Lump-sum allowance and pension growth

DRS1

I guess it all depends on where you are against the LSA. If there is plenty of headroom then using UFPLS makes more sense than crystallising the whole lot at once because you have scope to grow the TFLS with future investment returns (Though it does always strike me that people are very confident their future investment returns will be positive - personally I am more of a pessimist).

If you are already on or over the LSA then I would personally crystallise enough to get the whole LSA out of the pension as TFLS. The pessimist doesn't hold out much hope of the LSA being increased but you could leave any excess uncrystallised just in case.

In the opening post there is still room to go before the LSA is hit so crystallising the lot now seems to be burning a bridge unless there will be more contributions coming into the pension. Crystallising enough to put £20k chunks of TFLS in an ISA (and doing the premium bonds if that is your fancy) seems sensible though - the sooner the better.

Triumph13

"you have scope to grow the TFLS with future investment returns" again, this is ONLY relevant to the extent that you would otherwise be paying tax on the growth of that investment outside the pension wrapper.

If you can get 25% out tax free, there is no innate gain from waiting until it is 25% of a bigger number, compared to getting it out now and investing it outside. The only thing that matters is any tax that you pay on growth in a GIA before you can get it sheltered again.

I took it all at age 55, converted our cash ISAs to S&S ones to shelter most of it, and replaced the cash holding with premium bonds. That was only five years ago, which brings me to another important point. There really is no way of knowing how the pension rules are going to change. Taking the TFLS up front has turned out to be a good idea because of the £268k limit, but I actually did it to minimise the Lifetime Allowance charge!

DRS1

If you can get 25% out tax free, there is no innate gain from waiting until it is 25% of a bigger number, compared to getting it out now and investing it outside. The only thing that matters is any tax that you pay on growth in a GIA before you can get it sheltered again.

That is true but you also need to keep in mind the management and monitoring of a GIA which is more than that required with a SIPP (or an ISA). In an ideal world you would be making use of the £3k annual allowance each year for CGT. Maybe that is all taken care of when you sell £20k of your investment to put the £20k into your S&S ISA. But what if it isn't and you only have £1k of gain. Are you going to find another investment to buy so you can realise the spare £2k of allowance? Not an issue but what many people do when taking their TFLS and investing it outside the SIPP is stick it in the same investment it was in inside the SIPP - that way they can be sure they are getting the same investment performance as they would have had if they did not take the TFLS. If you start monkeying with the investments well who knows. Before you know it you will be buying ILGs and not getting anything like the same performance.

Oh and of course there are accumulation units to think about - easy in a SIPP but maybe a headache outside.

On the other hand maybe you make more than £3k of gain - you will have to report it to HMRC. Maybe you don't self assess and have to work out how to do the report online.

Life can be a lot simpler if the money stays in the SIPP.

Yes the law may change. I don't know about you but when they abolished the lifetime allowance I did think about the things I might have done differently if I had known that was going to happen. It sounds as if you don't have a similar reaction to the steps you took because of the LTA.

And it is true that if you worry about the tax on the TFLS you have taken out of your pension then there are things other than ISAs which you can use - premium bonds never occurred to me but low coupon gilts did get a fair chunk of my TFLS. There may be other tax beneficial things like VCTs EIS or SEIS but they would almost certainly be a very bad place to put money you want to see again.

Triumph13

Very true about the potential extra admin.

I don't know about you but when they abolished the lifetime allowance I did think about the things I might have done differently if I had known that was going to happen. It sounds as if you don't have a similar reaction to the steps you took because of the LTA.

When they announced it, my main reaction was happiness that I'd dodged about £100k of LTA charge. I briefly thought that, if I'd known, I would have put more in. Good market returns plus frozen tax thresholds, then the IHT changes, now mean I would probably have been better to have put less in. You pays your money and you takes your choice.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82124613#Comment_82124613

One of my priorities is to avoid extra admin, so I stick with ISAs, pensions and savings accounts. I think this is easily possible even if you are quite financially comfortable. Although I understand that someone more seriously wealthy can not avoid the extra admin.