Flexi Access Drawdown

JSL_2

So begining to understand exactly how Flexi Access Drawdown Works

So for every £1 of Tax Free Money you take from pot , £3 gets moved to Flexi Access Account and is only taxed when you make a withdrawal ?

My questions are -  

My pot is invested in Royal London Governed Portfolio 2,
Charges 0.4% and I also have Profitshare.
If I'm happy with the Governed Portfolio 2, Will the money which moves to Flexi Access after i take my Tax free sums, Still have the same charges and be included in Profitshare  ? 

dealyboy

Hi JSL_2 ... Yes with one or two assumptions ...

In my terminology you are performing a PCLS on uncrystallized funds where you are taking the 25% TFLS and 75% becomes crystallized. If the pot is currently fully invested then 25% will need to be divested for your tax fee amount, the remaining investments both uncrystallized and crystallized will have the same conditions as before.

Of course if you have enough of a cash balance uncrystallized to cover the TFLS, then your investment portfolio should be unchanged.

Note: I am neither a professional nor IFA ... just a punter  .

JSL_2

dealyboy said:

Hi JSL_2 ... Yes with one or two assumptions ...

In my terminology you are performing a PCLS on uncrystallized funds where you are taking the 25% TFLS and 75% becomes crystallized. If the pot is currently fully invested then 25% will need to be divested for your tax fee amount, the remaining investments both uncrystallized and crystallized will have the same conditions as before.

Of course if you have enough of a cash balance uncrystallized to cover the TFLS, then your investment portfolio should be unchanged.

Note: I am neither a professional nor IFA ... just a punter  .

My pot is approx £260,000 so plan would be to take £10,000 TF each time with £30,000 moving to flexi access
Hoping to do this till all TF used up and then I'll have to start paying Tax ?

Doctor_Who

JSL_2 said:

dealyboy said:

Hi JSL_2 ... Yes with one or two assumptions ...

In my terminology you are performing a PCLS on uncrystallized funds where you are taking the 25% TFLS and 75% becomes crystallized. If the pot is currently fully invested then 25% will need to be divested for your tax fee amount, the remaining investments both uncrystallized and crystallized will have the same conditions as before.

Of course if you have enough of a cash balance uncrystallized to cover the TFLS, then your investment portfolio should be unchanged.

Note: I am neither a professional nor IFA ... just a punter  .

My pot is approx £260,000 so plan would be to take £10,000 TF each time with £30,000 moving to flexi access
Hoping to do this till all TF used up and then I'll have to start paying Tax ?

Will you have other taxable income to use your personal allowance each year? If not, then taking taxable income upto the personal allowance (and paying no tax on it) would make better use of tax allowances. If you do this the MPAA will be triggered, but that may not be important for you if you aren't planning to make further pension contributions.

Albermarle

If I'm happy with the Governed Portfolio 2, Will the money which moves to Flexi Access after i take my Tax free sums, Still have the same charges and be included in Profitshare  ? 

Probably but different pension providers handle things differently, so you are best to check with your provider.

JSL_2

Doctor_Who said:

JSL_2 said:

dealyboy said:

Hi JSL_2 ... Yes with one or two assumptions ...

In my terminology you are performing a PCLS on uncrystallized funds where you are taking the 25% TFLS and 75% becomes crystallized. If the pot is currently fully invested then 25% will need to be divested for your tax fee amount, the remaining investments both uncrystallized and crystallized will have the same conditions as before.

Of course if you have enough of a cash balance uncrystallized to cover the TFLS, then your investment portfolio should be unchanged.

Note: I am neither a professional nor IFA ... just a punter  .

My pot is approx £260,000 so plan would be to take £10,000 TF each time with £30,000 moving to flexi access
Hoping to do this till all TF used up and then I'll have to start paying Tax ?

Will you have other taxable income to use your personal allowance each year? If not, then taking taxable income upto the personal allowance (and paying no tax on it) would make better use of tax allowances. If you do this the MPAA will be triggered, but that may not be important for you if you aren't planning to make further pension contributions.

