Partial drawdown management

SteveMP

I've been drawing money out of my Standard Life money purchase pot, and have not yet reached my 25% tax free limit. 
But when I make a withdrawal an amount equivalent to 3 times that withdrawal is out into a separate pot for future taxable withdrawals.
However that pot doesn't just hold 75% of my money at the time of withdrawal, it holds funds which were valued at 75% of my withdrawal, and those funds have increased in value as my overall pot has prospered.
All well and good, except that method of separation means I'm disadvantaged in terms of future tax free withdrawal amounts.
I think Standard Life should 'separate' the monetary amount, not the funds, anyone else aware of that, or similarly disadvantaged. And are there drawdown regulations which stipulate how it must be operated?

dunstonh

All well and good, except that method of separation means I'm disadvantaged in terms of future tax free withdrawal amounts.

No you are not.

pre-retirement benefit commencing, your pension fund is known as uncrystalised.     You can draw 25% TFC against uncrystallised funds.    So, when you started taking the 25%, the matching 75% is turned into crystallised funds.   You can never draw tax-free cash against crystallised funds, no matter what they grow to in the future.

I think Standard Life should 'separate' the monetary amount, not the funds, anyone else aware of that, or similarly disadvantaged. And are there drawdown regulations which stipulate how it must be operated?

You are not being disadvantaged.  It is just a misunderstanding by you.   And yes, HMRC do set the rules.

SVaz

Most pensions seem to use notional split , there are only a couple that you can actually see the different pots and thus set them up to your liking.  

I have an old Charles Stanley part crystallised Sipp and it drives me mad that I can’t see the different pots whereas my wife’s Sipp is with HL and they do split the pots so you can have different investments in each.
I don’t suppose it matters in the long run but it sure simplifies things. 

LHW99

SVaz said:

Most pensions seem to use notional split , there are only a couple that you can actually see the different pots and thus set them up to your liking.  

I have an old Charles Stanley part crystallised Sipp and it drives me mad that I can’t see the different pots whereas my wife’s Sipp is with HL and they do split the pots so you can have different investments in each.
I don’t suppose it matters in the long run but it sure simplifies things. 

Although I think HL then charges separate fees for the separate pots - so you could end up paying twice the amount in fees.

Those that don't split it except notionally tend to charge just the single set of SIPP fees.

Dazed_and_C0nfused

SteveMP said:

I've been drawing money out of my Standard Life money purchase pot, and have not yet reached my 25% tax free limit. 
But when I make a withdrawal an amount equivalent to 3 times that withdrawal is out into a separate pot for future taxable withdrawals.
However that pot doesn't just hold 75% of my money at the time of withdrawal, it holds funds which were valued at 75% of my withdrawal, and those funds have increased in value as my overall pot has prospered.
All well and good, except that method of separation means I'm disadvantaged in terms of future tax free withdrawal amounts.
I think Standard Life should 'separate' the monetary amount, not the funds, anyone else aware of that, or similarly disadvantaged. And are there drawdown regulations which stipulate how it must be operated?

You have misunderstood, you have made the choice to take 25% TFLS up front.  The remaining 75% plus any growth on it is taxable when taken out of the pension.

If you object to that you could use UFPLS.

Albermarle

LHW99 said:

SVaz said:

Most pensions seem to use notional split , there are only a couple that you can actually see the different pots and thus set them up to your liking.  

I have an old Charles Stanley part crystallised Sipp and it drives me mad that I can’t see the different pots whereas my wife’s Sipp is with HL and they do split the pots so you can have different investments in each.
I don’t suppose it matters in the long run but it sure simplifies things. 

Although I think HL then charges separate fees for the separate pots - so you could end up paying twice the amount in fees.

Those that don't split it except notionally tend to charge just the single set of SIPP fees.

Every pension that splits the pots will charge separate fees. If the charge is a % then it makes no difference whether the pot is one, or split into two. This would apply to the OPs Standard Life pension for example.

The issue is that with certain types of investments, some investment platforms operate a capped charge.
With HL the cap is applied separately to each pot, so you would see an increase in charges IF you were invested in in  shares,  ETF's and ITs.
The other investment platform that splits uncrystallised and crystallised pots is Fidelity.
Their capped charges apply to the whole platform, so there is no possibility of increased charges.

DRS1

SteveMP said:

I've been drawing money out of my Standard Life money purchase pot, and have not yet reached my 25% tax free limit. 
But when I make a withdrawal an amount equivalent to 3 times that withdrawal is out into a separate pot for future taxable withdrawals.
However that pot doesn't just hold 75% of my money at the time of withdrawal, it holds funds which were valued at 75% of my withdrawal, and those funds have increased in value as my overall pot has prospered.
All well and good, except that method of separation means I'm disadvantaged in terms of future tax free withdrawal amounts.
I think Standard Life should 'separate' the monetary amount, not the funds, anyone else aware of that, or similarly disadvantaged. And are there drawdown regulations which stipulate how it must be operated?

