TFLS vs UFPLS

NannaH

For early retirement covering 3 years.
DB pension of £7k
Spare allowance of £5570.
£11k extra income needed.  

I’ve calculated a TFLS as £16300, which will go into an isa/ savings account - giving £5430 x 3 years.  

This leaves £50k crystalised / £50k uncrystalised/  £12k to take as TFLS later on.  

Draw £5570 x 3 years from a separate , already crystalised Sipp of £60k, assuming personal allowance doesn’t rise. 
 
Is there a way of using UFPLS instead to get more tax free income?  

dunstonh

A combination of UFLPS and TFC would seem to be the best option to fit your objective.  Not 100% of one or the other.

squirrelpie

Am I correct in thinking that there are two DC pensions, at least one of which is a SIPP that has already been crystallised?

The goal seems to be to minimise tax paid during the three year period, at the expense of more tax paid later. Is that also correct?

NannaH

It seems sensible to me , to take the maximum taxable cash from the crystalised Sipp to cover the Personal Allowance. 

Which means that a TFLS to cover the rest of the necessary income is the only option if the whole £11k is to be tax free?  

I can’t figure out if UFPLS and a smaller tfls  from the uncrystalised Sipp could/should be used instead of the above, from a longer term, tax-saving standpoint.    I need an explanation of how it would work please. 

Qyburn

NannaH said:

Draw £5570 x 3 years from a separate , already crystalised Sipp of £60k, assuming personal allowance doesn’t rise. 
 
Is there a way of using UFPLS instead to get more tax free income?  

Yes to the first. That's taxable money so taking it tax free over these three years makes sense. Taken later you'd pay over £3K tax. But that's your personal allowance used, so taking tax free for the rest also makes sense.

I so you're taking a mix of taxable and tax free but doing so in a way that lets you choose the mix. Whereas UFPLS dictates a 25:75 mix.

NannaH

Yes,  there are 2 Sipps,  one almost entirely crystalised bar about £12k currently,   the crystalised portion is £60kish.  The income from the funds will hopefully provide enough cash for drawdown + there is currently £5k in a STMM fund and £1k in cash. 

The other Sipp is still being funded at £300 monthly, with another £300 to add from the end of next year and should top £100k by the time it’s needed,  £35k is invested in HSBC GS dynamic,  the rest is in STMM while rates are good and the current £300 monthly addition going into that as well,  when the extra £300 goes in from Jan 2025,  it will be invested for the longer term. 

If he doesn’t crystalise the whole £64k for the TFLS all in one go,  just do it yearly so £21330 x 3,  that means a (hopefully)  higher uncrystalised pot at the end of the 3 years too?  

Qyburn

NannaH said:

Yes,  there are 2 Sipps,  one almost entirely crystalised bar about £12k currently,   the crystalised portion is £60kish.    

Does that scheme allow you to tske solely taxable from the crystalised pot?  If not you could take £6,962.50 UFPLS comprising £5570 taxable and £1,392.50 tax free. Meaning you take less tax fee from the other SIPP.

squirrelpie

Qyburn said:

NannaH said:

Yes,  there are 2 Sipps,  one almost entirely crystalised bar about £12k currently,   the crystalised portion is £60kish.    

Does that scheme allow you to tske solely taxable from the crystalised pot?  If not you could take £6,962.50 UFPLS comprising £5570 taxable and £1,392.50 tax free. Meaning you take less tax fee from the other SIPP.

I don't believe that is possible. I think NannaH is implying that the tax free portion has previously been taken.

squirrelpie

NannaH said:

If he doesn’t crystalise the whole £64k for the TFLS all in one go,  just do it yearly so £21330 x 3,  that means a (hopefully)  higher uncrystalised pot at the end of the 3 years too?  

I'm not quite sure what the £64k is? But yes, splitting up a crystallisation into separate events should leave more in the pot to hopefully grow.

NannaH

I had thought to leave any remaining tfls in that (Charles Stanley) Sipp until at least State pension age in 8 years time, to give the uncrystalised portion time to grow.  There is also a fee for a crystalisation event.

The plan originally was to leave that Sipp alone until very much later on, apart from the tfls,  until I realised taking 3 years money out completely tax free was the best strategy,  it’s almost all equities other than £25k in VLS80 and the STMM that I recently bought with the funds income. 

The newer Hargreaves Sipp was going to take the full early retirement hit as it’s going to be more than half cash/cashlike,  but there isn’t a way to get £11k a year tax free out if it’s at the £100k mark,  it’s also earmarked for drawdown of around £3k at State pension age, so should last 20+ years,  hopefully leaving the CS Sipp untouched, to be used for any care needs or to supplement my income if I’m widowed and lose half his military pension. 

squirrelpie

"There is also a fee for a crystalisation event."

Perhaps move it to somewhere there isn't?