25% tax free

eastcorkram

Albermarle said:

eastcorkram said:

Albermarle said:

First issue is that you can only add maximum £20K pa to an ISA, so the rest would have to be in savings account where you would pay some tax on the interest.
Even in a cash ISA you will be losing value as interest rates are less than inflation.
Usual recommendation is not to take the tax free cash unless you actually need it,and leave it invested within the pension. 

I was thinking, that I might take 25% tax free from a SIPP. I've no direct need for it, as in paying debt or whatever, but I thought I could use it to just fund myself for a year, and therefore retire one year sooner than I otherwise could. At which stage other pensions would start .
Not sure if this is a sensible use of it or not, but I guess that's just a personal decision.

The point is really that if you have a definite use for the money, such as paying off a debt, buying a new car, retiring early, then can be a good idea to take the TFC ( or some of it). It is generally not such a good idea  to take it just  because you can, and it is usually best just left in the pension in that case ( although clearly not everyone agrees)
As D&C says if you did retire early, and had a year with no taxable income, then it would make sense to not just take TFC, but also taxable income up to £12,570, so as not to waste your personal allowance.

Yes, that would make more sense. I'm not sure how to explain that to HL, but I'll look into it. 

I could finish one year early , and live on cash savings for that year. Not sure if that's a better or worse way, than taking TFLS. I guess that would depend on what happens to the value of the SIPP during that year. 

Bimbly

eastcorkram said:

I could finish one year early , and live on cash savings for that year. Not sure if that's a better or worse way, than taking TFLS.

You would want to use your personal tax free allowance in that year. If you retire a year early part way through the tax year and have earned £12,570 or more, then you've already done it.

But if you retire early in the tax year, say April, then you will want to take some taxable money out of your pension up to at least your personal tax allowance because you will not be paying tax on it.

RogerPensionGuy

Ref IFAs who get paid by a % of pot, I've has a good few friends and family who appeared to me that IFA was possibly over concerned with keeping pot as large as possible. 

Some of these people wanted holidays of a lifetime(2 or 3) replace an unreliable 25 years old car, stair lift, wet room and sensible home modifications to ensure a more pleasant lifestyle. 

IMO, these people generally had good pension funding and drawing more in the early years looked sensible to me but, they felt very uncomfortable going against IFA views.

One example was a husband and wife with pension pots of a million pounds each and IFA had them living like church mice when little reason to be a church mouse. 

eastcorkram

Bimbly said:

eastcorkram said:

I could finish one year early , and live on cash savings for that year. Not sure if that's a better or worse way, than taking TFLS.

You would want to use your personal tax free allowance in that year. If you retire a year early part way through the tax year and have earned £12,570 or more, then you've already done it.

But if you retire early in the tax year, say April, then you will want to take some taxable money out of your pension up to at least your personal tax allowance because you will not be paying tax on it.

I was thinking of finishing in Dec 2024. If I stay on until April 2025, is there any advantage? 
Maybe finish Dec, and just use savings until April, and then take some from the SIPP?

dunstonh

RogerPensionGuy said:

Ref IFAs who get paid by a % of pot, I've has a good few friends and family who appeared to me that IFA was possibly over concerned with keeping pot as large as possible. 

Some of these people wanted holidays of a lifetime(2 or 3) replace an unreliable 25 years old car, stair lift, wet room and sensible home modifications to ensure a more pleasant lifestyle. 

IMO, these people generally had good pension funding and drawing more in the early years looked sensible to me but, they felt very uncomfortable going against IFA views.

One example was a husband and wife with pension pots of a million pounds each and IFA had them living like church mice when little reason to be a church mouse. 

Almost certainly you will find the IFA is not the driver behind their spending choices.    Ultimately, the client can do what they want.  Some people think their pension is a magic money tree and will try and use it for everything at an unsustainable rate.  Those will get plenty of warnings and are told not to.  Others will be nervous about running out despite having plenty.   Often the ones with plenty have got plenty because they didn't spend it willy nilly and it's just the way they are.  When they have lived that way for decades, they will usually continue to do so even if they don't need to financially.

Albermarle

I could finish one year early , and live on cash savings for that year. Not sure if that's a better or worse way, than taking TFLS. I guess that would depend on what happens to the value of the SIPP during that year. 