Excellent idea.  As you seem to be an MP why don't you mention it to the pensions minister next time you see them?  See if they'll change the rules.

As a matter of interest what would happen on your scenario if the funds dropped in value?

gm0

You are at liberty to always take the 75% at the same time as the 25% (so part taxed, part not, in year). A smaller total can generate the cashflow required.  Albeit some taxable.  Which it was always going to be - sometime. 

As others have said UPFLS.  Same thing happens uncrystallised slice becomes crystallised. The difference being retained or drawn income at time of transaction.   UFPLS all drawn. Slice disappears. Pension is smaller by one slice. But uncrystallised.  With FAD - thicker slice - tax free only.  3/4 marked for income (and tax free taken)

Where the remaining pension is untouched. Tax free cash is available up to lifetime limit for any growth.  
No tax free cash above lifetime limit.

Where it is crystallised you have had your tfc on that portion of the benefits.  And you are done.

The rules on this change regularly and the exact strategies which are optimal for income requirements, other incomes/family and pot size have changed over the past few years with the reforms to and subsequent abolition of the LTA and the new Lump Sum limit.

You cannot rely on these things being static.  The rules are what they are when you transact.  And then they change. Sometimes transitional reliefs (with strings attached) are offered.  Sometimes not.

SteveMP

I'm not confused as some suggest. 
Here's a fictitious example of the issue. 
Say I had a pot of £100k on 25 August 2022 (just a random date)
I drawdown £20k tax free.
Standard Life move £60k into my future taxable pot, leaving £20k in my drawdown pot, of which I could take £5k tax free.
Today the £80k remaining in total has now grown to £100k.
That should mean that I have £40k in my drawdown pot, from which I could take £10k tax free.
BUT, Standard Life have apportioned the 25% growth in my total pot across my tax free and taxable pots.
That means my tax free pot now has £25k in it, of which just £6.25k is tax free (i.e. lessthan the £10k stated above). And the taxable pot has £75k in it, all taxable. 

My point was that I thought the amount of £60k when I made my first drawdown, was crystallised (or to my mind frozen), not £60k worth of funds which would then grow (or reduce) over time.

So yes I am disadvantaged, no I'm not confused, and no I'm not an MP 🙂. And I fully recognise that if my funds had fallen in value then I would be in pocket so to speak. 

Above figures are fictitious for ease of explanation. I am fortunate to have significantly more in my pot, so my 'disadvantage' is greater. 

Dazed_and_C0nfused

SteveMP said:

I'm not confused as some suggest. 
Here's a fictitious example of the issue. 
Say I had a pot of £100k on 25 August 2022 (just a random date)
I drawdown £20k tax free.
Standard Life move £60k into my future taxable pot, leaving £20k in my drawdown pot, of which I could take £5k tax free.
Today the £80k remaining in total has now grown to £100k.
That should mean that I have £40k in my drawdown pot, from which I could take £10k tax free.
BUT, Standard Life have apportioned the 25% growth in my total pot across my tax free and taxable pots.
That means my tax free pot now has £25k in it, of which just £6.25k is tax free (i.e. lessthan the £10k stated above). And the taxable pot has £75k in it, all taxable. 

My point was that I thought the amount of £60k when I made my first drawdown, was crystallised (or to my mind frozen), not £60k worth of funds which would then grow (or reduce) over time.

So yes I am disadvantaged, no I'm not confused, and no I'm not an MP 🙂. And I fully recognise that if my funds had fallen in value then I would be in pocket so to speak. 

Above figures are fictitious for ease of explanation. I am fortunate to have significantly more in my pot, so my 'disadvantage' is greater. 

That is where you are getting it wrong.

The whole £80k had grown to £100k but only £20k of was that uncrystallised so only £25k is in an uncrystallised pot/section.

The rest of the growth is in a crystallised pot/section and that means it is taxable when taken out of the pension.

You cannot take further TFLS from the crystallised element (which is clearly still invested and not "frozen,") and you cannot pretend the growth on that crystallised element is attributable to the uncrystallised element.

In short you have done something perfectly normal without actually understanding the consequences.

QrizB

SteveMP said:

My point was that I thought the amount of £60k when I made my first drawdown, was crystallised (or to my mind frozen), not £60k worth of funds which would then grow (or reduce) over time.

And there's your confusion, right there.

You thought that the £60k was a fixed amount and that growth in the funds that held your £60k would be assigned to your uncrystallised pot.

But that's not how it works (ie. is not how the law is written). Growth (or loss) in the funds holding that £60k is growth of your crystallised pot, all of which is taxable.