Pension Drawdon / HMRC.Advice please.

Albermarle

BoxerfanUK said:

I'm far from the expert compared to some of the regular posters on here, but If you have no other form of income you are not using up your annual personal tax allowance (£12,570 pa) so it would make more sense to use some of the 'taxable' element of your pension to use up your personal allowance, thus you would pay NO TAX on the 'taxable' element anyway as its within your personal tax allowance! 

It makes no sense if you have no other income to solely take the 25% tax free sum if all you are going to do is use that as your annual income!

The best time to utilize the 25% tax free part is when you have other income (say, state pension) which uses up most or all of your personal allowance. 

What you suggest is good, but just to be clear to anyone reading, you can not just take taxable income, without taking some tax free cash, either earlier or at the same time. For example if you want to generate £15K in taxable income, you have to crystallise £20K of the pension pot and £5K of that will be tax free cash. 

BoxerfanUK

Albermarle said:

BoxerfanUK said:

I'm far from the expert compared to some of the regular posters on here, but If you have no other form of income you are not using up your annual personal tax allowance (£12,570 pa) so it would make more sense to use some of the 'taxable' element of your pension to use up your personal allowance, thus you would pay NO TAX on the 'taxable' element anyway as its within your personal tax allowance! 

It makes no sense if you have no other income to solely take the 25% tax free sum if all you are going to do is use that as your annual income!

The best time to utilize the 25% tax free part is when you have other income (say, state pension) which uses up most or all of your personal allowance. 

What you suggest is good, but just to be clear to anyone reading, you can not just take taxable income, without taking some tax free cash, either earlier or at the same time. For example if you want to generate £15K in taxable income, you have to crystallise £20K of the pension pot and £5K of that will be tax free cash. 

That's true Albermarle, missed that bit.  On that point, and using your example, could the 5K tax free cash remain invested once in the crystallised pot?  Or does that have to be taken and invested elsewhere if no immediate use for it?

Albermarle

BoxerfanUK said:

Albermarle said:

BoxerfanUK said:

I'm far from the expert compared to some of the regular posters on here, but If you have no other form of income you are not using up your annual personal tax allowance (£12,570 pa) so it would make more sense to use some of the 'taxable' element of your pension to use up your personal allowance, thus you would pay NO TAX on the 'taxable' element anyway as its within your personal tax allowance! 

It makes no sense if you have no other income to solely take the 25% tax free sum if all you are going to do is use that as your annual income!

The best time to utilize the 25% tax free part is when you have other income (say, state pension) which uses up most or all of your personal allowance. 

What you suggest is good, but just to be clear to anyone reading, you can not just take taxable income, without taking some tax free cash, either earlier or at the same time. For example if you want to generate £15K in taxable income, you have to crystallise £20K of the pension pot and £5K of that will be tax free cash. 

That's true Albermarle, missed that bit.  On that point, and using your example, could the 5K tax free cash remain invested once in the crystallised pot?  Or does that have to be taken and invested elsewhere if no immediate use for it?

When the £20K is crystallised, the £5K tax free is 'ejected' from the pension as a cash payment. You then do what you want with it. Spend it, save it, invest it etc. 

BoxerfanUK

Albermarle said:

BoxerfanUK said:

Albermarle said:

BoxerfanUK said:

I'm far from the expert compared to some of the regular posters on here, but If you have no other form of income you are not using up your annual personal tax allowance (£12,570 pa) so it would make more sense to use some of the 'taxable' element of your pension to use up your personal allowance, thus you would pay NO TAX on the 'taxable' element anyway as its within your personal tax allowance! 

It makes no sense if you have no other income to solely take the 25% tax free sum if all you are going to do is use that as your annual income!

The best time to utilize the 25% tax free part is when you have other income (say, state pension) which uses up most or all of your personal allowance. 

What you suggest is good, but just to be clear to anyone reading, you can not just take taxable income, without taking some tax free cash, either earlier or at the same time. For example if you want to generate £15K in taxable income, you have to crystallise £20K of the pension pot and £5K of that will be tax free cash. 

That's true Albermarle, missed that bit.  On that point, and using your example, could the 5K tax free cash remain invested once in the crystallised pot?  Or does that have to be taken and invested elsewhere if no immediate use for it?

