Advice on moving a Pru With Profits please. What to do?

mehimandus

MallyGirl said:

In simple terms, the drip feed method takes a slice out of the pot. 25% of each slice is tax free and 75% is taxable. You can choose the size of the slice - for example setting the size to £16,760 where the £4,190 is tax free and £12,570 is taxable. If you have no other income, and haven't transferred the marriage allowance, then this £12570 is taxable but fits perfectly into the 0% tax band so no tax will be due. The rest of the pot (after the slice has been taken out) is left in there to grow (hopefully) and is referred to as uncrystallised. If it stays in there and grows then you will be able to get more tax free out over the long term as 25% of that growing pot is tax free when you draw it out.

Thank you for the explanation @MallyGirl that’s very clear and makes sense to me.  

I still struggle to understand the “Mitch” scenario that I quoted above tho. It seems like, in that example, he has a pension income already  of £8,500 but yet can take the full £16,500 amount tax free, through drip fed drawdown.  Either I’m missing something, or, maybe “Mitch” is a bad example. 

Reading that scenario, is why I’d asked if it was possible, to drip feed the 25% TFC element out of the pot, before accessing the rest. 

Excuse my lack of knowledge but is ‘drip’ then another name for UFPLS.

MallyGirl

mehimandus said:

MallyGirl said:

In simple terms, the drip feed method takes a slice out of the pot. 25% of each slice is tax free and 75% is taxable. You can choose the size of the slice - for example setting the size to £16,760 where the £4,190 is tax free and £12,570 is taxable. If you have no other income, and haven't transferred the marriage allowance, then this £12570 is taxable but fits perfectly into the 0% tax band so no tax will be due. The rest of the pot (after the slice has been taken out) is left in there to grow (hopefully) and is referred to as uncrystallised. If it stays in there and grows then you will be able to get more tax free out over the long term as 25% of that growing pot is tax free when you draw it out.

Thank you for the explanation @MallyGirl that’s very clear and makes sense to me.  

I still struggle to understand the “Mitch” scenario that I quoted above tho. It seems like, in that example, he has a pension income already  of £8,500 but yet can take the full £16,500 amount tax free, through drip fed drawdown.  Either I’m missing something, or, maybe “Mitch” is a bad example. 

Reading that scenario, is why I’d asked if it was possible, to drip feed the 25% TFC element out of the pot, before accessing the rest. 

Excuse my lack of knowledge but is ‘drip’ then another name for UFPLS.

The Mitch example is not very helpful.
He has an existing pension that only leaves around £4k left of his 0% allowance. He takes £4k tax free and £4k taxable but the 2 are not the whole of a 'slice'. The £4k taxable will have come from a crystallised pot (where the tax free part has already been taken) and the £4k tax free will have led to the rest of a £20k slice now becoming crystallised. He would have crystallised £20k to get 25% i.e. £4k tax free and that would have left £16k as taxable in the future - he just only took out £4k of it straight away leaving the other £8k for another day.

NoMore

Dunstoh and MallyGirl are both describing UFPLS as you have surmised. The mitch example is using Flexi Access Drawdown, which is different from UFPLS as there is no fixed ratio between Tax free cash and taxable cash you can withdraw unlike UFPLS which is always 25% of total tax free and rest taxable.

In the mitch example, he already has a DB income of 8500 a year, so he only has £4070 personal allowance left (12570-8500). He wants £16500. With FAD he take up to his remaining Personal Allowance from taxable cash and still not pay tax and then also take the rest he needs from his tax free cash. To give him his £16500 without paying tax.

The mechanics of this is a bit more complicated than UFPLS, but once you understand them its not too bad. Basically to get £4000 tax free you have to crystallise £16000 in the Pension, you then get £4000 of that tax free, but unlike UFPLS, the remaining crystallised funds of £12000 remain in the Pension, to be drawn as an when you like, any drawdown from this crystalised pot will be subject to tax. Basically that's what crystallisation does it marks that amount of money as already having had its 25% tax free. So mitch has got his 4k Tax free and he can also now draw another 4k (upto 4070 actually) from his crystallised funds and not pay tax because that's the amount of his personal allowance remaining. 

He ends up with:

8500 from DB income (not taxed as below Personal Allowance
4000 from Tax free cash
4000 from Crystallised Funds (not taxed as below Personal Allowance)
Giving him a total of £16500 not taxed.

Crucially he also now has £8000 of crystallised funds in his pension (will be taxable on withdrawable) plus any remaining uncrystallised funds (which he can still get tax free cash from in the future).

mehimandus

Thank you very much @Mallygirl and @NoMore both of your explanations helped greatly, in understanding the Mitch scenario.   I did have to think a bit hard to get my head around it all lol but I get the concept now. 

Thanks also to @dunstonh who first highlighted drip.  Although we were aware of UFPLS, we hadn’t really considered it relevant  to us but we can now see, why it could be a suitable option. 

Sarian

Did you manage to resolve your Pru with profits transfer? Any points to learn from? I have a very similar situation (and I'm now braced for a traumatic experience!) and had intended to transfer to an existing L&G scheme but L&G insist on me employing an FA just to ensure I don't lose benefits! I don't intend to do this and I'm looking at alternatives. Has anyone used the Fidelity platform?  

bucksman

Hi Sarian, my action has indeed been no action taken on this one, (it remains in the too difficult to deal with basket!) I have not needed to access the Pru AVC and so it has been left alone.  I have been keeping an eye on the growth, and as this has been reasonable, I have not touched it.  I hope yours is not a traumatic experience! 

dunstonh

Sarian said:

Did you manage to resolve your Pru with profits transfer? Any points to learn from? I have a very similar situation (and I'm now braced for a traumatic experience!) and had intended to transfer to an existing L&G scheme but L&G insist on me employing an FA just to ensure I don't lose benefits! I don't intend to do this and I'm looking at alternatives. Has anyone used the Fidelity platform?  

On the whole, Pru AVC transfers are typically an absolute doddle and very quick.