Drawdown ratios etc

Linton

dunstonh said:

Is the UFPLS option the more common option for you, because you are an IFA (likely to deal with larger pensions)?

I would put the average size (after consolidation) at around £250k that we deal with.      

Most of the people we see don't need a lump sum up front.  So, if there is no need for that, then UFPLS often makes sense.  Sometimes we also combine methods. UFPLS to the personal allowance with 25% element taken on top.  In these case we are using regular UFPLS and phased drawdown for the same person.   That will play havoc with any stats!

My choices have changed a few times recently, but I have always wondered why anyone would choose flexible draw down over a regular UFPLS.....

A lot of people don't know the different options that exist. Or because their existing scheme won't offer them.   For example, this week I have had two people with L&G workplace pensions going into drawdown.  Neither of them offer regular UFPLS.   L&G only facilitate taking the 25% TFC up front.   Not everyone will investigate all the options. Just what their own existing plan offers.

You would not believe the number of new clients that come to us saying they want the 25% out up front because that is how they believe it is done.  We then change their mind to UFPLS.

Surely leaving your pot un-crystallized gives you more options in the long run.....

It does but you need to be careful that you do not waste the 25%.  At 75 (or in the lead up depending on the size of pot), we tend to crystallise any remaining unused tax free cash unless there are estate IHT issues. and divert it back to pension and ISA (£3600 annual contribution rarely would have a recycling issue).  Mainly to avoid tax on death after 75.

      

Out of interest how do you deal with platforms that need cash ready for payment day?  Is it a manual operation or do the platforms you use automatically sell funds as and when necessary?

Pat38493

I too am planning a mixed approach.  I have already crystallised my biggest pension and some of the tax free money has been used to partially pay off the mortgage, some is earmarked for a few other pre-retirement capital investments and some will stay in savings outside the pension.

For the following tax year 25/26 I am currently planning to take a UFPLS out of my other pension which is the employer pension.  This would be my first full tax year after leaving.

After that it will be drawdown with flexible approach on exactly when to put my DB into payment (probably taking PCLS).

sgx2000

Again
Thank you dunstonh

Every day is a learning day.....  (I hadn't even thought about the 75 issue for tfc)
And,
It's always better to ask someone who knows what they are talking about.. lol

gm0

People keep rmentioning cash for payroll for FAD income

Many a platform will sell across all funds or a single nominated fund as you select.  Or draw "cash holdings first". A lot of people can work with that.  As there are MMF and short gilt fund options as well as cash which could form part of an overall asset allocation and be the income source. Or there is some cash holding between rebalancing.  

So there is an embedded assumption in thinking this is a problem. Around sequence risk buffer. Selling holdings at the frequency of income with all else in growth assets.  Or only selling and adjusting units at rebalancing.  With cash or a nominated "not equitiies" fund for income. Both methods can work.

But it is not a feature of FAD or UFPLS per se.  Platform limitations and defaults do, of course exist. YMMV

dunstonh

Linton said:

dunstonh said:

Is the UFPLS option the more common option for you, because you are an IFA (likely to deal with larger pensions)?

I would put the average size (after consolidation) at around £250k that we deal with.      

Most of the people we see don't need a lump sum up front.  So, if there is no need for that, then UFPLS often makes sense.  Sometimes we also combine methods. UFPLS to the personal allowance with 25% element taken on top.  In these case we are using regular UFPLS and phased drawdown for the same person.   That will play havoc with any stats!

My choices have changed a few times recently, but I have always wondered why anyone would choose flexible draw down over a regular UFPLS.....

A lot of people don't know the different options that exist. Or because their existing scheme won't offer them.   For example, this week I have had two people with L&G workplace pensions going into drawdown.  Neither of them offer regular UFPLS.   L&G only facilitate taking the 25% TFC up front.   Not everyone will investigate all the options. Just what their own existing plan offers.

You would not believe the number of new clients that come to us saying they want the 25% out up front because that is how they believe it is done.  We then change their mind to UFPLS.

Surely leaving your pot un-crystallized gives you more options in the long run.....

It does but you need to be careful that you do not waste the 25%.  At 75 (or in the lead up depending on the size of pot), we tend to crystallise any remaining unused tax free cash unless there are estate IHT issues. and divert it back to pension and ISA (£3600 annual contribution rarely would have a recycling issue).  Mainly to avoid tax on death after 75.

      

Out of interest how do you deal with platforms that need cash ready for payment day?  Is it a manual operation or do the platforms you use automatically sell funds as and when necessary?

It varies with the platforms.  Some require you to have cash and you keep a float.   Others have some automation to sell assets.

jaypers

Everyone’s circumstances are so different. I took the full 25% when I hit 55 a few years back. Had excess LTA and with the new rules managed to get a bit more tax free following going through the Transitional Tax Free Certificate process following Hunt’s scrapping of the LTA limit. Just purchased a 10 year Annuity to balance off market risk (was just taking drawdown previously), which was purchased with excess LTA funds. Have reduced the amount of drawdown I’m taking alongside the annuity and overall pot continues to grow. This was all planned out with my IFA over the last 6 months and is a solution that works really well for me.