Which platform for separate crystallised and uncrystallised pots?

Albermarle

Nick9967 said:

My Scottish Widows have 2 accounts with one , one crystalized and one not , can choose your investments - retirement planning for uncrystallized and Retirement income for crystalized, i see as a total and separately under one master plan , works fine for me and don't pay anything extra. The only issue with this and SW is i need o call to draw , at the moment can't do it online. 

I think this is more typical when you look at the traditional pension providers like SW, Standard Life etc.
In fact many of their older pensions do not offer a drawdown facility at all and you have to switch to a newer version.

Having to call for each time you want to draw is a bit 'dark ages' though, but SW IT systems have always been an issue.

Pat38493

Albermarle said:

Fidelity split the pots ( like HL do ) 
Also they are a bit cheaper than HL.

So is it normal that the platforms which give you separate account control charge you 2 sets of charges as well, so you double your charges if I understood one of the prior posts correctly?

I guess what is meant is that any cap on the charges is applied to each pot separately so worst case you could end up paying double?

Also - the example given above about the disadvantages of the notional split goes both ways - if there are 3 negative years in a row or suchlike, the damage to your available tax free amount is diluted if you are on a notional split.

Albermarle

Pat38493 said:

Albermarle said:

Fidelity split the pots ( like HL do ) 
Also they are a bit cheaper than HL.

So is it normal that the platforms which give you separate account control charge you 2 sets of charges as well, so you double your charges if I understood one of the prior posts correctly?

I guess what is meant is that any cap on the charges is applied to each pot separately so worst case you could end up paying double?

Also - the example given above about the disadvantages of the notional split goes both ways - if there are 3 negative years in a row or suchlike, the damage to your available tax free amount is diluted if you are on a notional split.

With Fidelity and HL, platform charges are dependent on what sort of investments you have.
They charge 0.35% and 0.45% respectively ( reduced for larger investors) , but there is cap on charges for 'exchange traded products' -means shares , ITs and ETFs. 
HL cap on SIPPs is £200 ( £45 for an S&S ISA) and apparently when they split your pot the £200 cap is for each pot.
Fidelity have a cap of £90, which applies to the whole platform, regardless of how many pension pots, S&S ISAs you have.
There is no cap on charges for OEIC funds ( although no trading costs either). So for both platforms you just get charged a % of funds on the platform, regardless of the account.

You can have a mixture of OEICS where you get charged the % platform charge in full  and others with a cap, so a kind of hybrid.

QrizB

Hoenir said:

MK62 said:

snarffie said:

michaels said:

But with separate pots you might have high growth assets in the uncrystallised pot so the amount that can be taken tax free in future is increasing and safer assets in the crystallised pot so the amount that will be subject to IT does not grow as much.

EG

1) you split a 400k pot, 200k is crystallised as 50k tfls and 150k that does not grow at all but is subject to income tax, the other 200k uncrystallised grows to 300k allowing eventually 75k TFLS and 225k taxed.

2) joint pot, 50k tfls taken, remainder (same assets as above) grows from 350k to 450k.  Crystallised pot is considered to have grown from 150k to 190k all taxable, uncrystallised is considered to have grown from 200k to 260k so now has 65k tax free.  Tax is now payable on an extra 10k that would have been part of TFLS with separate pots.

I was pretty comfortable with the notional splits that ii do, to the point of thinking that it's a much neater way of doing things v separate pots.  Until you gave your example above.  Maybe I need to have a rethink.  What a pain!

Bear in mind though that it works the other way too.......if the £200k in the uncrystallised high growth fund were to fall in value, you'd then have less PCLS available than if you had a notional split on your whole pot.........

I'm intrigued to know what "high growth assets" are. 

Bitcoin?

/gd&r

michaels

TheTelltaleChart said:

michaels said:

But with separate pots you might have high growth assets in the uncrystallised pot so the amount that can be taken tax free in future is increasing and safer assets in the crystallised pot so the amount that will be subject to IT does not grow as much.

I do agree with the general idea that there may be an advantage in investing crystallised and uncrystallised pots differently.

However, this isn't a good argument for the idea. If you really knew that the "high growth" assets would outperform the "safer" assets, then you'd invest 100% of both pots in the "high growth" assets. In reality, there is always a risk that they will underperform. You need an argument for why you'd want to take more risk with a tax-free pot than with a taxable pot.

