£780k pot how much would you drawdown each year

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  • atush wrote: »
    No maths required. Just choose ones with a dividend annual increase you estimate to beat inflation (ie 2-5%- many are around 3-4%).

    You of course need to look at longer running ITs and ones that are income based over accumultation.

    I trust that isnt out f your wheel house
    :beer:

    It is out of my wheelhouse. High fees, use of borrowing and premium/discount pricing don't attract me. I'd rather have a diversified low cost portfolio and spend capital gains and dividends.
    “So we beat on, boats against the current, borne back ceaselessly into the past.”
  • jamesd
    jamesd Posts: 26,103
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    edited 31 December 2017 at 9:24PM
    GSP wrote: »
    Agree paying no tax is the goal. I could crystallised the whole amount and taken nearly £200k tax free, but decided as wasn't going to use left it invested so it might grow a bit more. Know amounts and limits will change but based on today was hoping to take out say £16.5k tax free each year which should last 11 years.
    You have £780k. Average UK stock market performance has been around 5% plus inflation. That's £39,000 a year just to avoid it growing by more than inflation, though you'd typically want less than all of it in equities. Around 3% is £23,400 just to stand still without expecting long term to draw on the capital.

    You've accumulated a lot of money but maybe haven't yet adjusted to how much spending it'd take just to stay still.

    If you don't start taking some fairly substantial tax free lump sums soon you're destined to go over the lifetime allowance in only a few years in pot value, though no actual tax to pay until you withdraw.

    When you take a tax free lump sum that portion of your pot has the percentage of lifetime allowance used fixed at that time, protecting you from going over the LTA short term. Then there's another test on just the growth in value at age 75. You avoid that one by trying to withdraw as fast as growth or faster.

    With two people you have £40k of ISA allowance available. The start of a plan might be taking enough tax free lump sum to fund that. That crystallises £160,000 a time to get the £40k tax free, with the remaining £120k going into flexi-access drawdown to be taken at whatever rate is sensible. That'll use 16% of a million Pound LTA a year.

    Your basic rate band is another use it or lose it allowance and I suggest that for a few years at least you try to use it all to avoid the potential for higher rate tax later. You can withdraw this effectively tax free by buying enough VCTs. You get 30% relief on the VCT buying from HMRC, capped at your tax otherwise due. You have to hold for five years or repay the 30% then you can sell. Along the way VCT dividends are tax exempt and there's no CGT either. So £20k of VCT buys gets £6k of relief covering the income tax on £30k at basic rate. Given the five year restriction it's nice to do this early so the end of that is fairly close to the point when you might be running out of tax free lump sum money. Though you might want to hold for the ongoing tax exempt income. After five years of this and tax free lump sums you should be well on the way to never being hurt by the LTA. You can be fairly sure that the basic rate band will be cut by some flavours of future government so best to hedge against that risk by using it all for a while. Then you might end up never going over even a much reduced one.

    Along the way this causes your money to be in three different tax wrappers - pension, ISA and VCT - providing you a bit of protection from what future governments might do.

    Given a spouse it's also often a good idea to move some income generation to their name so their allowances can be used.
  • kidmugsy
    kidmugsy Posts: 12,709
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    GSP wrote: »
    I am four months into drawdown fund of £780k. The wife will be eligible for a fund of £150k in 4.75 years time. SPA age for me is 12 years time, my wife 15 years and we have to make 5 years contributions for full SPA.

    Suppose we take to heart jamesd's point about ensuring that you are unlikely to be caught by the LTA. There's a case for taking the full TFLS now. The pair of you put £40k into S&S ISAs and your wife exploits her Personal Allowance by investing the surplus into tax-exposed S&S (or a mixture of S&S, high interest accounts and Premium Bonds). The dividends and interest will be tax-free. Each tax year she moves a bit more into ISAs. Each year you pay the max permitted contribution into a pension for her.

    Meantime you draw maximum income from your own pension subject to avoiding higher rate tax. (If you wanted to go further you could always use jamesd's VCT strategy, but be sure to keep your annual taxable income below £100k - you don't want to start losing Personal Allowance).
    Free the dunston one next time too.
  • GSP
    GSP Posts: 883
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    Been great reading your views and thank you very much for them and not surprised by the different train of thoughts ranging from keeping cautious and protecting the fund from falls to "emptying" the fund fairly quickly and moving money into S&S ISA's keeping away from LTA penalties.

    To show you where I am, I had to look up what S&S ISA meant! I thought a pension was pretty straight forward after it was set up and running, but that does not seem to be the case. Even mentions of having more than one pension? Is that right and why have more than one pension?

    I suppose like on here you get differing opinions from financial advisers too. Without knowing mine too well I would say he was on the cautious side and how proactive he would be in doing some of the things suggested on here. His fee is % based, so is it in his best interests to keep as much money in the pension fund or would it be based on total assets irrespective of what product it was pension, ISA etc.

