Getting financial advice from Pension Wise

Pat38493

zagfles said:

Pat38493 said:

zagfles said:

But the really big things that trip people up are stuff that probably wouldn't even occur to pensionwise or IFAs, such as the timing of taking a DB pension due to lumpy way they are usually revalued/indexed. People taking a DB pension around this time could be 10%+ better or worse off depending on timing.

Can you elaborate a bit on that?  Do you mean for example taking the pension at a time when inflation is high and the statutory revalution in deferment is less capped or suchlike?

An occupational pension taken on 30 Dec 2022 could be worth 10% less than if taken on 2 Jan 2023.

Discussed here https://forums.moneysavingexpert.com/discussion/5962314/rules-on-using-occupational-pensions-revaluation-orders/p1

I remember that thread, but what I understood from that thread (and another one) is that it's the anniversary date of when the pension was deferred which makes the difference rather than the end of the calendar year?  As  I remember it the conclusion was that you should only put your pension into payment after the anniversary date of when it was deferred in that year?

zagfles

Pat38493 said:

zagfles said:

Pat38493 said:

zagfles said:

But the really big things that trip people up are stuff that probably wouldn't even occur to pensionwise or IFAs, such as the timing of taking a DB pension due to lumpy way they are usually revalued/indexed. People taking a DB pension around this time could be 10%+ better or worse off depending on timing.

Can you elaborate a bit on that?  Do you mean for example taking the pension at a time when inflation is high and the statutory revalution in deferment is less capped or suchlike?

An occupational pension taken on 30 Dec 2022 could be worth 10% less than if taken on 2 Jan 2023.

Discussed here https://forums.moneysavingexpert.com/discussion/5962314/rules-on-using-occupational-pensions-revaluation-orders/p1

I remember that thread, but what I understood from that thread (and another one) is that it's the anniversary date of when the pension was deferred which makes the difference rather than the end of the calendar year?  As  I remember it the conclusion was that you should only put your pension into payment after the anniversary date of when it was deferred in that year?

You haven't read and understood it properly then. Or you aren't aware that inflation in 2022 was far higher than normal.

Suggest you re-read the thread, it's all explained. I'm not re-explaining it.

Pat38493

zagfles said:

Pat38493 said:

zagfles said:

Pat38493 said:

zagfles said:

But the really big things that trip people up are stuff that probably wouldn't even occur to pensionwise or IFAs, such as the timing of taking a DB pension due to lumpy way they are usually revalued/indexed. People taking a DB pension around this time could be 10%+ better or worse off depending on timing.

Can you elaborate a bit on that?  Do you mean for example taking the pension at a time when inflation is high and the statutory revalution in deferment is less capped or suchlike?

An occupational pension taken on 30 Dec 2022 could be worth 10% less than if taken on 2 Jan 2023.

Discussed here https://forums.moneysavingexpert.com/discussion/5962314/rules-on-using-occupational-pensions-revaluation-orders/p1

I remember that thread, but what I understood from that thread (and another one) is that it's the anniversary date of when the pension was deferred which makes the difference rather than the end of the calendar year?  As  I remember it the conclusion was that you should only put your pension into payment after the anniversary date of when it was deferred in that year?

You haven't read and understood it properly then. Or you aren't aware that inflation in 2022 was far higher than normal.

Suggest you re-read the thread, it's all explained. I'm not re-explaining it.

Ok - I had missed the part that on 1st Jan the revaluation used could actually go down compared to the prior year table.  However, isn’t my conclusion still valid that if my deferrement date is in May I would always be better off claiming the pension after that date?  

Pat38493

zagfles said:

An occupational pension taken on 30 Dec 2022 could be worth 10% less than if taken on 2 Jan 2023.

Discussed here https://forums.moneysavingexpert.com/discussion/5962314/rules-on-using-occupational-pensions-revaluation-orders/p1

I have studied the tables from 2022, 2021, 2018, and 2017 and re-read the old thread again.

I can see what is meant but this plays out as a function more of the deferment year than the current year - I can see lots of scenarios where your pension still went up from 31st December to 2nd Jan depending which year it was deferred in.

Also - don't you mean retiring between 31st December 2023 and 2nd January 2024?  The last published tables were during a period of high inflation - the low inflation has not happened yet and if it does, it won't be in the tables until November 2023?

