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Uncrystallised Pension
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Employee123
Posts: 11 Forumite

Hi, I currently have a uncrystallised pension of £600,000.00 that I am looking to access at 55. I have a DB pension which is £12500.00 per annum which utilises the nil tax personal allowance.
My pension is invested 100% equities and I want to take out £15,000.00 per annum tax free. Am I correct that this will reduce the pension from £600,000.00 to £585,000.00 of which £540,000 would remain uncrystallised and £45,000.00 crystallised. Am I correct that if the market grew 5% before I took more tax free cash then my new balances would be £567,000.00 uncrystallised and £47250 crystallised so new total of £614,250.00. If the market fell 5% then my pension would be £538650 and £42750.00 so total of £581400.00.
looking to be tax efficient in drawing out cash whilst leaving the majority in the pension to grow through compounding.
any thoughts or advice on this as a strategy?
My pension is invested 100% equities and I want to take out £15,000.00 per annum tax free. Am I correct that this will reduce the pension from £600,000.00 to £585,000.00 of which £540,000 would remain uncrystallised and £45,000.00 crystallised. Am I correct that if the market grew 5% before I took more tax free cash then my new balances would be £567,000.00 uncrystallised and £47250 crystallised so new total of £614,250.00. If the market fell 5% then my pension would be £538650 and £42750.00 so total of £581400.00.
looking to be tax efficient in drawing out cash whilst leaving the majority in the pension to grow through compounding.
any thoughts or advice on this as a strategy?
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Comments
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Employee123 said:Hi, I currently have a uncrystallised pension of £600,000.00 that I am looking to access at 55. I have a DB pension which is £12500.00 per annum which utilises the nil tax personal allowance.
My pension is invested 100% equities and I want to take out £15,000.00 per annum tax free. Am I correct that this will reduce the pension from £600,000.00 to £585,000.00 of which £540,000 would remain uncrystallised and £45,000.00 crystallised. Am I correct that if the market grew 5% before I took more tax free cash then my new balances would be £567,000.00 uncrystallised and £47250 crystallised so new total of £614,250.00. If the market fell 5% then my pension would be £538650 and £42750.00 so total of £581400.00.
looking to be tax efficient in drawing out cash whilst leaving the majority in the pension to grow through compounding.
any thoughts or advice on this as a strategy?
Do you think you might be getting a bit too focussed on this idea of £15K a year tax free from your DC pension? Not much point in having a decent sized pot if you don't draw enough of it to enjoy life...and if the price for that enjoyment is a modest amount of basic rate tax, might that not be a more rewarding strategy?Googling on your question might have been both quicker and easier, if you're only after simple facts rather than opinions!3 -
Is the £12,500 DB the pension at 55, or at NRA - DB pensions are usually actuarily reduced if taken early to account for the greater number of years they will be being paid.Also, how close are you to 55? The access age increases to 57 from April 2028.Will £27.5k be enough for you to live on before SPA, or do you need to continue with some part time / occasional work to supplement?0
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The maths seems fine but the strategy seems confused.
The main problem you could have drawing down such a large pot invested in 100% equities is not basic rate tax, it's the higher rate.
Personally, I think you should drawdown what you can at the basic rate each year and then put any surplus into your and your spouse's (if you have one) ISA.
The ISA allowance, income tax thresholds and lump sum allowance are all currently fixed but your pot and inflation certainly isn't.
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If you are just looking at extracting £15,000 tax free cash each year, what are your plans for the remaining pot?
As @Marcon points out, you will pay income tax when your State Pension becomes payable. You have accrued a really decent DC pot, and with 100% equity investment you can expect the pot to keep growing longer term.
I’m a Forum Ambassador and I support the Forum Team on the Pension, Debt Free Wanabee, and Over 50 Money Saving boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the Report button, or by e-mailing forumteam@moneysavingexpert.com. All views are my own and not the official line of MoneySavingExpert.0 -
The figures for the market dropping 5% look wrong. Your investment should drop by 29250 in that case, which would leave 555750 in total.
(Looks like you calculated the *uncrystallised* balance in that case from the post-5%-increase 567000 rather than from the original 540000.)0 -
Are you still working? If not, then as others have said you can start to think about tax-efficient ways of taking your pension income. You'll be a basic rate tax payer for life.
How the remaining DC pot continues to grow or not depends on how it is invested, and how your platform operates.A little FIRE lights the cigar0 -
leosayer said:The maths seems fine but the strategy seems confused.
The main problem you could have drawing down such a large pot invested in 100% equities is not basic rate tax, it's the higher rate.
Personally, I think you should drawdown what you can at the basic rate each year and then put any surplus into your and your spouse's (if you have one) ISA.
The ISA allowance, income tax thresholds and lump sum allowance are all currently fixed but your pot and inflation certainly isn't.
It is a fine line between the two strategies and depends on personal circumstances. Also this '75' rule is a bit illogical, and may well get changed one day.0
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