    Not expecting this but if they wish those suggesting I move money out as soon as possible could list what action they would take in:

    Year 1
    Year 2
    Year 3 etc

    Just be interesting to see what a plan like this would look like and a conversation that seems I need to have with my FA at some point. I see it as the more knowledge I am armed with the better.
    Before I forget, what does the term VCT that has been mentioned.
    Thanks all.
  • Linton
    Linton Posts: 17,065
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    GSP wrote: »
    .....
    To show you where I am, I had to look up what S&S ISA meant! I thought a pension was pretty straight forward after it was set up and running, but that does not seem to be the case. Even mentions of having more than one pension? Is that right and why have more than one pension?

    Many reasons for more than one pension eg
    - multiple employers
    - private pensions vs employers pension
    - old pensions with guarantees

    Often it is sensible to merge pensions, but sometimes not.
    I suppose like on here you get differing opinions from financial advisers too. Without knowing mine too well I would say he was on the cautious side and how proactive he would be in doing some of the things suggested on here. His fee is % based, so is it in his best interests to keep as much money in the pension fund or would it be based on total assets irrespective of what product it was pension, ISA etc.
    Any planning should be done on the basis of understanding all your assets. You cant make a sensible decision unless you have the full picture. Where those assets are held is really a tactical decision affected by tax considerations and convenience etc. However how the IFA (not FA!) charges is up to them.
    Just be interesting to see what a plan like this would look like and a conversation that seems I need to have with my FA at some point. I see it as the more knowledge I am armed with the better.
    I would expect a plan to consist of a general strategy with a list of what investments you hold where, how much you can expect to withdraw, and when you should begin to take benefits. Not a detailed year by year todo list. Circumstances will change over time.
    Before I forget, what does the term VCT that has been mentioned.
    Thanks all.
    A Venture Capital Trust (VCT) is a government scheme whereby investors are given tax benefits in return for investing in higher risk small companies. However the industry has been able to devise schemes that meet the letter of the VCT rules without incurring the level of risk the government envisaged as suggested by their name. So it's tax avoidance, arguably bordering on evasion - I believe some have been closed down for that reason. There are continual predictions that the government will be tightening the rules. Some of us dont share Jamesd's enthusiasm as the risks could (or should) outweigh the tax benefits.
  • Thrugelmir
    Thrugelmir Posts: 89,546
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    Linton wrote: »
    Some of us dont share Jamesd's enthusiasm as the risks could (or should) outweigh the tax benefits.

    Nor the high charges levied on many of these schemes.
  • GSP
    GSP Posts: 883
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    Thanks again all for the advice. I transferred out and using drawdown so only need the one pension.
    Does LTA affect both crystallised and uncrystallised funds?

    I am just four months into my pension fund so relatively new keeping an eye on the lump sum we took out against bills and holiday bookings. Can see I need to have a conversation with my IFA. Do you think this should wait until my annual review in August which we said we would have, though paying him he is open anytime. Is there a rush to speak before then.
    Thanks
  • MallyGirl
    MallyGirl Posts: 6,564
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    Personally I would have an earlier conversation in case there is a desire to make use of ISA contribution allowances which reset at the beginning of April.
    I’m a Senior Forum Ambassador and I support the Forum Team on the Pensions, Annuities & Retirement Planning, Loans
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  • GSP
    GSP Posts: 883
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    Again thank you for your replies.
    Mentions of me taking chunks out to put into "S&S ISA's". How much interest interest do these pay as the rates on the normal cash ISA are very low. Is the money best left where it is in my pension fund to grow more, over the longer period.

    As to LTA, does this really only come into effect if the pot exceeds £1million, or is transactions of the pot up to that figure.
    Thanks
  • Linton
    Linton Posts: 17,065
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    GSP wrote: »
    Again thank you for your replies.
    Mentions of me taking chunks out to put into "S&S ISA's". How much interest interest do these pay as the rates on the normal cash ISA are very low. Is the money best left where it is in my pension fund to grow more, over the longer period.

    As to LTA, does this really only come into effect if the pot exceeds £1million, or is transactions of the pot up to that figure.
    Thanks

    S&S ISA's dont pay interest. They are similar to pensions and can invest in almost everything a pension can. It is just the tax treatment and the contribution limits which are different. Like pensions the return depends on the investments you choose. Over the long term something like 5%/year above inflation is a reasonable average though over the short term returns can vary a lot.

    If the money is in a pension now and invested in a way you are happy with there isnt generally any reason to change. The main reason to move it into an S&S ISA would be in particular tax situations. For example if you arent a tax payer now but will be later it could be sensible to make full use of your tax allowance by drawing down some of the pension into an S&S ISA.
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