When the £20K is crystallised, the £5K tax free is 'ejected' from the pension as a cash payment. You then do what you want with it. Spend it, save it, invest it etc. 

Sorry Albermarle one final question if you don't mind.  Using your same example.

So, I have to crystallise 20K in order to access 5K (25%) tax free, which is ejected from the pension.  I get that, but what about the other 75%?  What if I don't really need it there and then?  Where does that go?  Can it stay invested in the pension, albeit moved over to a crystallised pot?

Pat38493

BoxerfanUK said:

Albermarle said:

BoxerfanUK said:

Albermarle said:

BoxerfanUK said:

I'm far from the expert compared to some of the regular posters on here, but If you have no other form of income you are not using up your annual personal tax allowance (£12,570 pa) so it would make more sense to use some of the 'taxable' element of your pension to use up your personal allowance, thus you would pay NO TAX on the 'taxable' element anyway as its within your personal tax allowance! 

It makes no sense if you have no other income to solely take the 25% tax free sum if all you are going to do is use that as your annual income!

The best time to utilize the 25% tax free part is when you have other income (say, state pension) which uses up most or all of your personal allowance. 

What you suggest is good, but just to be clear to anyone reading, you can not just take taxable income, without taking some tax free cash, either earlier or at the same time. For example if you want to generate £15K in taxable income, you have to crystallise £20K of the pension pot and £5K of that will be tax free cash. 

That's true Albermarle, missed that bit.  On that point, and using your example, could the 5K tax free cash remain invested once in the crystallised pot?  Or does that have to be taken and invested elsewhere if no immediate use for it?

When the £20K is crystallised, the £5K tax free is 'ejected' from the pension as a cash payment. You then do what you want with it. Spend it, save it, invest it etc. 

Sorry Albermarle one final question if you don't mind.  Using your same example.

So, I have to crystallise 20K in order to access 5K (25%) tax free, which is ejected from the pension.  I get that, but what about the other 75%?  What if I don't really need it there and then?  Where does that go?  Can it stay invested in the pension, albeit moved over to a crystallised pot?

Yes - it can stay in the pension but it is tracked separately as crystallised funds.  Some providers track this with a completely separate account, others seem to track it by a percentage of the total pot.

Albermarle

BoxerfanUK said:

Albermarle said:

BoxerfanUK said:

Albermarle said:

BoxerfanUK said:

I'm far from the expert compared to some of the regular posters on here, but If you have no other form of income you are not using up your annual personal tax allowance (£12,570 pa) so it would make more sense to use some of the 'taxable' element of your pension to use up your personal allowance, thus you would pay NO TAX on the 'taxable' element anyway as its within your personal tax allowance! 

It makes no sense if you have no other income to solely take the 25% tax free sum if all you are going to do is use that as your annual income!

The best time to utilize the 25% tax free part is when you have other income (say, state pension) which uses up most or all of your personal allowance. 

What you suggest is good, but just to be clear to anyone reading, you can not just take taxable income, without taking some tax free cash, either earlier or at the same time. For example if you want to generate £15K in taxable income, you have to crystallise £20K of the pension pot and £5K of that will be tax free cash. 

That's true Albermarle, missed that bit.  On that point, and using your example, could the 5K tax free cash remain invested once in the crystallised pot?  Or does that have to be taken and invested elsewhere if no immediate use for it?

When the £20K is crystallised, the £5K tax free is 'ejected' from the pension as a cash payment. You then do what you want with it. Spend it, save it, invest it etc. 

Sorry Albermarle one final question if you don't mind.  Using your same example.

So, I have to crystallise 20K in order to access 5K (25%) tax free, which is ejected from the pension.  I get that, but what about the other 75%?  What if I don't really need it there and then?  Where does that go?  Can it stay invested in the pension, albeit moved over to a crystallised pot?

Yes it can but the exact mechanics will vary from provider to provider.
It also worth noting that some older pensions will be less flexible, and you have to take out all the tax free cash first ( sometimes all at once) before accessing taxable money.
If this does not suit, the solution is to transfer to a more modern pension, which is normally pretty easy. Sometimes it might even be with the same provider.
Always worth a good check of the providers website to see what they offer in terms of withdrawal options.

