Taking 25% taxfree cash lumpsum out of large DC pension pot

FIREDreamer

BlisteringBarnacles said:

ColdIron said:

Nevertheless you have made a fraudulent declaration, you have misrepresented your affairs. As you say, you lied. There may be consequences

Quick update. 

After this conversation on his thread I wrote to HL, detailed my other 2 pensions with screenshots showing that the total exceeds 1 million but still quite a bit less than old LTA and 98% in cash. HL have said that is fine and if they need anything else they will get back to me. They did not say that the online application will be abandoned and I will have to switch to paper form. During the online application when it asked for other pension pots total exceeding 1 million, when the phone rep had already said "today is the last day", and then when she also said that more than 1 million means I would have to do it on paper, I asked what do we do now. She said "If you want to go back to previous page and answer No, you can go ahead and I will not comment on it". Because I was running out of time I proceeded.

Mentioned everything to II on the phone as well. As far as II are concerned they said that if the sum total is less than old LTA, then no need to do anything extra.

So thats where things stand now. Perhaps HL will cancel the application and switch to paper. Then I wont make it by Oct 30.

Assuming the application has been made, and is in the queue, it should proceed regardless of any budget changes?

BlisteringBarnacles

Thanks FIREDreamer.

Hopefully. Lets see what happens.

But on Oct 30, I fear they could change the law so that the PCLS is reduced to 100K as per IFS think tank recommendation and only crystallisations already completed would be irreversible. But any "in flight" crystallisations or crystallisations done after midnight on Oct 30 could be made subject to new PCLS limit of 100K. Just my hunch.

Anything is possible. The moment they give a time window, there will be a rush of people heading towards the exit and it will not raise enough money as planned to cover the supposed black hole. Since there is a promise to not raise income tax / NI etc, the only obvious candidates are : hitting employers' NI - which businesses wont like - and the govt needs businesses to create jobs, changes to tax relief on pension contributions for high rate taxpayers - apparently very difficult to implement and finally reducing PCLS which is comparatively easy to implement. Instead of abolishing PCLS, if they set it to 100K, it will only affect those with "broad shoulders". But they have to make it effective midnight in order to raise any meaningful money. Raising CGT is also an option of course but people may not sell at all.

People who have 1 million in pension pots are considered "rich". And they probably are. Most of such people would already have a home probably paid off and a good ISA. There are very few idiots in this world, yours truly being one of them who would prioritize pension contribution over a comfortable life and choose to living in a low end apartment to minimise rent costs.

Oh well.

BlisteringBarnacles

Wanted to document a good experience with crystallisation of SIPP and taking 25% tax free cash lumpsum from Interactive Investor.

I initiated the process online with help from a friendly I.I support person last week on Thu 10 Oct and the 25% lumpsum is already in my bank account today (16 Oct) ! I saw the money has been deposited by Barnet Waddingham - never heard of them, so looked them up.

Found a negative comment (below). But just wanted to say that  my own experience has been great. 

https://www.reddit.com/r/UKPersonalFinance/s/ne1YXeKUPW

BlisteringBarnacles

FIREDreamer said:

Assuming the application has been made, and is in the queue, it should proceed regardless of any budget changes?

Update : HL sent me a secure message Friday (yesterday) saying I need to complete a special "Lump Sum Allowance Check Form" detailing the other 25% tax free cash lumpsums I have / will be taking.

It is at : https://www.hl.co.uk/__data/assets/pdf_file/0009/19837476/Allowance-Check-Form.pdf - It is simple enough.

I called and explained to them my total pension pot size exceeds £1 million but is below and will not breach the old LTA of £1.073 anytime soon. They said it would be good to complete the form. They have okayed scanning and emailing the completed and signed form back to them, so hopefully it should all proceed.

RogerPensionGuy

Just a few points in my head on this thread.

250K plonked in a GIA can be placed in money market funds paying circa 5% currently, this interest will be taxed as standard interest.

250K could be plonked in gilts if that suited.

Remember after taking any TFLS or say 250K as long as no withdrawals are made from the crystallised pot a person can plonk in up 60K PA in to a pension, if any crystallised pennies are taken, then the MPAA kicks in and the 60K AA limit is now 10K PA.

