Partial drawdown management

DRS1

There is actually an issue here (vaguely related to the OP's thoughts)

Some providers use percentages when you crystallise part of your pot whereas others allow you to allocate specific investments to each bit of the pot (crystallised and uncrystallised).

For the percentage ones any growth in the whole pot is spread evenly across crystallised and uncrystallised bits.

But if you have separately invested pots you can get different growth rates on the crystallised and the uncrystallised pots.  So in the example if you put the £20k uncrystallised pot into a mythical investment which doubles over the year your £20k becomes £40k.  If you put the £60k crystallised pot into something that does not increase by a penny then that is still £60k.  The total is £100k but for the physical split providers the TFLS can be 25% of £40k.  For the percentage providers it is 25% of £25k.

Of course if anyone knows where the mythical investment can be found could they let me know.

NoMore

DRS1 said:

There is actually an issue here (vaguely related to the OP's thoughts)

Some providers use percentages when you crystallise part of your pot whereas others allow you to allocate specific investments to each bit of the pot (crystallised and uncrystallised).

For the percentage ones any growth in the whole pot is spread evenly across crystallised and uncrystallised bits.

But if you have separately invested pots you can get different growth rates on the crystallised and the uncrystallised pots.  So in the example if you put the £20k uncrystallised pot into a mythical investment which doubles over the year your £20k becomes £40k.  If you put the £60k crystallised pot into something that does not increase by a penny then that is still £60k.  The total is £100k but for the physical split providers the TFLS can be 25% of £40k.  For the percentage providers it is 25% of £25k.

Of course if anyone knows where the mythical investment can be found could they let me know.

Alas I think you may detract from the OP and confuse him further, but there is an interesting debate here about the pros and cons of both nominal split and different pots for uncrystallised/crystallised amounts.

Which platform for separate crystallised and uncrystallised pots? — MoneySavingExpert Forum

HappyHarry

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. 

In this case, when you drew £20,000 tax free cash, you created two pots;
1. An uncrystallised pot with £20,000 from which you could still take 25% tax-free cash.
2. A crystallised pot with £60,000 from which you have drawn all your tax-free cash.

If you left both pots invested, and they grew by 25%, then you will now have;
1. An uncrystallised pot of £25,000 of which 25% can be drawn as tax-free cash.
2. A crystallised pot of £75,000 from which you have drawn all your tax free cash.

Many pension providers will allow you to invest each part of your pension in different funds if you so wish. All pension providers will be able to tell you the split between your crystallised and uncrystallised pots.

In simple terms, you are not permitted to take additional tax-free cash from the growth element of the crystallised pot.

Triumph13

Take a really extreme case.  You had £100,001 in your pension.  You crystallised £100k, taking £25k tax free, and left the rest invested - £75k cryatallised and £1 uncrytsallised.  A few years later, your investments have doubled.  You really thought that all £75,001 of growth should be attributed to the £1 uncrystallised?

SteveMP

Thanks to everyone for the comments. I didn't expect so many different views and even now I'm still not convinced the issue is fully understood. 
I've trawled through HMRC web pages on pension drawdown, and I can't see a reference to the specifics as some have suggested is written in 'law'.
There are plenty of references to specific amounts and percentages at the time of drawdown, but I couldn't see anything about how my example should be handled. 
Can anyone share a link to specific web pages(s) please?

MeteredOut

SteveMP said:

Thanks to everyone for the comments. I didn't expect so many different views and even now I'm still not convinced the issue is fully understood. 
I've trawled through HMRC web pages on pension drawdown, and I can't see a reference to the specifics as some have suggested is written in 'law'.
There are plenty of references to specific amounts and percentages at the time of drawdown, but I couldn't see anything about how my example should be handled. 
Can anyone share a link to specific web pages(s) please?

From my reading, the only 2 views in this thread are yours and those that have responded to you. It is complicated, but I'd suggest re-reading those responses, which do explain why what you call an issue is not an issue, but how things work based on how you chose to draw down your pension.

SteveMP

A link to the relevant 'law' web page(s) would be helpful, if there is one 

DRS1

You probably want sections 211 and 212 of the FA2004 and Schedule 28 para 8A

Some links
Finance Act 2004
Finance Act 2004
Finance Act 2004

So s211 says 

The value of the member’s crystallised rights under [F1an arrangement] on any date is the aggregate of—

......, and

(c)the aggregate of the amount of the sums, and the market value of the assets, representing the member's flexi-access drawdown fund in respect of the arrangement on that date (if any).

S 212 says

(1) Rights are uncrystallised if the member is not entitled to the present payment of benefits in respect of the rights.

(2)The member is to be treated as entitled to the present payment of benefits in respect of the sums and assets representing the [F1member's drawdown pension fund] [F2or the member's flexi-access drawdown fund]

(3) The value of the member’s uncrystallised rights under [F3an arrangement] on any date is to be calculated—

(b)in accordance with subsection (5) if the arrangement is a money purchase arrangement [F4that is neither a cash balance arrangement nor a collective money purchase arrangement],

(5) If this subsection applies, the value of the member’s uncrystallised rights under the arrangement on the date is the aggregate of—

(a)the amount of such of the sums held for the purposes of the arrangement on the date as represent those rights, and

(b)the market value of such of the assets held for the purposes of the arrangement on the date as represent those rights.

It would be interesting to know if the word "sums" is defined at all.  I assume it means cash sums and is used separately from assets because you don't need to value cash.