Dazed_and_C0nfused

BoxerfanUK said:

Albermarle said:

BoxerfanUK said:

Albermarle said:

BoxerfanUK said:

I'm far from the expert compared to some of the regular posters on here, but If you have no other form of income you are not using up your annual personal tax allowance (£12,570 pa) so it would make more sense to use some of the 'taxable' element of your pension to use up your personal allowance, thus you would pay NO TAX on the 'taxable' element anyway as its within your personal tax allowance! 

It makes no sense if you have no other income to solely take the 25% tax free sum if all you are going to do is use that as your annual income!

The best time to utilize the 25% tax free part is when you have other income (say, state pension) which uses up most or all of your personal allowance. 

What you suggest is good, but just to be clear to anyone reading, you can not just take taxable income, without taking some tax free cash, either earlier or at the same time. For example if you want to generate £15K in taxable income, you have to crystallise £20K of the pension pot and £5K of that will be tax free cash. 

That's true Albermarle, missed that bit.  On that point, and using your example, could the 5K tax free cash remain invested once in the crystallised pot?  Or does that have to be taken and invested elsewhere if no immediate use for it?

When the £20K is crystallised, the £5K tax free is 'ejected' from the pension as a cash payment. You then do what you want with it. Spend it, save it, invest it etc. 

Sorry Albermarle one final question if you don't mind.  Using your same example.

So, I have to crystallise 20K in order to access 5K (25%) tax free, which is ejected from the pension.  I get that, but what about the other 75%?  What if I don't really need it there and then?  Where does that go?  Can it stay invested in the pension, albeit moved over to a crystallised pot?

And don't forget that 100% of the crystallised element which wasn't the TFLS is taxable.

So if your crystallised £15k grows to say £25k then the whole £25k is taxable (when taken out of the pension).

Pat38493

Dazed_and_C0nfused said:

BoxerfanUK said:

Albermarle said:

BoxerfanUK said:

Albermarle said:

BoxerfanUK said:

I'm far from the expert compared to some of the regular posters on here, but If you have no other form of income you are not using up your annual personal tax allowance (£12,570 pa) so it would make more sense to use some of the 'taxable' element of your pension to use up your personal allowance, thus you would pay NO TAX on the 'taxable' element anyway as its within your personal tax allowance! 

It makes no sense if you have no other income to solely take the 25% tax free sum if all you are going to do is use that as your annual income!

The best time to utilize the 25% tax free part is when you have other income (say, state pension) which uses up most or all of your personal allowance. 

What you suggest is good, but just to be clear to anyone reading, you can not just take taxable income, without taking some tax free cash, either earlier or at the same time. For example if you want to generate £15K in taxable income, you have to crystallise £20K of the pension pot and £5K of that will be tax free cash. 

That's true Albermarle, missed that bit.  On that point, and using your example, could the 5K tax free cash remain invested once in the crystallised pot?  Or does that have to be taken and invested elsewhere if no immediate use for it?

When the £20K is crystallised, the £5K tax free is 'ejected' from the pension as a cash payment. You then do what you want with it. Spend it, save it, invest it etc. 

Sorry Albermarle one final question if you don't mind.  Using your same example.

So, I have to crystallise 20K in order to access 5K (25%) tax free, which is ejected from the pension.  I get that, but what about the other 75%?  What if I don't really need it there and then?  Where does that go?  Can it stay invested in the pension, albeit moved over to a crystallised pot?

And don't forget that 100% of the crystallised element which wasn't the TFLS is taxable.

So if your crystallised £15k grows to say £25k then the whole £25k is taxable (when taken out of the pension).

Generally yes.  In a recent thread though, it was discussed that some providers seem to pay the income from income funds back into the uncrystalised part of your account so it seems like you can partially mitigate this effect by using income based funds.

