Taking 25% lump sum at 55, what happens to the rest of the pension fund?

zAndy1

I've tried to find the answer to this but I find myself still rather confused. I intend (due to financial circumstances) to take a 25% tax free lump sum from my work defined contribution aviva stakeholder pension. My assumption all along is that the rest of the fund will remain invested as it is now and that I can continue to make monthly contributions as I do now. I then start reading about crystallized and un-crystallized funds etc and I'm beginning to wonder if my assumption is correct. Does taking a 25% lump sum affect the rest of the pension fund or does 75% remain invested as it was before the 25% tax free was taken. Does it vary from one pension scheme to another? I realise I may need to approach aviva with these questions but figured someone on here would be able to explain what happens in this scenario which isn't really that unusual I guess.

L9XSS

Yes, to put it into context, I will use my example, I had a pension pot of circa 150k in my Vanguard SIPP.
I decided I wanted to use some of the TFLS to pay off my mortgage, although didn’t require the FULL TFLS (25%) from the 150k.
i therefore contacted Vanguard, went through there excellent process and took 25% tax free lump sum from 100k of the pot. I received 25k into my nominated banks account.
75k therefore was crystallised and placed in a drawdown Pension account (although I’m not planning to drawdown for another 4 to 6 yeas. The 50k from the SIPP still has the TFLS element should I require it, but sits in a separate “pre retirement” account.
i therefore still contribute to my “pre retirement” account. As my SIPP was in cash at 5hetime it was relatively straightforward. Hope this helps?

Linton

The remaining 75% of a pension pot after taking a 25% lump sum would normally remain invested.  However some pensions, usually old ones dating from before drawdown was available, may not permit taking the TFLS without using the rest to buy an annuity.  I guess but dont know that a stakeholder pension could fall in that category. You will need to check with the provider.

If your provider does not support what you want to do it should be straightforward to transfer the pension to a SIPP and carry out your transactions there.

dunstonh

 I intend (due to financial circumstances) to take a 25% tax free lump sum from my work defined contribution aviva stakeholder pension.

Stakeholder pensions do not normally support drawdown.  So, you may need to transfer it.

Does taking a 25% lump sum affect the rest of the pension fund or does 75% remain invested as it was before the 25% tax free was taken.

if the pension supports drawdown, then the 75% becomes crystallised and can invest in the same way.  if it doesn't support drawdown then you will need to transfer the pension and select new investments.

HeyYeah

Just a note, in case you are unaware, that you don’t need to withdraw all of the 25%, you could withdraw less and withdraw the remainder in the future.

NannaH

You also need to sell enough from your fund/s to have enough cash to withdraw.
Eg: Crystallise £40k = £10k cash needed for TFLS.  You don’t need to sell the whole £40k worth.  The remaining £30k simply gets moved into a crystalised portion, so uncrystalised + furtner contributions are a separate ‘pot’. 

Albermarle

HeyYeah said:

Just a note, in case you are unaware, that you don’t need to withdraw all of the 25%, you could withdraw less and withdraw the remainder in the future.

Yes that is correct,  but as long as the pension supports doing that. As said above it is sometimes necessary to transfer to a more modern pension to get the full flexibility.

NannaH

Just to be pedantic,  you do have to take 25% of the amount you crystalised, so if you want less than 25% of the whole pot,  you only crystalise the proportion you need for the tax free amount you require.  

DH crystalised £68k of his Sipp last year for a lump sum of £17k, the rest, along with further contributions remains uncrystalised.  His Sipp unfortunately doesn’t show the split,  whereas my Sipp does. 

MallyGirl

If you need to transfer, and this is the work pension for your current job, make sure that you can continue to contribute after the 'partial' transfer. You don't want to close the active work one down or you could lose out on future employer contributions

zAndy1

Thanks for the replies everyone. I've contacted Aviva and am just waiting for some information from them and will decide what to do from there

Pat38493

I guess it's just worth pointing out that when you do this, you crystallise, the full amount that you crystallise in that moment is judged as a percentage of your lifetime allowance (e.g if you take 25K tax free cash you end up using 100K = about 10% of your LTA).

As I understand it, this might be a consideration if you have pension assets approaching the value of the LTA and you think the LTA might be increased at some point in the future (although I think it's currently stated to be frozen until at least 2026.