I was very close to pulling out all my remaining TFLS before this next budget, but did went over much old research on the internet and my feedback is if any reductions to that 268K figure, they will put more various protections in place that may be helpful maintaining the current rules by and large, so I have left my residual TFLS sitting in a DC pot.

I spoke to a few pension people the last few months and they have reported many many people are doing all sorts of pension stuff especially venting large TFLS figures as the press and gov have made them too worried and on balance they would rather have 268K birds in the hand now than the possibility of just 100K birds in the hand after budget.

The gov have just continued playing pension football even before the budget, they have said they won't touch income tax, VAT and NI and they need much more income/tax/whatever, so Pensions, CGT, IHT, Non-Doms and stuff are feeling that the big black hole will need filling with just 20/25% of the levers available, what a mess of their honeymoon.

Back on track, if they reduce that 268K figure it will cause too much trouble and it sounds like they are now finally of this I am 99.999% feeling it won't get reduced, but very probably locked at that figure for many many years.

The link below is a bit on my mind and making me laugh, labour said they would reintroduce the LTA, but the first 100 days is just crazy and now they find themselves boxed in a tight corner and completely self made, I am looking forward to my coke and popcorn on the 30th.... 

******    
https://ifs.org.uk/articles/should-pensions-lifetime-allowance-be-reintroduced-and-if-so-how#:~:text=The lifetime allowance was then,the allowance would be abolished.

BlisteringBarnacles

Yes thanks Roger. I have been panicking a bit on this thread. I spoke to the pension adviser from my last employer, and he also opined that nothing drastic is likely to happen. Even if they reduced the PCLS to £100K, there is likely to be some transitional arrangements put in place so there is probably no need to rush.

But I had other reasons to pull out as I mentioned at the start of this thread. Even if the rules do not change, once the pot crosses former LTA of £1.073 million (although I am not quite there yet), it may not be tax efficient to keep the £268K inside the pension wrapper, because any growth on this £268K inside the wrapper eventually attracts income tax whereas left outside the wrapper any growth on the £268K would attract only CGT/dividend taxes which are less than income tax as the rules stand today. (Thanks EdSwippet)

But then again, inside the wrapper, one has the option of deferring the taxes forever, as in : you can keep taking UFLPS and get to the enjoy the tax free lumpsum whereas outside the wrapper, the taxes on the growth of £268K are immediate. Once outside the wrapper, even if you invest the £268K in stocks and avoid selling so there is no immediate CGT, the point is that in order to access bits of the £268K lumpsum and enjoy it, you must sell the investment and immediately incur CGT on the growth of the £268K.

But deferring "forever" means passing on to heirs (which I dont have) or give to charity. But if one wants to enjoy the whole pot, then yes, there is no escaping the tax on the growth of £268K in which case, one is better off keeping it outside the pension wrapper.

One could fill up an ISA but it would take a while to fill up ISA with £250K especially when one is single.

In my case, I am not sure I will continue to be in UK. If I go away to India for good, given that India does not recognize the tax free nature of the 25% lumpsum unless I do QROPS which I am not keen on, I figured it's better to take it when I am here. Bird in the hand and all that. At least achieve closure for one of my many open-ended problems LOL ...

Question : regarding money market, is the interest treated exactly as bank interest in terms of starting rate of savings of £5000, personal savings allowance of £1000 for basic rate taxpayers etc ? I am unemployed this year and the way things are going I'm not sure of employment :-) I worked 25 years in one company and never had to do a CV. The last CV I wrote was before dotcom crash LOL ! I am not even sure what to write now in a CV :-)

Thanks

BlisteringBarnacles

[Deleted User] said:

Only being able to transfer the full drawdown is an important point that I didn't realise when I crystallised.  So I'm now stuck with a single provider.  I don't see why this rules is there after the abolition of the LTA and so I hope one day it will change. 

In terms of timing, transfers of uncrystallised pensions have been very quick.  Crystallisation took a lot longer.  Fidelity took from the end of Feb (when I spoke to Pension Wise) got the cash on 5 April.  Vanguard were a lot worse.  I had to request a pack, speak to someone, speak to someone again, hassle them and then eventually got the cash.  Vanguard also made quite a few mistakes and so I had a few extra crystallisations to get it right (including one for 19p).  Vanguard also made quite a few mistakes in transferring my drawdown pension (nearly ten months without being able to drawdown anything but got compensation). Hargreaves Lansdown and AJ Bell were relatively quick with crystallisation and I wasn't in a rush.