For me the 'low risk' crystallised pot is for spending in the bridge period between retirement and state pension age so with a shortish time horizon is better in a less volatile and therefore lower average return investments whereas the uncrystallised is for longer term higher volatility and hopefully higher growth.  Of course no one can guarantee returns but historical experience is that equities outperform over longer time horizons.

michaels

TheTelltaleChart said:

michaels said:

TheTelltaleChart said:

michaels said:

But with separate pots you might have high growth assets in the uncrystallised pot so the amount that can be taken tax free in future is increasing and safer assets in the crystallised pot so the amount that will be subject to IT does not grow as much.

I do agree with the general idea that there may be an advantage in investing crystallised and uncrystallised pots differently.

However, this isn't a good argument for the idea. If you really knew that the "high growth" assets would outperform the "safer" assets, then you'd invest 100% of both pots in the "high growth" assets. In reality, there is always a risk that they will underperform. You need an argument for why you'd want to take more risk with a tax-free pot than with a taxable pot.

For me the 'low risk' crystallised pot is for spending in the bridge period between retirement and state pension age so with a shortish time horizon is better in a less volatile and therefore lower average return investments whereas the uncrystallised is for longer term higher volatility and hopefully higher growth.  Of course no one can guarantee returns but historical experience is that equities outperform over longer time horizons.

OK, it makes perfect sense to use less volatile assets for the shorter time horizon, and more volatile but hopefully higher return assets for the longer horizon. But what I still don't see is why you're using the crystallised pot for the short term and uncrystallised for the long term. Since you could equally well make short term withdrawals from the uncrystallised pot (via UFPLS).

You would think so - but then student finance rears its ugly head, TFLS does not count as income for student finance parental household income calcs (nor therefore uni bursaries) whereas UFPLS (including the tax free component) does

Pat38493

michaels said:

TheTelltaleChart said:

michaels said:

TheTelltaleChart said:

michaels said:

But with separate pots you might have high growth assets in the uncrystallised pot so the amount that can be taken tax free in future is increasing and safer assets in the crystallised pot so the amount that will be subject to IT does not grow as much.

I do agree with the general idea that there may be an advantage in investing crystallised and uncrystallised pots differently.

However, this isn't a good argument for the idea. If you really knew that the "high growth" assets would outperform the "safer" assets, then you'd invest 100% of both pots in the "high growth" assets. In reality, there is always a risk that they will underperform. You need an argument for why you'd want to take more risk with a tax-free pot than with a taxable pot.

For me the 'low risk' crystallised pot is for spending in the bridge period between retirement and state pension age so with a shortish time horizon is better in a less volatile and therefore lower average return investments whereas the uncrystallised is for longer term higher volatility and hopefully higher growth.  Of course no one can guarantee returns but historical experience is that equities outperform over longer time horizons.

OK, it makes perfect sense to use less volatile assets for the shorter time horizon, and more volatile but hopefully higher return assets for the longer horizon. But what I still don't see is why you're using the crystallised pot for the short term and uncrystallised for the long term. Since you could equally well make short term withdrawals from the uncrystallised pot (via UFPLS).

You would think so - but then student finance rears its ugly head, TFLS does not count as income for student finance parental household income calcs (nor therefore uni bursaries) whereas UFPLS (including the tax free component) does

Also the tax free element of the withdrawal means that you get slightly more advantage of investment growth over the long term.

All other things equal, the priority order for keeping your highest growth assets
1) ISA
2) Uncrystallized pension
3) Crystallized pension
4) GIA

However as mentioned above this goes both ways - you are more harmed by a bad sequence of returns than if you were in a notional split.  Also - following point 1 can be risky if you don't have much in ISAs to cover your medium term needs, so this assumes that you can manage your drawdown to avoid tax spikes due to bad sequence of return.  I suspect the real world impact on most people is minimal

Pat38493

TheTelltaleChart said:

michaels said:

TheTelltaleChart said:

michaels said:

TheTelltaleChart said:

michaels said:

But with separate pots you might have high growth assets in the uncrystallised pot so the amount that can be taken tax free in future is increasing and safer assets in the crystallised pot so the amount that will be subject to IT does not grow as much.

I do agree with the general idea that there may be an advantage in investing crystallised and uncrystallised pots differently.

