UPFLS versus Drawdown

magd36

squirrelpie said:

magd36 said:

I'm purely thinking of transferring some of the money into a cash isa to de-risk the pension.

As has often been said on here, it's not where investments are held that matters for risk, it's what the investments are. So why move money to an ISA instead of just placing some money in your pension into cash if that's what you want?

I can't see cash as an option within my pension. The closest are Bonds and MMF's but they also have risks.

magd36

kempiejon said:

magd36 said:
I get your point about the large lump sum but I'm in a situation at looking at a fairly steady income. I'm purely thinking of transferring some of the money into a cash isa to de-risk the pension. As Trump and Truss have shown, and with Labour reviewing tax free lump sums, it's a pretty volatile time. Ok if you're young but a bit more risky when your retired.

Prediction about future markets and allowances aside that seems like an awkward way to achieving your aim of de-risking the pension. Couldn't one do that within the pension? Change the asset allocation and of course keep away from triggering money purchase limits.
In fact if it feels a bit more risky now you're retired perhaps you can look at your pension holdings.

Curious how cash can be more risky? When my low risk funds dropped 20% after Truss you can see why it bothered me. I'm just glad I had the flexibility not to use it at that time.

squirrelpie

magd36 said:

I can't see cash as an option within my pension. The closest are Bonds and MMF's but they also have risks.

Well, move the pension to somewhere that does support cash if that's what you want. Or use MMF that invest short-term. To be honest I'm surprised if your pension doesn't support cash. What happens if you sell an investment?

dunstonh

magd36 said:

kempiejon said:

magd36 said:
I get your point about the large lump sum but I'm in a situation at looking at a fairly steady income. I'm purely thinking of transferring some of the money into a cash isa to de-risk the pension. As Trump and Truss have shown, and with Labour reviewing tax free lump sums, it's a pretty volatile time. Ok if you're young but a bit more risky when your retired.

Prediction about future markets and allowances aside that seems like an awkward way to achieving your aim of de-risking the pension. Couldn't one do that within the pension? Change the asset allocation and of course keep away from triggering money purchase limits.
In fact if it feels a bit more risky now you're retired perhaps you can look at your pension holdings.

Curious how cash can be more risky? When my low risk funds dropped 20% after Truss you can see why it bothered me. I'm just glad I had the flexibility not to use it at that time.

Gilts funds were dropping in value before Truss and continued to fall.   Gilt yields are higher today than they were under Truss.    

Effectively what happened, is you had the worst period in over 100 years for gilts and bonds.  It was the unwinding of the credit crunch that had seen massive gains on gilts due to quantitive easing then being unwound through quantative tightening all happening at the same time as a energy crisis triggering inflation rises.

If your pension doesn't have the functionality you are after, then move it to one that does, unless there is some contractual reason for holding back.

Albermarle

squirrelpie said:

magd36 said:

I can't see cash as an option within my pension. The closest are Bonds and MMF's but they also have risks.

Well, move the pension to somewhere that does support cash if that's what you want. Or use MMF that invest short-term. To be honest I'm surprised if your pension doesn't support cash. What happens if you sell an investment?

Some traditional/workplace  pensions do not have a cash fund option, as back in the day it was never really needed.
99 % were in the default fund and took zero interest in how their pension was structured.

gm0

Any decent SIPP provider will have cash funds of some sort. Short gilts IGLT say. And MMFs of a few kinds, RL fund etc. And interest on cash awaiting investment instantly ready to trade.  Many options.

Moving to such a place by full transfer is a no go if still employed with current contributions at risk of stopping.  A periodic partial sweep is of course possible in some schemes and verboten in others. Leave or don't with those.

And you lose anything specific to your ancient scheme. Could be low costs for platform or funds.  Or nothing worth keeping at all. It is however always worth checking very carefully.  What you currently pay and if that represents fair value for the underlying investments you want to hold over the long term.

Old can be bad.  It can also be very good.  Check twice.  Issue transfer forms once certain of your facts.  There is usually no going back.

cfw1994

magd36 said:

kempiejon said:

magd36 said:
I get your point about the large lump sum but I'm in a situation at looking at a fairly steady income. I'm purely thinking of transferring some of the money into a cash isa to de-risk the pension. As Trump and Truss have shown, and with Labour reviewing tax free lump sums, it's a pretty volatile time. Ok if you're young but a bit more risky when your retired.

Prediction about future markets and allowances aside that seems like an awkward way to achieving your aim of de-risking the pension. Couldn't one do that within the pension? Change the asset allocation and of course keep away from triggering money purchase limits.
In fact if it feels a bit more risky now you're retired perhaps you can look at your pension holdings.

Curious how cash can be more risky? When my low risk funds dropped 20% after Truss you can see why it bothered me. I'm just glad I had the flexibility not to use it at that time.

The “risk” with cash assets is that they can lose value when inflation is higher than any gains they might get (eg from MMF or “regular” interest bearing accounts).  £100 today will likely buy less than £100 ten years ago could buy 🤷‍♂️

Juno_Moneta

poseidon1 said:

The  current maximum permitted  (unprotected) TFC is £268k, so UFPLSs is a mechanism for someone in my position to try and hit that limit whilst still drawing an income.

I think poseidon1 hits the nail on the head here. 

If your SIPP total is less than £1073100 it is worth using UFPLS in the hope that you can keep growing your pension while also drawing some income such that you can make use of more of the possible 25% / 268275 lifetime tax free limit. 

However if your SIPP total is already at or beyond £1073100 I am thinking UFPLS is then pointless as there is no goal to strive for.  In this fortunate situation - reasons for doing it aside (why not stay invested, what will you do with the money etc) just taking the normal max 25% TFC of 268275 and crystallising the 75% for future investment and drawdown is the obvious choice surely?

Of course a pension tax obsessed Gov can upend this entirely if they mess about with eg the 2 scenarios or the max % amount for example…

ali_bear

Let's not forget that one of the political parties could make a manifesto commitment to abolish the TFC limit. Personally I think this outcome is just as likely or unlikely as it being reduced. 

magd36

cfw1994 said:

The “risk” with cash assets is that they can lose value when inflation is higher than any gains they might get (eg from MMF or “regular” interest bearing accounts).  £100 today will likely buy less than £100 ten years ago could buy 🤷‍♂️

I understand that but the risk is a reduction of 1 or 2% per year as opposed to 20% which has happened more than once in the past few years. If you can wait it out that's great but when you have to draw income you have no choice of waiting. That's what worry's me.