For the 1990/91 scenario discussed on the old thread, the difference is not 8% or 10% anymore it's 138.9% versus 137.2% (presumably due to averaging out) so so 1.7% cut in pension from December to January.  Or am I still misreading the tables or not understood the whole concept?

Malthusian

zagfles said:

How is the legislation worded? If you, say, crystallise in scheme A and end up with £100k in drawdown after the TFLS, that's £100k crystallising for BCE1. It's one event.

Say that grows to £120k, and you then decide to transfer £60k into scheme B. You now have £60k in scheme A and £60k in scheme B.

With 100k * (60/120) = £50k originally designated to drawdown for each. Easy so far.

Then if that £60k in scheme A stays static, and the £60k in scheme B falls to £40k between then and age 75, then how much crystallises for BCE5A? It should be zero, because the amount crystallising in total is the same as the amount originally designated.

Yep, by partially transferring your pension and then managing the resulting pots differently you have screwed yourself by creating a £10k LTA excess. Whereas if you'd left them combined, the excess would, as you say, be zero.
This is certainly a good reason not to split up a drawdown pot if you don't know what you're doing, but not a good reason for the Government not to allow it in the first place. The calculations aren't complicated, the Government is hardly likely to object to the possibility of extra tax, and the scenario above is easily avoided. E.g. if the reason one pension fell to £40k is because you were taking taxable income from one pot only, take it from both instead.
The above scenario is quite unlikely because there are very few good reasons to split up a pot in that way. A more common reason would be because you have a drawdown pension invested in some sort of illiquid asset that can't be moved because it can't be sold and no other pension provider will accept an in-specie transfer. At the moment the entire pension pot is stuck, whereas a partial transfer would allow you to transfer the good assets and leave the rest to rot (as you can with an uncrystallised pension).
The age 75 test might be a deterrent to doing so (as it may inflate the age 75 excess on the "good pension"), but not everyone has a Lifetime Allowance issue anyway.

It's different where you transfer uncrystallised and then crystallise. There you get two BCE1s for each crystallisation, so they can be treated independantly.But you end up in the same position. You start with £133,333 uncrystallised, split it up into two funds of £66,667, and fully crystallise both. Each drawdown pot starts at £50k. One grows to £60k and stays there. The other goes up to £60k then drops to £40k by 75. Result: one age 75 excess of nil and one of £10k.

Albermarle

Malthusian said:

zagfles said:

How is the legislation worded? If you, say, crystallise in scheme A and end up with £100k in drawdown after the TFLS, that's £100k crystallising for BCE1. It's one event.

Say that grows to £120k, and you then decide to transfer £60k into scheme B. You now have £60k in scheme A and £60k in scheme B.

With 100k * (60/120) = £50k originally designated to drawdown for each. Easy so far.

Then if that £60k in scheme A stays static, and the £60k in scheme B falls to £40k between then and age 75, then how much crystallises for BCE5A? It should be zero, because the amount crystallising in total is the same as the amount originally designated.

Yep, by partially transferring your pension and then managing the resulting pots differently you have screwed yourself by creating a £10k LTA excess. Whereas if you'd left them combined, the excess would, as you say, be zero.
This is certainly a good reason not to split up a drawdown pot if you don't know what you're doing, but not a good reason for the Government not to allow it in the first place. The calculations aren't complicated, the Government is hardly likely to object to the possibility of extra tax, and the scenario above is easily avoided. E.g. if the reason one pension fell to £40k is because you were taking taxable income from one pot only, take it from both instead.
The above scenario is quite unlikely because there are very few good reasons to split up a pot in that way. A more common reason would be because you have a drawdown pension invested in some sort of illiquid asset that can't be moved because it can't be sold and no other pension provider will accept an in-specie transfer. At the moment the entire pension pot is stuck, whereas a partial transfer would allow you to transfer the good assets and leave the rest to rot (as you can with an uncrystallised pension).
The age 75 test might be a deterrent to doing so (as it may inflate the age 75 excess on the "good pension"), but not everyone has a Lifetime Allowance issue anyway.

It's different where you transfer uncrystallised and then crystallise. There you get two BCE1s for each crystallisation, so they can be treated independantly.

But you end up in the same position. You start with £133,333 uncrystallised, split it up into two funds of £66,667, and fully crystallise both. Each drawdown pot starts at £50k. One grows to £60k and stays there. The other goes up to £60k then drops to £40k by 75. Result: one age 75 excess of nil and one of £10k.

