Pension drawdown

Worriedpensioner22

Any thoughts please ? I have a pension pot and wish to draw a lump sum I thought if I do it now before my state pension starts next month as I will be still under my tax allowance .
Ive lost in the last few years to charges etc so not actually made any money and thought to put the money in an ISA? 

cfw1994

It is a good idea to get some out tax-free if you can, especially versus paying tax once you have your SP 👍

The pension is just a wrapper, like an ISA
What ISA would you put it in, and what is it currently invested in - what funds?
The past couple of years have broadly been quite good - how have you lost out?

tichtich

I assume you are talking about withdrawing taxable money from your pension (not a tax-free lump sum). Yes, it makes sense to do that, to use up any unused tax allowance you will have for this year. In fact, that's exactly what I wanted to do last year, but I didn't think of it until a week or two before the end of the year, and it was too late to get the money out in time.

As I understand it, for each taxable £75 you want to withdraw, you will need to do draw £100 by UFPLS, because you will get 25% tax free.

tacpot12

Be careful how you take the lump sum. UFPLS triggers the MPAA, which is not ideal if there is any chance you might inherit a large lump sum later in life, e.g. from aged parents. 

tichtich

tacpot12 said:

Be careful how you take the lump sum. UFPLS triggers the MPAA, which is not ideal if there is any chance you might inherit a large lump sum later in life, e.g. from aged parents. 

Good point. I was just about to add that to my previous post! 😉 But, as I understand it, this is only relevant if you will earn over £10,000 in a year, as you can't contribute more than your earnings, no matter how much you inherit. (Personally, I am still freelancing a little at age 66, but in no danger of earning more than £10,000.)

P.S. Are you suggesting that there is an alternative to UFPLS that will achieve what the OP wants? I don't think there is.

tichtich

I suppose I should clarify that, when I said "it makes sense to do that", I only meant that it was a viable way to save some tax. I was not commenting on whether it was a good idea to transfer money from your pension pot to an ISA. In my own case, I have a self invested pension (SIPP) and a stocks and shares ISA. Moving money from my pension pot to my ISA doesn't make much difference to how it is invested, as I have largely the same investment options in both. But it sounds like you might be thinking of moving the withdrawn money to a cash ISA, so you would be switching from investments to cash. Whether that's a good idea is a much more difficult question. (But since you're talking about an amount that's under the tax allowance, I assume it's not a large fraction of your pot.)

dunstonh

Ive lost in the last few years to charges etc so not actually made any money and thought to put the money in an ISA? 

Its unlikely charges have caused your investments to lose value.  Indeed, with most modern pensions, the explicit charges are lower than the implicit charges on a cash ISA.

If you have managed a loss in 2023 or 2024, then something is seriously wrong with your investments.  2021-22 certainly was a loss period though.

ISAs and pensions share the same investment options and the same charges.  So, moving it from pension to ISA because of investment returns is not a viable reason for doing it.    Identifying the issue and then selecting an appropriate action would be better.

Albermarle

tichtich said:

tacpot12 said:

Be careful how you take the lump sum. UFPLS triggers the MPAA, which is not ideal if there is any chance you might inherit a large lump sum later in life, e.g. from aged parents. 

Good point. I was just about to add that to my previous post! 😉 But, as I understand it, this is only relevant if you will earn over £10,000 in a year, as you can't contribute more than your earnings, no matter how much you inherit. (Personally, I am still freelancing a little at age 66, but in no danger of earning more than £10,000.)

P.S. Are you suggesting that there is an alternative to UFPLS that will achieve what the OP wants? I don't think there is.

You can use flexi access drawdown instead of UFPLS, but it would still trigger the MPAA. 
Just for exactness, the limit of £10K pa includes employer contributions, not just the employee contributions + tax relief.