Would it be a good move to take the 25% TFLS?

KevinTHFC

I will be retiring at the end of March and will be just under the 40% tax band with my State and Defined Benefits pensions.

I also have a DC pension with 500K in it. It has done well over the last couple of years and I am concerned about it falling significantly in the first couple of years of retirement.

I am considering taking the 25% TFLS now. I could put 40K in our ISA's for this tax year in March and 40K in them both again in April leaving 45k unsheltered.

Does this sound a reasonable idea or do you think I should just leave the DC Pension alone until if and when I need to access it?

LHW99

You could just take £80k tax fre now (crystallising £240k) to fill the ISAs and crystallise the remainder in 2026-7 when it may have increased a little and remained in a tax-free account. A sort of compromise?

Assuming the provider allows partial crystallisation.

Marcon

https://forums.moneysavingexpert.com/discussion/6655516/would-it-be-a-good-move-to-take-the-25-tfls

Only you know your attitude to risk, need for ready cash etc. If you're concerned about your pot dropping in value, you could always look at moving from your current fund choices to others within your pension scheme which are less volatile, although you would of course impact on the prospects for future growth.

Linton

https://forums.moneysavingexpert.com/discussion/6655516/would-it-be-a-good-move-to-take-the-25-tfls

If you have a good reason for taking the TFLS such as actually needing all the cash in the near future then it would be a good idea. Another good reason would be to use TFLS money to build up a tax free income stream from S&S ISAs if you would otherwise be in danger of becoming a higher rate tax payer.

What is your good reason? I cannot off-hand think of a justification for taking the TFLS just to put the money into a cash ISA.

Hopefully you have a strategy for how you are going to manage your £500K for the rest of your life taking into account that large crashes will probably happen several times. It can reasonably be argued that you should already have implemented this some time ago.

daveyjp

6 weeks isn't long to plan and make such a decision. With so much income have you taken any advice from an IFA about how to managed the £500k after March?

dunstonh

Does this sound a reasonable idea or do you think I should just leave the DC Pension alone until if and when I need to access it?

You haven't given your justification for doing it.

 I am concerned about it falling significantly in the first couple of years of retirement.

Adjusting the asset mix to meet your objectives resolves that issue. Maybe bucketing your investments to suit the timescales.

I am considering taking the 25% TFLS now. I could put 40K in our ISA's for this tax year in March and 40K in them both again in April leaving 45k unsheltered.

What type of ISA?

Do you have alternative funds that would use the ISA allowance if you were not to do this?

kermchem

If your SP and DB are close to the 40% tax threshold do you have a long term plan for what you are going to do with the DC? SP will increase by at least 2.5% under triple lock, your DB may be frozen or have some inflationary increase, the 40% threshold is frozen until the next decade. Put your DB, SP and 40% threshold in a spreadhseet and work them out for 2031.

I see little chance that the ability to take tax-free cash is ever going to become more generous, but there will be annual rumours that it could be less generous. I would take the tax free cash from pension and invest it in investment ISAs in the same funds as it came from when it was in the DC. You can then ignore threats / rumours etc that the tax free cash regime will change.

Then what to do with the drawdown sum left in DC? It is probably going to get taxed at 40% if you take an income. Will it be the main pension for OH if you die first? Are you in IHT territory so that it gets taxed when you / OH die and pass it on?

The picture needs to be bigger about what to do with this DC, but get out tax-free what you can while you can.

Baldytyke88

Could you draw the 25% and open a SIPP, putting in your full allowable allowance, I believe you can also use a wife's allowance?

KevinTHFC

Many thanks for the comments. I have been too busy working to build our pots and have taken my eye of how to extract efficiently.

@Linton

If you have a good reason for taking the TFLS such as actually needing all the cash in the near future then it would be a good idea. Another good reason would be to use TFLS money to build up a tax free income stream from S&S ISAs if you would otherwise be in danger of becoming a higher rate tax payer.

I will definitely be paying 40% tax in the future when drawing down from the DC pot.
I can get 80K of any withdrawl into into S&S ISAs by April 7th, so I can take tax free cash from there when needed and also have another 50K in S&S ISAs as well.

@dunstonh


Iam concerned about it falling significantly in the first couple of years of retirement.

Adjusting the asset mix to meet your objectives resolves that issue. Maybe bucketing your investments to suit the timescales.

I am considering taking the 25% TFLS now. I could put 40K in our ISA's for this tax year in March and 40K in them both again in April leaving 45k unsheltered.

What type of ISA?

S&S

Do you have alternative funds that would use the ISA allowance if you were not to do this?

No

@kermchem

If your SP and DB are close to the 40% tax threshold do you have a long term plan for what you are going to do with the DC? SP will increase by at least 2.5% under triple lock, your DB may be frozen or have some inflationary increase, the 40% threshold is frozen until the next decade. Put your DB, SP and 40% threshold in a spreadhseet and work them out for 2031.

Everything will be taxed at 40% from 2027. I do not have a fixed plan for what to do with the DC pot

I see little chance that the ability to take tax-free cash is ever going to become more generous, but there will be annual rumours that it could be less generous. I would take the tax free cash from pension and invest it in investment ISAs in the same funds as it came from when it was in the DC. You can then ignore threats / rumours etc that the tax free cash regime will change.

I tend to agree with your POV

Then what to do with the drawdown sum left in DC? It is probably going to get taxed at 40% if you take an income. Will it be the main pension for OH if you die first? Are you in IHT territory so that it gets taxed when you / OH die and pass it on?The picture needs to be bigger about what to do with this DC, but get out tax-free what you can while you can.

My Wife will get 50%of my DB pension and has a DC pot of 160K today and her company is contributing 50K over the next financial year. She will stop working end of March 2027 and will get full SP in November 2029. Ideally she would have had a bigger DC pot and mine would be smaller but I don't think I can do much about that now. We will have less money coming in from April 27 to November 2029 but could cover that potentially with the TFLS if I take it now, or start drawing from the DC pots

poseidon1

https://forums.moneysavingexpert.com/discussion/6655516/would-it-be-a-good-move-to-take-the-25-tfls

Looking at the bigger picture outside of investment and income tax considerations, are you already significantly IHT exposed and that position has worsen with the future taxation of DC pension pots?

If so, taking TFLS to fund ISAs certainly makes sense to me In giving you greater flexibility to consider flexible IHT mitigation strategies compared to leaving the cash locked up in your Sipp/ DC pension.

Outside of IHT considerations, building up options to generate future sizeable tax free ISA income options also makes sense given your decent DB pension plus state pension will definitely make you a permanent 40% tax payer in a couple of years. Tax free ISA income will be more valuable to you compared to DC pension drawdowns.

ali_bear

https://forums.moneysavingexpert.com/discussion/comment/81886647#Comment_81886647

That bit towards the end where you mention that "will have less money coming in from April 27 to November 2029 " you probably will want to use taxable withdrawals from the DC fund to at least make full use of the basic rate tax band available to you in that period. Some UFPLS withdrawals.