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    • shilts
    • By shilts 11th Jul 18, 10:16 PM
    • 66Posts
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    shilts
    Drawdown - Explained
    • #1
    • 11th Jul 18, 10:16 PM
    Drawdown - Explained 11th Jul 18 at 10:16 PM
    Could someone please explain to me how drawdown works . I would be looking to drawdown some of a Personal pension to get me from the ages of 60 to 67 . This would be after taking 25% tax free lump sum . Does the whole pot go into drawdown even though I will not need it all ? What happens to any unused funds not needed for drawdown , does it stay invested ? Many thanks .
Page 1
    • squirrelpie
    • By squirrelpie 11th Jul 18, 11:19 PM
    • 65 Posts
    • 29 Thanks
    squirrelpie
    • #2
    • 11th Jul 18, 11:19 PM
    • #2
    • 11th Jul 18, 11:19 PM
    Try https://www.moneyadviceservice.org.uk/en/articles/flexi-access-drawdown
    • bostonerimus
    • By bostonerimus 11th Jul 18, 11:20 PM
    • 2,368 Posts
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    bostonerimus
    • #3
    • 11th Jul 18, 11:20 PM
    • #3
    • 11th Jul 18, 11:20 PM
    In drawdown your money stays invested and, hopefully, you take dividends, interest and capital gains out to spend. Some people look to spend as little of their original pension pot as possible so that it can be passed on to heirs or because they are very nervous of running out of money, while others spend some principal so they have a higher retirement income and hope to manage their account balance to be close to zero when they die......obviously that's hard to do as people don't know exactly when they'll die or the annual return they'll get from their investments. This is where annuities have some advantages as they give you a known level of income until the day you die. However, you pay for those guarantees and you might well get less income overall than with a well managed investment portfolio.
    Misanthrope in search of similar for mutual loathing
    • dunstonh
    • By dunstonh 11th Jul 18, 11:24 PM
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    dunstonh
    • #4
    • 11th Jul 18, 11:24 PM
    • #4
    • 11th Jul 18, 11:24 PM
    This would be after taking 25% tax free lump sum .
    Do you need it up front or would it be better phased?

    Does the whole pot go into drawdown even though I will not need it all ?
    If you take the 25% up front then yes. If you dont then no.

    What happens to any unused funds not needed for drawdown , does it stay invested ?
    yes
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • Brynsam
    • By Brynsam 11th Jul 18, 11:43 PM
    • 1,676 Posts
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    Brynsam
    • #5
    • 11th Jul 18, 11:43 PM
    • #5
    • 11th Jul 18, 11:43 PM
    Check if your personal pension permits this - not all do.
    • sandsy
    • By sandsy 12th Jul 18, 8:03 AM
    • 1,390 Posts
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    sandsy
    • #6
    • 12th Jul 18, 8:03 AM
    • #6
    • 12th Jul 18, 8:03 AM
    Whatever size of lump sum you take, 3 times that amount automatically goes to a drawdown pot where it remains invested. You can then take an income from it (or not) as needed.