It is a judgement call, and will partly depend on how much you have in cash savings, as you would not want to use them all up.

Yes the SIPP will move around in value, but on average is more likely to go up than down, although you maybe unlucky. Plus of course it depends how it is invested.

gm0

People do respond to incentives.  So the Assets Under Management fee concern is not unreasonable to keep in mind in the background. And yet we are all subject to wishful thinking - of "fact" selection to suit our preferred narratives. 
Ad hominem attack on motives is as poor a generalisation as any other attempt at a rule of thumb that suits all comers.

My take is that advisers do generally correctly advise under *current* rules for IHT, Pension wrapper.  And can be quite insistent that this answer is "right". (Which it will be unless your circumstances are edge case - until it isn't).  And then the new now - drives a different one.  New day new rules.  I have found it difficult with the advisers I met to have an engaged conversation about regulatory risk and how to handle that set of possibilities.   Understandable if unhelpful.  I think this is driven by a regulated business logic that the current documented advice has to be suitable and largely locked tight to the current rules.  Documenting things which vary from that has a -ve liability incentive attached for the adviser and discussion heading in that direction is a waste of time (for them).  This is a speculation about what incentives drive the behaviour I have encountered - again small scale - a few - so anecdote at best.

As an unregulated consumer it is entirely valid to have a PoV about regulatory risk.  That will be speculative. 
Unknown changes (although shaped by demographic and political logic and need for government tax sources). 
There are trails of breadcrumbs.  IFS study.  Wealth Taxation OECD study and consultation.  Party manifestos and think tank trailing of ideas.  It is *after* long term investment risk the biggest issue faced

If *they* need to raise money against a short term agenda.  They will find a tactical bodge.  Long term stability of pension or inheritance planning assumptions for consumers will go hang. A more considered more structural reform will be politically *too hard* (and slow) as it bails in more voters.  As before. Many times.

Apropos of TFLS then:

1) Consumption need drives - do you need to actually use it for something NOW.  Yourself or potentially exempt transfer to heirs (7 year rule).  Debt. Early retirement consumption. Kids stepping onto housing ladder.  The apochryphal Lambo.

2) Investment returns matter (via S&S ISA or Pension) - how will the TFLS after immediate consumption fit into your overall - long term - asset allocation.

Extracted TFLS becomes minimal risk cash (in terms of speculative investment risk) - until reallocated to target overall asset allocation inside an S&S ISA or similar.  So effectively "deposit" / zero duration bonds without the interest rate risk.  But all the cash gets inflated away. This is a certainty not a risk if held long term.  Only the amount is uncertain.  But unless a real positive return protected cash product is available.  It just is.  Because people are prone to doing this the FCA are busily trying to create structures and nudges and prompts to work against the instinct.  Similarly slinging it all back into equities could be "too much risk for you" in terms of asset allocation should an 80% correction show up and you are primarily in DC drawdown with an essential income requirement.  How much is too much risk is clearly a personal decision but there is lots of guidance and debate about it.
But in general a return to the OVERALL target allocation you have in mind would seem prudent.

3) Regulatory risk - rule changes to Pensions, LTA, ISA limits, TFLS, wealth taxes and more. 

The unknown fiddling around of UK government.  Do you spread assets around tax wrappers, and around family - to reduce tall poppies by person and tax wrapper and make it harder to target you

4) IHT planning

Advisers are very keen on the pension "outside estate" IHT exemption as the main plank of the argument for why not S&S ISA via TFLS.  Which is (mostly) correct (now) - LTA edge cases prior to the latest fiddling notwithstanding. 

If you wrapper hedge then you need a family IHT plan around consumption and "spend pension last" to manage the overhang. And to live long enough to execute said plan.   You take a view on the relative priority of ISA limits. TFLS limits, IHT changes and whether some or all of these will happen.

This is just a mitigation bet on regulatory risk around IHT and other reforms. Based on your view of likely longevity bar accident.

I just don't believe the current regimen will be untouched for 40 years from now.  You plan on an informed view of rules now and your asset distribution across people, property and financial wrappers.

