Any Disadvantages of Moving Some Pension into Drawdown to Access 25% TFLS?

dodmwe

I currently have a £220k DC pension pot. I am over 55 and wish to access £25k tax free. This is the last of my TFLS, as I have previously taken a very large lump sum (~£240k+) from a DB pension.

I want to take the remaining £25k lump sum as it may be targeted in the budget, and with the maximum TFLS no longer indexed, it feels like it is subject to fiscal drag going forward.

So, I intend to move £100k of the £220k DC pension into drawdown, draw £25k tax free, and leave the other £75k untouched so I do not trigger MPAA. I will then have £120k DC pension, £75k in a drawdown account (untouched) and £25k tax free cash.

Are there are disadvantages of crystallising £100k, and leaving £75k untouched in a drawdown account after taking £25k tax free? I can't seem to find any, but there are a lot of wise people on here, and I am worried I am missing something.

Many thanks in advance.

Albermarle

Money in a pension is protected from tax on dividends, CGT , IHT etc., so when outside a pension it loses this protection.
It is normally advised not to take financial decisions on the basis of guessing what future changes to legislation, may or may not happen.

MallyGirl

the £25k becomes part of your estate for IHT purposes

dunstonh

I want to take the remaining £25k lump sum as it may be targeted in the budget,

Where you are getting £25k from?

LSA is £268,275.     £240k taken on DB scheme leaves £28,275

Did you take the DB pension under the LTA rules or the LSA rules?  If LTA, what is your LTA used?
Have you had any benefit crystallisation events this tax year?

Are there are disadvantages of crystallising £100k, and leaving £75k untouched in a drawdown account after taking £25k tax free? I can't seem to find any, but there are a lot of wise people on here, and I am worried I am missing something.

a) you are acting on wild speculation that doesn't have much basis (two Labour statements saying it wont be changed plus the planned pension review - where it may be but is a few years away)
b) bringing money into the estate for IHT purposes (whilst the age 75 rule is a strong candidate for change, income tax is more favourable than IHT for most people)
c) unless you are going into an ISA with the money, you are going to be subject to CGT, dividend tax/income tax.

 

dodmwe

Albermarle said:

Money in a pension is protected from tax on dividends, CGT , IHT etc., so when outside a pension it loses this protection.
It is normally advised not to take financial decisions on the basis of guessing what future changes to legislation, may or may not happen.

Even with concerns over the budget, the primary reason I am taking the tax free lump sum is because of fiscal drag, i.e. £268,275 is not index linked. Therefore, if I decide to take the tax free cash several years down the line, the amount of tax free cash will be the same, and hence will bring more of my pension into 40% tax band.

dodmwe

dunstonh said:

I want to take the remaining £25k lump sum as it may be targeted in the budget,

Where you are getting £25k from?

LSA is £268,275.     £240k taken on DB scheme leaves £28,275

Did you take the DB pension under the LTA rules or the LSA rules?  If LTA, what is your LTA used?
Have you had any benefit crystallisation events this tax year?

Are there are disadvantages of crystallising £100k, and leaving £75k untouched in a drawdown account after taking £25k tax free? I can't seem to find any, but there are a lot of wise people on here, and I am worried I am missing something.

a) you are acting on wild speculation that doesn't have much basis (two Labour statements saying it wont be changed plus the planned pension review - where it may be but is a few years away)
b) bringing money into the estate for IHT purposes (whilst the age 75 rule is a strong candidate for change, income tax is more favourable than IHT for most people)
c) unless you are going into an ISA with the money, you are going to be subject to CGT, dividend tax/income tax.

 

£25k is from DC pension. I have taken £243k tax free lump sum this month from DB pension scheme otherwise I'd have paid 40% tax on the income. The £25k DC TFLS will bring me to ~£268,275. No DC previous crystallisation events.

In answer to your questions

a) See above and the impact of fiscal drag on the TFLS. Although concerned about the budget, the fiscal drag is the main reason to access the TFLS now.
b) I don't care about IHT. My kids will get the money when they are young and when they actually need it. If I live until average age (say 85), why do my kids need the money when they are knocking on 60? Chance of the IHT exemption lasting the next 5 years is slim-to-none in my opinion.
c) My wife is a non tax payer. It will go to her for tax reasons, then eventually into an ISA

So, apart from bring £25k into IHT estate, and any tax I may pay on that money (which is none at the moment), I understand that there is no downside of leaving £75k untouched in a drawdown account?

Albermarle

 no downside of leaving £75k untouched in a drawdown account?
No

dodmwe

Albermarle said:

 no downside of leaving £75k untouched in a drawdown account?
No

Do you mean there is no downside? Or, do you mean you disagree with my statement and there is a downside?

I assume the former, but would like to be sure.

gm0

None major

Minor difficulty is added friction with subsequent "partial transfer".  Moving all of it to a different platform should be fine.  Investment change fine.  But moving part of a crystallised pot is operationally unusual (and mucked up lack lustre tacked on lta tracking) and so was discouraged.  So friction may occur.  Hardly a deal breaker.

dodmwe

The Op updating and closing this thread out. 

At 4pm today the last £30k of my tax free PCLS hit my account. I’ll certainly be more relaxed during the budget speech tomorrow. That is the full £268,275 out and in my non tax payer wife’s name. I’ll have to be nice to her now:)

As I haven’t triggered MPAA, I am contributing £60k into a DC pension going forward. I’ll not trigger pension recycling rules as I have put £60k in the two preceding tax years.

i have asked several questions, and this forum has really helped me out. It would have been more difficult without cohort of very knowledgeable folk on this forum.

Thanks to all.