25% of Pension into stock&shares ISA

redhead2025

Hi I have a 2 small private pensions which I haven't paid into for years and amount about a £70k pot.  (My main pension is a civil service one which will be my retirement income). I'm 55 and thinking about taking 25% out of each private pension and putting £20k into a stocks and shares ISA. Then combining the remaining amounts into 1 private pension (although it will payout almost nothing). What are the downsides? Thanks 

Marcon

What are your objectives? Without knowing that, it's hard to comment on possible downsides

leosayer

There are a few potential downsides if...

... The charges on the ISA are higher than the pension 
... The investment choices in the ISA aren't as good as the pension
... Using up your ISA allowance stops you putting other savings into an ISA causing you to pay income tax or capital gains tax
... You die before 2027 and your estate size is above the IHT allowance
... The pensions have protected benefits which you will lose by withdrawing

Exodi

So disregarding you DB pension, you have 2x DC pension pots, totalling £140k? You are considering taking your 25% TFLS of £35k and putting £20k of it into a S&S ISA?

Couple of potential issues with this. Firstly what's happening with the other £15k? If you don't have a use for it in mind, then you're taking money out of a tax free environment and putting it in a taxable one. Secondly depending on your other income sources, it is possible you may raise place this money into a higher tax bracket than you need to.

Personally, you should consider this strategy taking into consideration your tax position for each year. You may want to consider taking the TFLS over two or more years (which neatly can go straight into an ISA allowances), and ensuring you're not paying more tax than you need to.

Combining the two pots is up to you, it might have no benefit except convenience (unless one has a higher platform fee or restricted drawdown options). 

Albermarle

If you combine the pots then it is worth noting that it is generally easier and quicker to combine them ( or transfer them into a completely new pension) before taking the 25% tax free.
Not all pension providers will even accept a transfer of crystallised funds ( that is the 75% left behind after you have taken the 25% tax free).
You might find that if the pensions were started many years ago, then they will be restricted on withdrawal options ( you need to check) and the easiest solution might be  to transfer them both to a modern pension. 

redhead2025

Exodi said:

So disregarding you DB pension, you have 2x DC pension pots, totalling £140k? You are considering taking your 25% TFLS of £35k and putting £20k of it into a S&S ISA?

Couple of potential issues with this. Firstly what's happening with the other £15k? If you don't have a use for it in mind, then you're taking money out of a tax free environment and putting it in a taxable one. Secondly depending on your other income sources, it is possible you may raise place this money into a higher tax bracket than you need to.

Personally, you should consider this strategy taking into consideration your tax position for each year. You may want to consider taking the TFLS over two or more years (which neatly can go straight into an ISA allowances), and ensuring you're not paying more tax than you need to.

Combining the two pots is up to you, it might have no benefit except convenience (unless one has a higher platform fee or restricted drawdown options). 

The 2 small pensions amount to about £70k not £150k so 25% out of each is about £17k.

redhead2025

Marcon said:

What are your objectives? Without knowing that, it's hard to comment on possible downsides

As they stand the 2 pensions are the only worth a few £ as an monthly pension. I want to try and make better use of the money. 

Marcon

redhead2025 said:

Marcon said:

What are your objectives? Without knowing that, it's hard to comment on possible downsides

As they stand the 2 pensions are the only worth a few £ as an monthly pension. I want to try and make better use of the money. 

Transferring them both to a more modern contract which permits flexible drawdown and then access tax free cash as needed, then later taxable cash, might be simpler. Nothing to stop you investing in stocks and shares within the pension - modern contracts have plenty of options.

dunstonh

redhead2025 said:

Marcon said:

What are your objectives? Without knowing that, it's hard to comment on possible downsides

As they stand the 2 pensions are the only worth a few £ as an monthly pension. I want to try and make better use of the money. 

You say £70k now.    That is £2450 p.a.   If taken at 65-67, it would be closer to £5k pa.