Pension Drawdon / HMRC.Advice please.

Pat38493

BoxerfanUK said:

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!

I can't seem to locate the thread now, and I don't think that the original topic of the old thread was this, but there were some comments that if you are invested in funds that pay an income rather than accumulating the income back into the fund automatically, the cash income payouts are put into your cash part.  With some providers, it seemed like they pay the income into your uncrystallized cash even if the income came from crystallized funds.  I doubt this makes much difference in the grand scheme of things.

NannaH

Can someone signpost that thread please, I haven’t seen it.  

Albermarle

NannaH said:

Can someone signpost that thread please, I haven’t seen it.  

I do not remember it either.

RogerPensionGuy

NannaH said:

Can someone signpost that thread please, I haven’t seen it.  

I'm not too good on the Internet, but hopefully the link below will be helpful.

☆☆☆☆

https://forums.moneysavingexpert.com/discussion/comment/71794643#Comment_71794643

Albermarle

RogerPensionGuy said:

NannaH said:

Can someone signpost that thread please, I haven’t seen it.  

I'm not too good on the Internet, but hopefully the link below will be helpful.

☆☆☆☆

https://forums.moneysavingexpert.com/discussion/comment/71794643#Comment_71794643

I do not think this is the thread Pat38493 was thinking about. It is 7 years old and does not specifically mention the point in question as far as I can see,

Pat38493

NannaH said:

Can someone signpost that thread please, I haven’t seen it.  

It's this one

Restrictions on employer SIPP contributions balanced against withdrawals at age 75+ - Page 2 — MoneySavingExpert Forum

It went way off topic so that's probably why we couldn't find it at first.

Albermarle

Pat38493 said:

NannaH said:

Can someone signpost that thread please, I haven’t seen it.  

It's this one

Restrictions on employer SIPP contributions balanced against withdrawals at age 75+ - Page 2 — MoneySavingExpert Forum

It went way off topic so that's probably why we couldn't find it at first.

Interesting but I am not fully convinced as it seems too good to be true.
Maybe it is because AJ bell do not have completely separate U and C funds, just one fund with a % split and just one cash account ?
I would think ( not sure) that the ones with separate accounts, would have two separate cash accounts.

As you say in that thread we could do with some more professional comment.

NannaH

It’s interesting because I’ve just put a chunk of built up income in DH’s Sipp into STMM, because it’s paying 2% more than cash interest  currently, it’s a 75% crystallised Sipp and there is no shown split of UC vs C funds.  I know roughly the amounts.   It would seem too good to be true for it to be all UC. 

My Hargreaves Sipp shows 2 pots , UC and C, with corresponding cash pots,  the income in the C pot has always stayed there, although I haven’t reinvested it. 

Pat38493

Albermarle said:

Pat38493 said:

NannaH said:

Can someone signpost that thread please, I haven’t seen it.  

It's this one

Restrictions on employer SIPP contributions balanced against withdrawals at age 75+ - Page 2 — MoneySavingExpert Forum

It went way off topic so that's probably why we couldn't find it at first.

Interesting but I am not fully convinced as it seems too good to be true.
Maybe it is because AJ bell do not have completely separate U and C funds, just one fund with a % split and just one cash account ?
I would think ( not sure) that the ones with separate accounts, would have two separate cash accounts.

As you say in that thread we could do with some more professional comment.

It seemed odd to me as well because on the face of it, this seemed to be in direct conflict with the way the system is supposed to work, and I would have thought that HMRC would not be happy about it.