Private pension 25% lump sum options

peteyh

Hi all just some general questions I'd appreciate answers too 

1. if I decide to take a 25% lump sum from my private pension at 55 yet I'm still in full time employment. Can I leave the rest of my "pot" the remaining 75% to hopefully grow and continuing investing as it was before (that element doesn't change?) if I choose the drawn down option. Ie the 75% doesn't just become a stagnant pot.
2. can I do this at anytime after 55 and during that year or are there only certain windows you can excersise the request. 
3. If for example I then work until 65 the 75% will have hopefully grown and a larger pot available to make withdrawls against.
4. If I choose a drawn down pension. Do you have to state the amount to anyone you seek to take each year? Or is it a case of just having an instant access savings account and you take what you want when you want. Or do you have to take fixed amounts per month or per year.? Or is it 100% flexible.
5 what do the majority of people choose to do... Annuity or drawn down these days?


Any other points worth noting please advise

Thanks kindly 

MallyGirl

peteyh said:

Hi all just some general questions I'd appreciate answers too 

1. if I decide to take a 25% lump sum from my private pension at 55 yet I'm still in full time employment. Can I leave the rest of my "pot" the remaining 75% to hopefully grow and continuing investing as it was before (that element doesn't change?) if I choose the drawn down option. Ie the 75% doesn't just become a stagnant pot.
The 75% becomes a crystallised pot which continues to be invested.
2. can I do this at anytime after 55 and during that year or are there only certain windows you can excersise the request. 

Any time unless you are young enough for the access age to be 57 not 55
3. If for example I then work until 65 the 75% will have hopefully grown and a larger pot available to make withdrawls against.
yes - hopefully it will grow
4. If I choose a drawn down pension. Do you have to state the amount to anyone you seek to take each year? Or is it a case of just having an instant access savings account and you take what you want when you want. Or do you have to take fixed amounts per month or per year.? Or is it 100% flexible.
depends on what your pension provider supports- a modern one will allow flexibility. If it is an old one you might need to transfer to get the functionality you want 
5 what do the majority of people choose to do... Annuity or drawn down these days?
I would have thought drawdown is more popular these days but annuity rates have improved.

Any other points worth noting please advise

Thanks kindly 

Do you need the 25% at 55? 100% left in will grow more than 75%

dunstonh

1. if I decide to take a 25% lump sum from my private pension at 55 

Just because you can, doesn't mean you should.
For example, taking the 25% up front like that leaves your retirement planning 25% lower.   Plus, it eliminates the ability to use phased drawdown on that money, which is often the most tax efficient method and provides the most tax free cash over your lifetime.  That is the method we use the most with clients.

3. If for example I then work until 65 the 75% will have hopefully grown and a larger pot available to make withdrawls against.

But the crystallised fund will still be 25% lower than what it would have been had you not robbed your retirement years to take it in your working years.

5 what do the majority of people choose to do... Annuity or drawn down these days?

Statistically, drawdown is the majority. However, annuity has had a resurgence with improving interest rates/gilt yields.

peteyh

MallyGirl said:

peteyh said:

Hi all just some general questions I'd appreciate answers too 

1. if I decide to take a 25% lump sum from my private pension at 55 yet I'm still in full time employment. Can I leave the rest of my "pot" the remaining 75% to hopefully grow and continuing investing as it was before (that element doesn't change?) if I choose the drawn down option. Ie the 75% doesn't just become a stagnant pot.
The 75% becomes a crystallised pot which continues to be invested.
2. can I do this at anytime after 55 and during that year or are there only certain windows you can excersise the request. 

Any time unless you are young enough for the access age to be 57 not 55
3. If for example I then work until 65 the 75% will have hopefully grown and a larger pot available to make withdrawls against.
yes - hopefully it will grow
4. If I choose a drawn down pension. Do you have to state the amount to anyone you seek to take each year? Or is it a case of just having an instant access savings account and you take what you want when you want. Or do you have to take fixed amounts per month or per year.? Or is it 100% flexible.
depends on what your pension provider supports- a modern one will allow flexibility. If it is an old one you might need to transfer to get the functionality you want 
5 what do the majority of people choose to do... Annuity or drawn down these days?
I would have thought drawdown is more popular these days but annuity rates have improved.

Any other points worth noting please advise

Thanks kindly 

Do you need the 25% at 55? 100% left in will grow more than 75%

Really appreciate the responses here - Good point I probably dont need the full 25% so follow up questions

1. Can I take say 10% at 55, 5% at 57 , 5% at 59 etc ie I can take lump sums up to 25% over several years before being taxed on it. Or is the deal you TAKE your pension and any lump sums are a one off offer you wont be taxed on. Ie Id not be taxed on the first 10% but i would be the other 5% in other years? And does the fact ill still be working impact the taxation of any of those lump sums?
2. What is a crystalised pot specifically, over it being just a pot of money still being invested in the same fund it was before but minus my lump sum taken?

thanks so much

peteyh

dunstonh said:

1. if I decide to take a 25% lump sum from my private pension at 55 

Just because you can, doesn't mean you should.
For example, taking the 25% up front like that leaves your retirement planning 25% lower.   Plus, it eliminates the ability to use phased drawdown on that money, which is often the most tax efficient method and provides the most tax free cash over your lifetime.  That is the method we use the most with clients.

