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Uncrystallised Pension

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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?

Comments

  • Marcon
    Marcon Posts: 14,453 Forumite
    Ninth Anniversary 10,000 Posts Name Dropper Combo Breaker
    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?
    Your full personal allowance is being used up by your DB pension. When your state pension kicks in, assuming you don't defer payment, that will be taxable (paid gross, with the relevant adjustment to your DB or DC pension tax code).

    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!  
  • LHW99
    LHW99 Posts: 5,240 Forumite
    Part of the Furniture 1,000 Posts Photogenic Name Dropper
    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?
  • leosayer
    leosayer Posts: 635 Forumite
    Part of the Furniture 500 Posts Name Dropper Combo Breaker
    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.
  • Smudgeismydog
    Smudgeismydog Posts: 341 Ambassador
    100 Posts Second Anniversary Photogenic Mortgage-free Glee!
    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.
  • af1963
    af1963 Posts: 408 Forumite
    Fourth Anniversary 100 Posts Name Dropper
    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.)
  • ali_bear
    ali_bear Posts: 333 Forumite
    Third Anniversary 100 Posts Photogenic Name Dropper
    edited 3 July at 8:18AM
    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 cigar
  • Albermarle
    Albermarle Posts: 27,896 Forumite
    10,000 Posts Seventh Anniversary Name Dropper
    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.
    As discussed in other threads, the potential issue with this is that if you die before 75, then the beneficiary of the unused pension pot can withdraw it tax free. So by drawing taxable income that you do not actually need, you will have paid tax unnecessarily. If you die after 75, then it would not matter.

    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.
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