Presumably you would have the same issue ( assuming you were in the LTA area), if you had two separate pensions already, and started crystallising both at a similar time. Then when you reached 75, one had gone up 20% and one down 20%?
As many with large pots, do not like to keep it all with one provider, it is something to be aware of. Maybe better to just draw down from one at a time, or at least if you crystallise both just make sure you take more income from the pot growing the most .

zagfles

Malthusian said:

zagfles said:

How is the legislation worded? If you, say, crystallise in scheme A and end up with £100k in drawdown after the TFLS, that's £100k crystallising for BCE1. It's one event.

Say that grows to £120k, and you then decide to transfer £60k into scheme B. You now have £60k in scheme A and £60k in scheme B.

With 100k * (60/120) = £50k originally designated to drawdown for each. Easy so far.

So you've spilt one BCE1 into two BCE1s.

Then if that £60k in scheme A stays static, and the £60k in scheme B falls to £40k between then and age 75, then how much crystallises for BCE5A? It should be zero, because the amount crystallising in total is the same as the amount originally designated.

Yep, by partially transferring your pension and then managing the resulting pots differently you have screwed yourself by creating a £10k LTA excess. Whereas if you'd left them combined, the excess would, as you say, be zero.

But you're now inventing rules as you go along. Rather than splitting BCE1 into 2, why not combine the BCE5As?

It's different where you transfer uncrystallised and then crystallise. There you get two BCE1s for each crystallisation, so they can be treated independantly.

But you end up in the same position. You start with £133,333 uncrystallised, split it up into two funds of £66,667, and fully crystallise both. Each drawdown pot starts at £50k. One grows to £60k and stays there. The other goes up to £60k then drops to £40k by 75. Result: one age 75 excess of nil and one of £10k.

It's the same monetarily but not legally since you get two separate BCE1s and both can be associated directly with the corresponding BCE5As. Rather than splitting a BCE1 which has already occurred into two.
Obviously it could be done in the way you suggest, but I suspect there could be complications eg if a mistake was made say a dividend which should have been paid before the split went astray and got paid afterwards, then the split % would need adjusting.

Malthusian

zagfles said:

But you're now inventing rules as you go along. 

Er, yes? The entire point of the exercise is this hypothetical new rule we've invented that says you're now allowed to partially transfer drawdown pensions. 

Rather than splitting BCE1 into 2, why not combine the BCE5As?

Because it's way too complicated. You'd have to get the two (or more) providers to co-ordinate and share data to calculate the combined BCE5A, which automatically makes it a nightmare. 
(Why not combine BCE5As now? It's already possible to end up in the scenario above if you split up your pension before crystallisation.)

Obviously it could be done in the way you suggest, but I suspect there could be complications eg if a mistake was made say a dividend which should have been paid before the split went astray and got paid afterwards, then the split % would need adjusting.

I can see your point - it would be an irritating one because both new BCE1 designations would be wrong and the old provider would have to inform the new provider that they need to change their records. But it doesn't seem like a big enough deal to stop people partially transferring pensions at all.

bunnygo

I had a pensionwise chat a month or so ago and it was extremely helpful. Didn't come up with any surprises because I had done my research but gave me confidence that I knew what I was doing. As a result have just triggered an UFPLS withdrawal which works in my particular circumstances.

Adviser was very helpful and went through all the ways you can withdraw from your pension. Including 'take it all at once' which for those with bigger pots than their annual tax allowance is generally a very bad idea. And yes he had a war story of someone who did that, got a massive tax bill and then went to Pensionwise to ask how to get the tax back. The answer was 'you can't'.

Always worth getting guidance as they will tell you the implications of what you are doing before you do something irrevocable. If you want ideas on how to invest, that's where a financial adviser comes in and that's someone different.

dunstonh

Always worth getting guidance as they will tell you the implications of what you are doing before you do something irrevocable. If you want ideas on how to invest, that's where a financial adviser comes in and that's someone different.

It should be noted that the adviser also provides advice on the methods. Whereas pensionwise provides guidance on (some of) the options.

In my experience, a good number of people who went to pensionwise first and then came to us afterwards changed the method they thought they were going to use after the pensionwise meeting.  Mainly as they were not things considered by pensionwise.