One thing to check is whether the timing of the crystallisation has to tie in with the providers normal payment dates.  So with HL you have to ask them by the 17th to get cash on the 28th.  If they need instructions to crystallise by the 17th to be able to crystallise by the 28th then that might be an issue.

But I doubt if anything will change in the Budget so its probably all a bit academic.

As I mentioned, transfer from (Standard Life to II), (Aegon to II), (Aegon to HL) of uncrystallised pension was super quick using Origo electronic. My money was in cash so it was probably quicker. 

Can I assume that transfer of deferred drawdowns between providers is also equally fast or is that a different beast altogether ? Asking because I am considering moving away from Aegon to AJ Bell. 

My crystallisation with Aegon and taking 25% lumpsum starts on 23 Oct. The pot will go into deferred drawdown. I can either move the drawdown to AJ Bell or undo the crystallisation with Aegon and transfer uncrystallised to AJ Bell which should be quick. Which one I opt for will depend on what is quicker and whether anything changes on Oct 30 budget. Aegon is good but I will be paying 0.4% platform charge ( capped to 0.4% of £250K : £1000) Earlier I was obsessed about "insured funds" provided by Aegon but I am not so worried anymore. If I split my money between HL, II, AJ and with the ring fencing of assets, I am not going to lose sleep about broker going bust and me losing my Vanguard/HSBC/iShares Funds/ETFs

Thanks

ali_bear

I am at a similar stage in life as you, Mr BB, although still employed. I need not worry abut writing a CV because at the late career stage you are much more likely to obtain suitable work through established contacts than speculative applications. In the meantime, given that you now have a lot of cash on your hands there is no need to start drawing income from your remaining pot, and your MPAA remains at 60K for the foreseeable. 

RogerPensionGuy

For information I was paranoid a few years back(still am) that the LTA was going to reduce to 800K as so much speculation, I was just over the LTA 1.073M figure if I remember correctly.

I reduced my pension inputs and although I read much of when the government negativity attack the LTA previously, they did actually put in various protections and these worked okay, better or worse for some depending on if contributions stop or carried on, a bit unfair in my opinion.

Then in April 2023 the LTA was essentially history and I wound up pension contributions to maximum possible in my circumstances.

I have currently stopped paid employment so pension input stopped. 

If feel happy enough that should the LTA or similar get reinvented, my situation and the various protections 99.99% invented would be personally okay for me.

My guess is the old LTA figure will remain and keep that 268K TFLS always available, inflation will do all the legwork to blend this good feature out. 

Because I've seen so much government pension football since 2006 and guessing how protections may get introduced, I'm actually leaving g my pensions alone to mature and hopefully be in a better condition should the government start playing again, so in my case the lack of stability is me keeping funds unspent in the economy, a perverse outcome caused by pension football.

My overriding view is if they start playing football with the AA, MPAA, LTA it will cause many more people to give pensions a miss and the protections will just make a complicated system more complicated.

I think they may attack the IHT pension rules, limit contributions % tax relief for higher rate tax payers, possibly attack salary sacrifice to recoup NI losses by any means. 

Below is an HMRC link showing a few of them protections in place, just imagine how much more that would grow if they tinker around with all these again. 

***

https://www.gov.uk/guidance/pension-schemes-protect-your-lifetime-allowance

MallyGirl

BlisteringBarnacles said:

Question : regarding money market, is the interest treated exactly as bank interest in terms of starting rate of savings of £5000, personal savings allowance of £1000 for basic rate taxpayers etc ? I am unemployed this year and the way things are going I'm not sure of employment :-) I worked 25 years in one company and never had to do a CV. The last CV I wrote was before dotcom crash LOL ! I am not even sure what to write now in a CV :-)

Thanks

The growth in a money market fund is not interest - it is income. Personal savings allowances etc do not come into play.
The value will be trying to match bank interest rates but as an income instead.