People leaving it in the pension aren't doing anything stupid.  People taking it out *could be* if they die soon and inconveniently before taking other actions.  And neither knows that it's the correct plan retrospectively for 30-40 years.  Either could lose out or benefit tactically from acting one way or the other prior to future reforms.

dealyboy

@eastcorkram said:

Albermarle said:

eastcorkram said:

Albermarle said:

First issue is that you can only add maximum £20K pa to an ISA, so the rest would have to be in savings account where you would pay some tax on the interest.
Even in a cash ISA you will be losing value as interest rates are less than inflation.
Usual recommendation is not to take the tax free cash unless you actually need it,and leave it invested within the pension. 

I was thinking, that I might take 25% tax free from a SIPP. I've no direct need for it, as in paying debt or whatever, but I thought I could use it to just fund myself for a year, and therefore retire one year sooner than I otherwise could. At which stage other pensions would start .
Not sure if this is a sensible use of it or not, but I guess that's just a personal decision.

The point is really that if you have a definite use for the money, such as paying off a debt, buying a new car, retiring early, then can be a good idea to take the TFC ( or some of it). It is generally not such a good idea  to take it just  because you can, and it is usually best just left in the pension in that case ( although clearly not everyone agrees)
As D&C says if you did retire early, and had a year with no taxable income, then it would make sense to not just take TFC, but also taxable income up to £12,570, so as not to waste your personal allowance.

Yes, that would make more sense. I'm not sure how to explain that to HL, but I'll look into it. 

I could finish one year early , and live on cash savings for that year. Not sure if that's a better or worse way, than taking TFLS. I guess that would depend on what happens to the value of the SIPP during that year. 

... at the risk of telling you something either you already know or don't need to know ...

If your SIPP is 100k (uncrystallized i.e. not in drawdown) and you want to take £25k to spend for whatever reason and you have used (or will have used) your personal tax allowance in the current financial year then a PCLS will provide the £25k tax free and put £75k into 'drawdown' (crystallized). This leaves the MPAA intact as you will have taken no income. You can of course take a series of PCLS rather than one lump sum.

If you have unused personal allowance, it might be beneficial to take a UFPLS plus a PCLS. A UFPLS of £16,760 would crystallize £12,570 as drawdown income and leave £4,190 untaxed. The income would initially be taxed but this is recoverable from HMRC. This triggers the MPAA. A further sum can be taken as a PCLS as required. Again of course you can take a series of UFPLS for the amounts you want.

HL will fully understand your request(s) and will not charge you.

Albermarle

eastcorkram said:

Bimbly said:

eastcorkram said:

I could finish one year early , and live on cash savings for that year. Not sure if that's a better or worse way, than taking TFLS.

You would want to use your personal tax free allowance in that year. If you retire a year early part way through the tax year and have earned £12,570 or more, then you've already done it.

But if you retire early in the tax year, say April, then you will want to take some taxable money out of your pension up to at least your personal tax allowance because you will not be paying tax on it.

I was thinking of finishing in Dec 2024. If I stay on until April 2025, is there any advantage? 
Maybe finish Dec, and just use savings until April, and then take some from the SIPP?

A free discussion with Pensionwise could help clarify options, plus HL will also be happy to explain ( and they will also recommend you speak to Pensionwise as well)
Pension Wise: free pension guidance | MoneyHelper

CalJo99

I think IFAs are most concerned about being open to potential charges of misselling/misconduct etc, and generally giving you reckless advice etc etc, which is 'good' in the sense that they are overall protective of your money.

Mine, and I assume this is standard?, as I say, got me to fill out a 'risk attitude' form, to find out what my attitude to risk overall was - I do this every year (eg, when I hit 99 I might take more risks because, hey, what the hell by then!).

They then comment on my risk attitude (as in, point out that if I keep a cash reserve it will depreciate in high inflationary times), so they give me 'neutral but financially expert information', and they also give me 'pros and cons' of what I think I want - and then I make a decision. 

It seems to work well enough so far.

Sometimes I see what I think is a bit of a 'preference' in them - I once wanted to buy agricultural land with some of my pension, but they - possibly reasonably or not - argued that I would make more money by investing in stocks and shares etc. 

But my 'yen' or land wasn't really about making a profit - more about the satisfaction and security of owning land (because, as Mark Twain points out - "They're not making any more of it")(except in Dubai, Monaco etc!!!)

However, I'd probably prefer to own land personally, rather than via my pension pot./wrapper etc.

(I like land - I come from a long line of peasants!!!!!)