I plan to start taking Tax Free Cash starting after April 5th 2024, I will have around 3 months state pension towards the end of that tax year , so first tax free withdrawal would be approx £3,300 and then £9,900 from the taxable fund. This would take me upto tax allowance. In the following years I would take what's ever left on my allowance after state pension. It won't be long before state pension takes up all tax free allowance.

Pat38493

JSL_2 said:

Doctor_Who said:

JSL_2 said:

dealyboy said:

Hi JSL_2 ... Yes with one or two assumptions ...

In my terminology you are performing a PCLS on uncrystallized funds where you are taking the 25% TFLS and 75% becomes crystallized. If the pot is currently fully invested then 25% will need to be divested for your tax fee amount, the remaining investments both uncrystallized and crystallized will have the same conditions as before.

Of course if you have enough of a cash balance uncrystallized to cover the TFLS, then your investment portfolio should be unchanged.

Note: I am neither a professional nor IFA ... just a punter  .

My pot is approx £260,000 so plan would be to take £10,000 TF each time with £30,000 moving to flexi access
Hoping to do this till all TF used up and then I'll have to start paying Tax ?

Will you have other taxable income to use your personal allowance each year? If not, then taking taxable income upto the personal allowance (and paying no tax on it) would make better use of tax allowances. If you do this the MPAA will be triggered, but that may not be important for you if you aren't planning to make further pension contributions.

I plan to start taking Tax Free Cash starting after April 5th 2024, I will have around 3 months state pension towards the end of that tax year , so first tax free withdrawal would be approx £3,300 and then £9,900 from the taxable fund. This would take me upto tax allowance. In the following years I would take what's ever left on my allowance after state pension. It won't be long before state pension takes up all tax free allowance.

As Albermarle said you should check with your provider to see how they handle this - I think there are some providers that make you sell the investments to a separate drawdown account, whilst others would simply track that you have crystallised x% of your total balance.

gm0

The method you have latched onto is called FAD (Flexible Access Drawdown).  Some or all of a given DC pot is "marked for drawdown". And 25% can be had as tax free cash (of the amount so marked, up to the lifetime maximum).  The rest is now "marked for income (crystallised in the jargon) and can be drawn whenever you fancy provided you are happy with the in year tax implications for income tax.  It can remain invested however you want - the same as untouched pension or not.  Limited by what your scheme offers.

There is a 2nd method with no tax free cash separated out where each payment has the tax free cash with it and all income is taken at once and at the same time.  UFPLS.  

Which is essentially the same as a very tiny FAD, one where you take all the income at once and none is deferred.  Imagine lopping chunks off a salami with FAD.  And making tiny slices with UFPLS.

UFPLS is superior in two ways.

1) You spread out your TFC in various tax years. 
2) And more of your pot is still growing untouched (due to the tiny slices being shaved off) - so there could be more TFC to take ultimately from that growth.
3) TFC removed from pension is now inside your estate for IHT - left inside - it is not

If you need a lump of TFC - FAD is your friend.  If you don't - maybe it is not

JSL_2

gm0 said:

The method you have latched onto is called FAD (Flexible Access Drawdown).  Some or all of a given DC pot is "marked for drawdown". And 25% can be had as tax free cash (of the amount so marked, up to the lifetime maximum).  The rest is now "marked for income (crystallised in the jargon) and can be drawn whenever you fancy provided you are happy with the in year tax implications for income tax.  It can remain invested however you want - the same as untouched pension or not.  Limited by what your scheme offers.

There is a 2nd method with no tax free cash separated out where each payment has the tax free cash with it and all income is taken at once and at the same time.  UFPLS.  

Which is essentially the same as a very tiny FAD, one where you take all the income at once and none is deferred.  Imagine lopping chunks off a salami with FAD.  And making tiny slices with UFPLS.

UFPLS is superior in two ways.

