Drawdown options

SR999

Hi all. I have an old SERPs pension which I’ve taken 25% from and I’m left with circa 40k left invested. I’m not reliant on this income as I have a public sector pension. I have a few questions for the wise. 

1. As I’m not factoring this income into my future any ideas of what I should do with it? I’m happy to lock away for 5 years or so. 

2. If I just left in a pension, can I include it in a will and is it tax free for the family?
3. If it makes any gains since I took the 25% (it’s made 2k already) can I take 25% of that gain tax free?
4. Any other ideas gratefully received 

Steve 

Dazed_and_C0nfused

1.  Depends a lot on your attitude to risk.

2.  Not sure about the will (no?) but the tax position probably depends on when you die (pre or post 75th birthday).

3.  No, by taking the 25% TFLS up front you have made the remaining crystallized pension and any subsequent growth taxable.  When you take it out of the pension.

SR999

Dazed_and_C0nfused said:

1.  Depends a lot on your attitude to risk.

2.  Not sure about the will (no?) but the tax position probably depends on when you die (pre or post 75th birthday).

3.  No, by taking the 25% TFLS up front you have made the remaining crystallized pension and any subsequent growth taxable.  When you take it out of the pension.

Thanks. I’m happy to have a moderate risk involved over the next 5 years. 

Albermarle

2. You do not include pension pots in your will . They are held in trust by the pension provider so are not part of your estate. You need to make sure you have filled in the 'expression of wishes' form and named a beneficiary.

dunstonh

1. As I’m not factoring this income into my future any ideas of what I should do with it? I’m happy to lock away for 5 years or so. 

What is happening in 5 years or so that you may need access?
Or are you thinking it more of an open ended rainy day fund?  (which is probably more likely on the limited info you have given)

2. If I just left in a pension, can I include it in a will and is it tax free for the family?

No
a) pensions are not part of your estate and not subject to your Will.   This is why you complete an expression of wish.
b) currently if you die before 75 then the pension is available tax free to your first beneficiary(ies).   If you die after 75, they inherit the pension without tax but would pay income tax on any withdrawals.
c) the pre age 75 tax free status is expected to removed/tweaked in the future (either later this month or in the pension review).  The current Government doesn't like that pensions can be paid out without immediate tax for under 75s (there is tax for over 75s) but we don't know how they intend to deal with that 

3. If it makes any gains since I took the 25% (it’s made 2k already) can I take 25% of that gain tax free?

If you had left it uncrystallised you could.  But as you crystallised it, you cannot.

gm0

Dunstonh refers in passing to the difference in access methods for DC drawdown pensions. 

UFPLS - which takes tax free cash and some income from a small slice.  Eating the whole slice.  Leaving the rest of the sausage untouched to grow (Uncrystallised in the jargon). The rest of the sausage is available for later access and TFC by any method. This includes any new growth up to the lifetime limit (called LSA) which caps TFC. 

But this taking of pension income locks down what you can contribute from now on to the Money Purchase Annual Allowance (MPAA) which is a lower limit than the standard one. To any other DC scheme.  So it's not right for everyone.  It is the method which offers the most potential to grow more TFC if you have stopped saving.

The alternative method is FAD - which takes the TFC of a larger slice or even all the "sausage" - the whole pension  as it is currently.  25%.  And the rest (75%) is marked for income (crystallised) in the jargon.  Income is taken or not. As suits the pensioner.  But any growth does not get new TFC.  

It has been taken when first accessed and you are done.   On the positive side - if income is not taken from the remaining (75%) crystallised portion.  The MPAA does not apply.  And you can still save in other DC pensions to the full Annual Allowance if you have suitable income to do so. This suits people above minimum access age but not retired yet that the first one does not. People who want the 25% for a specific capital need. And want to continue saving.

And the "small pots" rules to just extinguish an old tiny pension pot below the size limit.

Unadvised it was for you to choose the right method from what your scheme supports (or transfer to somewhere that did the one you want). Advised someone should have been careful about this for your particular goals and circumstances.

SR999

Wow

thank you all. This is great info. This is a rainy day fund really and because of the tax I would be taking some of it at the most opportune time. I would probably try and build it as much as possible and take it when the tax issues are most beneficial. Paying for a holiday or some like that. 

I will have my NHS pension, my NHS lump sum and state pension