    Any funds not taken as tax free cash or moved to the drawdown pot also remain invested. The difference is only that the tax free cash and drawdown pot have been crystallised and tested against the lifetime allowance.
    • Triumph13
    • By Triumph13 12th Jul 18, 8:57 AM
    • 1,355 Posts
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    Triumph13
    • #7
    • 12th Jul 18, 8:57 AM
    • #7
    • 12th Jul 18, 8:57 AM
    The key term to learn is 'crystallised'. You're pension funds start off 'uncrystallised' which basically means you still have the right to 25% tax free (also some tax advantages if you die before 75).
    At any point post 55 (currently) you can opt to cyrstrallise part or all of your fund. At that point you take your 25% tax free and the other 75% becomes 'crystallised funds'. These stay sitting in the pension, invested as per your wishes, until you decide to take them out as taxable income. Try a couple of examples, assuming Personal Allowance is 12k for simplicity.
    Example 1: All at once:
    Start with 100k uncrystallised. Take the full 25% plus 12k of taxable income to use your PA. You end up with 63k of crystallised funds in the pension and 37k of cash in your pocket.
    Example 2 Start with 100k and crystallise 16k per year. After first year you have 84k of uncrystallised funds and 16k in your pocket (25% of 16k = 4k tax free, 12k crystallised and drawn). Repeat each year until money gone. This method is know as UFPLS.
    Last edited by Triumph13; 12-07-2018 at 5:34 PM.
    • Prism
    • By Prism 12th Jul 18, 12:19 PM
    • 505 Posts
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    Prism
    • #8
    • 12th Jul 18, 12:19 PM
    • #8
    • 12th Jul 18, 12:19 PM
    I have not decided which method to use myself when I retire but I ask myself what I intend on doing with the 25% tax free lump sum should I use that method. Unless I come up with a good answer to that I assume flexi-access or UFPLS will be the better option (for tax purposes)
    • Triumph13
    • By Triumph13 12th Jul 18, 5:39 PM
    • 1,355 Posts
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    Triumph13
    • #9
    • 12th Jul 18, 5:39 PM
    • #9
    • 12th Jul 18, 5:39 PM
    I have not decided which method to use myself when I retire but I ask myself what I intend on doing with the 25% tax free lump sum should I use that method. Unless I come up with a good answer to that I assume flexi-access or UFPLS will be the better option (for tax purposes)
    Originally posted by Prism
    That depends on your circumstances. The advantage of flexi access is that growth on the uncrystallised funds is sheltered in the pension. That my be a good thing, but may not matter if you could get your full 25% shifted into ISAs pretty quickly anyway.
    Cases where it might be a bad idea include where you are over the LTA, or where you need funds (eg to pay off a mortgage) but are still working and want to continue contributing.
    • SeniorSam
    • By SeniorSam 12th Jul 18, 7:01 PM
    • 1,182 Posts
    • 597 Thanks
    SeniorSam
    With good choice of funds for the uncrystallised and crystallised pension pots, the growth can help you achieve great income or security. When I retired, I crystalised only 100k and took 25k as tax free to use as I wished. The remainder has been growing ever since with only occasional drawing from the drawdown pot.

    I review funds from time to time, but since the last review mid-April, with change of funds, my pensions have added over 20k to the pots. I find that 'Funds' are less of a worry as the fund managers choose where it is invested and spread the investments wisely. If I had chosen shares, I would have far more grey hair by now.
    Good luck
    Sam
    I'm a retired IFA who specialised for many years in Inheritance Tax, Wills and Trusts. I cannot offer advice now, so my comments are just meant to be helpful.
    • shilts
    • By shilts 12th Jul 18, 7:10 PM
    • 66 Posts
    • 3 Thanks
    shilts
    Ah , right . I think I!!!8217;m starting to get it . Thankyou very much for your very helpful replies . Would I be right in saying that whatever sum is left uncrystalised you could always take 25% tax free but if you did the entire amount would become cristalised ? Would I also be correct in saying that any funds left at death that were crystalised would be subject to tax whereas if they were uncrystalised they could be inherited tax free ? Lastly , could any funds that are crystalised be invested in exactly the same products as uncrystalised , many thanks ?
    • Triumph13
    • By Triumph13 12th Jul 18, 7:36 PM
    • 1,355 Posts
    • 1,761 Thanks
    Triumph13
    Ah , right . I think I!!!8217;m starting to get it . Thankyou very much for your very helpful replies . Would I be right in saying that whatever sum is left uncrystalised you could always take 25% tax free but if you did the entire amount would become cristalised ?
    Originally posted by shilts
    Spot on You can do it in as many tranches as you like, but the equation is always that for every tranche you crystallise 25% is tax free (unless you are over LTA already) and 75% becomes crystallised.
    Would I also be correct in saying that any funds left at death that were crystalised would be subject to tax whereas if they were uncrystalised they could be inherited tax free ?
    Yes if you die before 75.
    Lastly , could any funds that are crystalised be invested in exactly the same products as uncrystalised , many thanks ?
    Indeed they can.
    Last edited by Triumph13; 12-07-2018 at 7:39 PM.
    • shilts
    • By shilts 12th Jul 18, 7:57 PM
    • 66 Posts
    • 3 Thanks
    shilts
    Thankyou Triumph13 this makes sense . So after the age of 75 crystalised or uncrystalised it all becomes taxable on death . So I guess it might make sense to take 25% and crystallise what is left before age 75 .
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