Pension tax free cash to ISA

fuelcrusher

I've just come across a thread on another site about taking tax free cash from a pension and moving it into ISAs.

My situation is with circa £1130000 currently in my workplace pension and Sipp I'm already knocking on the door of maxing the tax free cash available. Still a couple of years till I turn 55.

The advantage seems to be taking it out of the pension and putting it in an ISA allows it to continue to grow tax free, while leaving it in the pension means the growth (above 273k) would become taxable.

Any downsides?

I'm aware it'd need doing over a few years, £40k each year split between the wifes and my own ISA.

Apologies if this has already been discussed in this forum.

Yorkie1

Can I just check the figure in the pension? You've written there is £1,130,000 (£1.3million) in the pension. Did you mean £113,000 instead?

QrizB

Yorkie1 said:

Can I just check the figure in the pension? You've written there is £1,130,000 (£1.3million) in the pension. Did you mean £113,000 instead?

OP has stated several times in recent threads that they have more than £1M in their pensions, and are close to the tax-free cash limit.

I'm inclined to believe him.

fuelcrusher

Yes, I've been fortunate in being able to build up a nice amount in my pensions. It's because of hitting the limit of tax free cash that it makes sense to start pulling it out as soon as I can, and transfer to ISA to continue tax free growth. Leaving it in the pension any further growth would be taxable when withdrawn. I can't see any downside, wondering if anyone else could?

QrizB

The usual argument against taking TFC early is that you'll spend it and miss out on later growth. If you're not going to spend it, but instead plan to invest it inside your ISA as part of your long term plans, I think the idea has merit.

Ciprico

I was in similar position, drew out the entire tax allowance and put it in gilts. This provided security through derisking as I have just retired, and the gilts will produce >4% pretty much tax free. Will decant from gilts into ISAs as and when I can....

MK62

As you are "still a few years" away from being 55 it might be academic for now....unless you have protected rights to withdraw from your pension beforehand, then you can't withdraw anything until you are 55, and you might also get caught by the increase of that minimum age to 57 (which happens in April 2028).

Triumph13

Could work.  I did something similar in 2021 and that worked for me - although LTA was the driver in those days.  On the other hand, if you wait until the markets crash you might find you are nowhere near the limit...

pterri

I’m not in the £1m bracket but my DB is valued close and with the linked AVCs (£140kish) then I’ll be in a similar position. I’m thinking along the same lines as you, I’ll have to put it in a GIA and deal with the capital gains hassle but intend to transfer into my isa as soon as possible. 

fuelcrusher

QrizB said:

The usual argument against taking TFC early is that you'll spend it and miss out on later growth. If you're not going to spend it, but instead plan to invest it inside your ISA as part of your long term plans, I think the idea has merit.

Yes, fortunately we run our finances in a reasonably organised way. Monthly budget and whatnot. This has helped avoid lifestyle inflation as my wages grew. Point being we won't spend it just because it's there. It'll be specific withdrawals to transfer to ISAs.

fuelcrusher

MK62 said:

As you are "still a few years" away from being 55 it might be academic for now....unless you have protected rights to withdraw from your pension beforehand, then you can't withdraw anything until you are 55, and you might also get caught by the increase of that minimum age to 57 (which happens in April 2028).

Yes, this pension age transition is a slight problem and I'm going through this in order to account for it. I'll turn 55 in August '27 then the following year the age changes. So I've that opportunity to withdraw then willl have a waiting period of around 18 months before I can withdraw again.
Currently thinking of withdrawing £80k tax free for 2 x ISAs Aug '27 and 2 x ISAs April '28. Then an UFPLS of around £58k (to max low rate tax) + further tax free of £18k. This should fund us until I turn 57. I may just stay with drawdown though, not sure of the advantage of UFPLS if I'm crystalising so much anyway.
But back on topic, I'm pleased there doesn't seem to be any downsides appearing for my tax free to ISA plan.