BoxerfanUK

Dazed_and_C0nfused said:

BoxerfanUK said:

Albermarle said:

BoxerfanUK said:

Albermarle said:

BoxerfanUK said:

I'm far from the expert compared to some of the regular posters on here, but If you have no other form of income you are not using up your annual personal tax allowance (£12,570 pa) so it would make more sense to use some of the 'taxable' element of your pension to use up your personal allowance, thus you would pay NO TAX on the 'taxable' element anyway as its within your personal tax allowance! 

It makes no sense if you have no other income to solely take the 25% tax free sum if all you are going to do is use that as your annual income!

The best time to utilize the 25% tax free part is when you have other income (say, state pension) which uses up most or all of your personal allowance. 

What you suggest is good, but just to be clear to anyone reading, you can not just take taxable income, without taking some tax free cash, either earlier or at the same time. For example if you want to generate £15K in taxable income, you have to crystallise £20K of the pension pot and £5K of that will be tax free cash. 

That's true Albermarle, missed that bit.  On that point, and using your example, could the 5K tax free cash remain invested once in the crystallised pot?  Or does that have to be taken and invested elsewhere if no immediate use for it?

When the £20K is crystallised, the £5K tax free is 'ejected' from the pension as a cash payment. You then do what you want with it. Spend it, save it, invest it etc. 

Sorry Albermarle one final question if you don't mind.  Using your same example.

So, I have to crystallise 20K in order to access 5K (25%) tax free, which is ejected from the pension.  I get that, but what about the other 75%?  What if I don't really need it there and then?  Where does that go?  Can it stay invested in the pension, albeit moved over to a crystallised pot?

And don't forget that 100% of the crystallised element which wasn't the TFLS is taxable.

So if your crystallised £15k grows to say £25k then the whole £25k is taxable (when taken out of the pension).

Thank you, yes, good point.  Obvious now I think about it!! 

BoxerfanUK

Pat38493 said:

Dazed_and_C0nfused said:

BoxerfanUK said:

Albermarle said:

BoxerfanUK said:

Albermarle said:

BoxerfanUK said:

I'm far from the expert compared to some of the regular posters on here, but If you have no other form of income you are not using up your annual personal tax allowance (£12,570 pa) so it would make more sense to use some of the 'taxable' element of your pension to use up your personal allowance, thus you would pay NO TAX on the 'taxable' element anyway as its within your personal tax allowance! 

It makes no sense if you have no other income to solely take the 25% tax free sum if all you are going to do is use that as your annual income!

The best time to utilize the 25% tax free part is when you have other income (say, state pension) which uses up most or all of your personal allowance. 

What you suggest is good, but just to be clear to anyone reading, you can not just take taxable income, without taking some tax free cash, either earlier or at the same time. For example if you want to generate £15K in taxable income, you have to crystallise £20K of the pension pot and £5K of that will be tax free cash. 

That's true Albermarle, missed that bit.  On that point, and using your example, could the 5K tax free cash remain invested once in the crystallised pot?  Or does that have to be taken and invested elsewhere if no immediate use for it?

When the £20K is crystallised, the £5K tax free is 'ejected' from the pension as a cash payment. You then do what you want with it. Spend it, save it, invest it etc. 

Sorry Albermarle one final question if you don't mind.  Using your same example.

So, I have to crystallise 20K in order to access 5K (25%) tax free, which is ejected from the pension.  I get that, but what about the other 75%?  What if I don't really need it there and then?  Where does that go?  Can it stay invested in the pension, albeit moved over to a crystallised pot?

And don't forget that 100% of the crystallised element which wasn't the TFLS is taxable.

So if your crystallised £15k grows to say £25k then the whole £25k is taxable (when taken out of the pension).

Generally yes.  In a recent thread though, it was discussed that some providers seem to pay the income from income funds back into the uncrystalised part of your account so it seems like you can partially mitigate this effect by using income based funds.

Thank you Pat.  Can you expand on that re income based funds?  Asking questions not for me but for my OH.  I have a DB pension with SP kicking in early 2025 but she is DC and planning on drawdown from the new tax year, SP another 5 years away.  She has two DC pensions and we are early stages of looking to amalgamate both funds and switch providers and possibly the investments within...... but where to start, a minefield.  Questions for a thread of my own though.

Btw, sorry OP for hijacking part of your thread but hopefully these questions are of benefit to you too!