So basically your saying i can take smaller sums, as per previous question each year from 55 onward ,tax free? I havent yet taken up a new role - but lets say im earning 35k in the real world ive got a 400k pot in the pension, what can i take and how as an example over time to afford myself lump little sums for luxuries, a car purchase, a nice vacation each year from 55-60? I assume then atleast the money remains in the fund each year with earning potential, ive just taken littler hits over a 5 year period.

It's a Bank of America pension fund so would assume modern flexible as used globally for their workforce. But what questions do i need ask of BOA . How often I can take money from account? Do I need a set an annual request or is it flexible? can i take funds monthly? is there a charge for each transaction? Unsure what i need to ask.

thanks

dunstonh

It's a Bank of America pension fund so would assume modern flexible as used globally for their workforce. 

Most workplace pensions do not support income drawdown.  So, you would need to ask.

 as an example over time to afford myself lump little sums for luxuries, a car purchase, a nice vacation each year from 55-60? 

Will your elder retired self thank your younger self for causing a reduction in lifestyle in retirement?

30 years in retirement assuming a lifestyle that is on £35k earnings would equate to £1,050,000.     You currently have £400k.

However, by robbing your retirement fund early, you won't have a £35k lifestyle.  you will have £35k plus whatever you draw out each year.  So, once you are used to that, you will be looking at a fall in living standards when you retire.
So, you need to think very carefully about this.

peteyh

But If I draw down no more than 50k over five years, ill have 350k invested for 15 years, current project that doubles.

Plus I have another 300k pot i was going to leave untouched until 65. For my true retirement wage alongside the 11k state pension.

The objective was to try and enjoy while young, rather than 35k incomes in your 70's when your less willing and able, or possibly in the ground... I know too many pensioners rolling in money but less than able to physically DO too much - But its choices eh.

Ok in BOA's projection sheets it states drawdown sums desired etc and creates charts expectant to provide you certain incomes you seek etc so indications they do but i need ask the questions. thanks!

Albermarle

Plus I have another 300k pot i was going to leave untouched until 65.

You did not mention this before, so obviously withdrawing some from the other one early is less of an issue.

What is a crystalised pot specifically, over it being just a pot of money still being invested in the same fund it was before but minus my lump sum taken?

Before you take any money from the pot it is uncrystallised.

When you crystallise an amount, 25% is generated tax free, and 75% is then left as crystallised ( and taxable income when withdrawn). For example if you have a pot of £200K

You want to take £20K in tax free cash, so £80K has to be crystallised. This leaves you with :

£20K tax free cash - £60K crystallised - £120K uncrystallised. For the latter you can crystallise it all or in part later and get more tax free cash. If the £120K becomes £130K or £110K due to investment changes, then that is what you can crystallise.

Some older pensions will only let you take the whole 25% tax free in one go. Others will let you take it in stages, but you can not take any taxable income until all tax free cash is taken. Others will let you mix and match tax free and taxable income in various ways.

Hopefully your pension providers website will make it clear what they offer in terms of withdrawal flexibility. 

dunstonh

The objective was to try and enjoy while young, rather than 35k incomes in your 70's when your less willing and able, or possibly in the ground... I know too many pensioners rolling in money but less than able to physically DO too much - But its choices eh.

What makes you think that 70s would make you less willing or able?
You are being a bit premature there on your slow down age.   Think more along the lines of very late 70s to early 80s for most people.

What actual modelling have you done to see whether it is viable or not?
Starting in your 60s, your figures don't seem unreasonable.   However, you are looking to start in your mid-50s.    You would expect, in most cases to have ability and capability to do most of what you want to do for another 24 years before you start slowing down.  However, even in your early 80s, the overseas holidays may be ending or over for you but there will still be localised spending that you can enjoy.

it is a balance when you don't know if you are going to be dead by 60 or still going at 99.   55 is a tad on the early side though to be starting unless you have sufficient wealth.   

At age 55, on £400k, you could probably draw £12,000 a year in real terms and get away with it.  Anything above that and you are pushing it.  You may get lucky but if you don't then exceeding that puts you at risk of running out of money.

Ok in BOA's projection sheets it states drawdown sums desired etc and creates charts expectant to provide you certain incomes you seek etc so indications they do but i need ask the questions. thanks!

Providers are required to show most options even if they do not offer them.

peteyh

Great replies.. and very valid comments. Alot of numbers to play with. I'll def go research witht the BOA pot how i can utilise it in future. Or is it worth sitting down with a pension advisor and getting a fully qualified pair of eyes on it?

Ie can it be beneficial to move my whole pot to an alternate fund even as of now? Assume there is a top 10 of historically best performing funds - If you can do this i do often wonder why everyone isnt piling their money into the same ones.?

thanks for your guidance thus far, great insight.

peteyh

And the modelling they provide even on the 400k investment - In an average performing market states if i took 50k from my pot at 55 - i could in theory take a 15k salary from 55- 90 years of age. But as said ignoring even the second pot. between 55-60/65 I'd not consider taking that 15k thus improving that end date or enabling me to take out a larger drawdown each year post 60/65.