However, this isn't a good argument for the idea. If you really knew that the "high growth" assets would outperform the "safer" assets, then you'd invest 100% of both pots in the "high growth" assets. In reality, there is always a risk that they will underperform. You need an argument for why you'd want to take more risk with a tax-free pot than with a taxable pot.

For me the 'low risk' crystallised pot is for spending in the bridge period between retirement and state pension age so with a shortish time horizon is better in a less volatile and therefore lower average return investments whereas the uncrystallised is for longer term higher volatility and hopefully higher growth.  Of course no one can guarantee returns but historical experience is that equities outperform over longer time horizons.

OK, it makes perfect sense to use less volatile assets for the shorter time horizon, and more volatile but hopefully higher return assets for the longer horizon. But what I still don't see is why you're using the crystallised pot for the short term and uncrystallised for the long term. Since you could equally well make short term withdrawals from the uncrystallised pot (via UFPLS).

You would think so - but then student finance rears its ugly head, TFLS does not count as income for student finance parental household income calcs (nor therefore uni bursaries) whereas UFPLS (including the tax free component) does

Ah, I didn't know that. That's a reason to avoid UFPLS. I agree that this would make separate crystallised/uncrystallised pots better for you, though the difference is probably marginal, at least if you use short cycles (of partially crystallising (taking the TFLS), gradually drawing all the crystallised pot as income, and repeating).

Pat38493 said:

Also the tax free element of the withdrawal means that you get slightly more advantage of investment growth over the long term.

All other things equal, the priority order for keeping your highest growth assets
1) ISA
2) Uncrystallized pension
3) Crystallized pension
4) GIA

However as mentioned above this goes both ways - you are more harmed by a bad sequence of returns than if you were in a notional split.  Also - following point 1 can be risky if you don't have much in ISAs to cover your medium term needs, so this assumes that you can manage your drawdown to avoid tax spikes due to bad sequence of return.  I suspect the real world impact on most people is minimal

I disagree. Other things being equal, all of 1)-3) are exactly equivalent. None of them incur any taxes on investment income/gains; only 4) does, which is why it's lower priority.

Why do say there are no taxes on income/gains in a pension? Suppose you have £100k in a crystallised pension, and it doubles (due to investment income/gains) to £200k. Won't you pay more tax when you withdraw it? In a sense, yes. But if your tax rate on withdrawals is 20%, then the £100k pot was really only worth £80k to you. The other £20k is the UK Treasury's money, which you are (bizarrely enough) investing on their behalf. The £200k pot is, net of 20% tax, worth £160k to you (and £40k to the Treasury), so you have doubled your capital, i.e. you're got 100% of the investment return, with no losses to tax. (The fact that you're also doubled the Treasury's capital is irrelevant.)

Things that can make 1)-3) unequal include:

a) differences in applicable tax rates. E.g. will you be in different tax bands in different tax years? That can affect how, when and how much it is best to draw from pensions. michaels's example of student finance assessing parental income in a surprising way is in effect a case of a different tax rate applying.

b) if you will want to buy an annuity with some capital eventually, you may be better off leaving it inside a pension in the meantime (where better annuity rates are available).

I posted a thread about this a while back with a worked example showing that if you get a better growth on your high growth pot, you are better off having it in a crytallised pot because in the notional split pot, the percentage of your pot which is non crystallised is a fixed number (until you take money out) - therefore when you made a large gain on your high growth assets, the benefit of that gain is spread out over your crystallised and non crystallised pension, and consequently your tax free cash available is less than it would have been if the uncrystallised money and equities are in a dedicated account.

On the other hand, if equites plunged by 40%, your available TFC available amount doesn't go down by 40% if the split is notional even if you theoretically have your uncrystallised money in 100% equities.

I will try to find the thread later.  Someone pointed out at the time that the other solution to this is to take out the tax free cash immediately and put it in an ISA.

MK62

True, but if your platform uses a notional split, then perhaps it's best to not think in terms of crystallised and uncrystallised "pots".......even if it is more natural to do that.

Another consideration is that in the two separate pots scenario, if you needed some cash, you are either forced to sell your high growth assets from the uncrystallised pot, if you want it tax free, or else sell from the crystallised pot and pay tax.......in the notional split you can sell either asset (or both) and take tax free cash (assuming you still split your assets the same way.....the notional split means there's not really the same motivation to do so)

So in the end there are pros and cons with both approaches.......and you can make cases in support of either.

ian16527

Vanguard have split accounts if you are a user of Vanguard funds.