1) You spread out your TFC in various tax years. 
2) And more of your pot is still growing untouched (due to the tiny slices being shaved off) - so there could be more TFC to take ultimately from that growth.
3) TFC removed from pension is now inside your estate for IHT - left inside - it is not

If you need a lump of TFC - FAD is your friend.  If you don't - maybe it is not

gm0 thanks for your reply, I'm still trying to understand the benefits of FAD and UFPLS.
My way of thinking was-

if I have £ 10,600 from state pension , I have almost £2,000 in tax free allowance left to use in the tax year.

FAD  
I could take £10,000 Tax Free and a further £2,000 from the Crystalised Pot , I wouldn't then pay tax.

UFPLS
I take £12,000 out of fund , £3,000 is Tax Free, a further £2,000 takes me up past Tax Free Allowance
I then have to pay tax on £7,000, which would be £1400

if I do the FAD each year , I wouldn't need to pay Tax for 6/7 Years, probably few years longer using my Isa and perhaps
taking less each year in cash. 
I realise i would be paying more later on (if I live long enough), but won't need so much  when Im older .

Any comments on this idea welcome as I'm learning my Options !

QrizB

JSL_2 said:

if I do the FAD each year , I wouldn't need to pay Tax for 6/7 Years, probably few years longer using my Isa and perhaps taking less each year in cash. 
I realise i would be paying more later on (if I live long enough), but won't need so much  when Im older .
Any comments on this idea welcome as I'm learning my Options !

You're beginning to take money from your pension when you're 66? At that age, you can expect to live for 20+ more years. I think that most of us are looking to minimise your lifetime tax bill, not just the tax paid in the next 7 years. Paying a bit of tax now could save money in the longer term.

If you use up all your tax-free cash in the first 7 years, you'll get no more after that.

The theory is, by keeping as much of your pension pot tax-free for as long as possible will maximize the amount of it that you can withdraw tax-free.

Albermarle

JSL_2 said:

gm0 said:

The method you have latched onto is called FAD (Flexible Access Drawdown).  Some or all of a given DC pot is "marked for drawdown". And 25% can be had as tax free cash (of the amount so marked, up to the lifetime maximum).  The rest is now "marked for income (crystallised in the jargon) and can be drawn whenever you fancy provided you are happy with the in year tax implications for income tax.  It can remain invested however you want - the same as untouched pension or not.  Limited by what your scheme offers.

There is a 2nd method with no tax free cash separated out where each payment has the tax free cash with it and all income is taken at once and at the same time.  UFPLS.  

Which is essentially the same as a very tiny FAD, one where you take all the income at once and none is deferred.  Imagine lopping chunks off a salami with FAD.  And making tiny slices with UFPLS.

UFPLS is superior in two ways.

1) You spread out your TFC in various tax years. 
2) And more of your pot is still growing untouched (due to the tiny slices being shaved off) - so there could be more TFC to take ultimately from that growth.
3) TFC removed from pension is now inside your estate for IHT - left inside - it is not

If you need a lump of TFC - FAD is your friend.  If you don't - maybe it is not

gm0 thanks for your reply, I'm still trying to understand the benefits of FAD and UFPLS.
My way of thinking was-

if I have £ 10,600 from state pension , I have almost £2,000 in tax free allowance left to use in the tax year.

FAD  
I could take £10,000 Tax Free and a further £2,000 from the Crystalised Pot , I wouldn't then pay tax.

UFPLS
I take £12,000 out of fund , £3,000 is Tax Free, a further £2,000 takes me up past Tax Free Allowance
I then have to pay tax on £7,000, which would be £1400

if I do the FAD each year , I wouldn't need to pay Tax for 6/7 Years, probably few years longer using my Isa and perhaps
taking less each year in cash. 
I realise i would be paying more later on (if I live long enough), but won't need so much  when Im older .

Any comments on this idea welcome as I'm learning my Options !

The difference between FAD and UFPLS are not great and is a matter of fine tuning to what your circumstances are.
One difference is that if you want a regular taxable income, it is easier to set up monthly payments with FAD.
With UFPLS it is normally easier to take it in one or two chunks each year.
Caveat being if you have an IFA, they can organise regular UFPLS more easily.