking of moving the funds around. Their total charge on my plan is 0.5% with no costs for withdrawal. 

Albermarle

but wanted to know on hands on you need to be in managing the investments?  

Ideally you should be hands on now, and then just continue in drawdown.

Going into drawdown is not some event where all investments strategies have to change drastically . Especially if like most people you have derisked a little in the years leading up to drawdown.

Probably it does focus the mind a bit more when there is no income coming in though.

WackieO

Albermarle said:

but wanted to know on hands on you need to be in managing the investments?  

Ideally you should be hands on now, and then just continue in drawdown.

Going into drawdown is not some event where all investments strategies have to change drastically . Especially if like most people you have derisked a little in the years leading up to drawdown.

Probably it does focus the mind a bit more when there is no income coming in though.

Thanks for your response - as you probably realise, I have little experience with investments so a bit daunting but I like the flexibility of drawdown. 

dunstonh

but wanted to know on hands on you need to be in managing the investments?  

There are multiple ways to effectively do drawdown and multiple investment strategies that are suitable for drawdown.  There are some very basic investment funds (often referred to as pathways).  Although they typically tend to be middle of the road in that they wont be the best, wont be the worst but are suitable for someone that doesn't know what they are doing and isn't looking for the best.

Some people use a cash float for x number of years income with a total return portfolio with the rest. Some will segment the portfolio with short term, medium term and long term.  Some will use a yield portfolio and draw less than the yield.    Some don't have a clue because their pension provider doesn't give them a choice and they wouldn't know what the choices are anyway.

Also, regarding the 25% lump sum which I believe is tax free - is this still tax free if you have an income coming in?

Depends on what drawdown methods you use.

You can get 25% tax free of your uncrystallised fund withdrawal.  However, that can be on drip (each month for example - e.g. £1000 paid with 25% of it tax free and 75% taxable).   Or it can be taken up front (not normally the best option unless there is justification for doing so).  Or you can take no income but have the 25% only taken on drip over a period of years. (can fit certain tax scenarios)

WackieO

dunstonh said:

but wanted to know on hands on you need to be in managing the investments?  

There are multiple ways to effectively do drawdown and multiple investment strategies that are suitable for drawdown.  There are some very basic investment funds (often referred to as pathways).  Although they typically tend to be middle of the road in that they wont be the best, wont be the worst but are suitable for someone that doesn't know what they are doing and isn't looking for the best.

Some people use a cash float for x number of years income with a total return portfolio with the rest. Some will segment the portfolio with short term, medium term and long term.  Some will use a yield portfolio and draw less than the yield.    Some don't have a clue because their pension provider doesn't give them a choice and they wouldn't know what the choices are anyway.

Also, regarding the 25% lump sum which I believe is tax free - is this still tax free if you have an income coming in?

Depends on what drawdown methods you use.

You can get 25% tax free of your uncrystallised fund withdrawal.  However, that can be on drip (each month for example - e.g. £1000 paid with 25% of it tax free and 75% taxable).   Or it can be taken up front (not normally the best option unless there is justification for doing so).  Or you can take no income but have the 25% only taken on drip over a period of years. (can fit certain tax scenarios)

Thanks for the explanation ... sounds like pathways will be suitable for me unless I gen up and become more of an expert in this area  

Albermarle

Regarding the pathways , here is an example from one provider although other providers offer something very similar.

Investment Pathways | What is investment pathways? | Fidelity

Linton

With drawdown you can use investments that can be completely hands-off.  However you do need to keep a careful watch on your total assets and your rate of drawdown to ensure that you are not taking more money than will be sustainable for your needs.

There is likely to be ongoing detailed management depending on the provider.  For example some providers may offer a regular withdrawal but it is up to you to ensure that there is sufficient cash in the account 2 weeks before the payment date.