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  • FIRST POST
    • GSP
    • By GSP 29th Dec 17, 10:26 AM
    • 189Posts
    • 45Thanks
    GSP
    £780k pot how much would you drawdown each year
    • #1
    • 29th Dec 17, 10:26 AM
    £780k pot how much would you drawdown each year 29th Dec 17 at 10:26 AM
    Hi,
    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.

    She has given up work and we intend to have some good holidays though keeping an eye on the fund.
    I have been reading posts regarding safe withdrawal rates etc. Some posters are cautious, but some say enjoy what you can.

    I will be having reviews with my IFA but with differing opinions out there be interesting to know how much people would withdraw each year. Excluding shopping, all regular household bills are less than £500 a month, no loans or mortgage.

    Thanks
Page 5
    • AlanP
    • By AlanP 5th Jan 18, 6:38 PM
    • 1,204 Posts
    • 866 Thanks
    AlanP
    Yes, I am asking about leaving the PCLS entirely within the SIPP. The next question was going to be "How, when you take some money from the drawdown fund, does HMRC know that you mean it to come from there and not from the PCLS, given that the drawdown fund and PCLS are all so to speak 'mixed up' in the SIPP?" but NoMore and goRt have now thrown doubt on the idea that that is even possible.

    So the alternative answer is that crystallising and taking 25% entails literally removing that 25% entirely from the SIPP. That's a bother.

    I am glad I asked the same question twice now. Is everyone on board with that answer? Fermion too?

    Thanks again.
    Originally posted by Gerbert
    That's the way it works, when you take a PCLS it is paid to you by the provider /platform.

    What you then do with it is up to you as stated above, with putting it into a S&S ISA, using the same funds as the pension if you want to, as a popular approach.

    Limit of £20k per person per tax year so can take a while to get a substantial PCLS moved into S&S ISAs.
    • Gerbert
    • By Gerbert 5th Jan 18, 7:59 PM
    • 11 Posts
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    Gerbert
    AlanP wrote

    "That's the way it works, when you take a PCLS it is paid to you by the provider/platform."

    In that case a follow-up question occurs to me, concerning the practicalities. Presumably the PCLS amount is calculated on a particular date as 25% of the entire SIPP, and presumably I am then responsible for liquidising enough of the assets in the SIPP into the cash part as I see fit, ready for the transfer. But what if, by the time I have done this, the value of the entire SIPP has gone down? Do I have to (am I allowed to?) take as tax-free cash what would then be more than 25% of the value of the SIPP at that point?

    (BTW what is the standard way of quoting previous posts on this site?)
    • AlanP
    • By AlanP 5th Jan 18, 9:13 PM
    • 1,204 Posts
    • 866 Thanks
    AlanP
    AlanP wrote

    "That's the way it works, when you take a PCLS it is paid to you by the provider/platform."

    In that case a follow-up question occurs to me, concerning the practicalities. Presumably the PCLS amount is calculated on a particular date as 25% of the entire SIPP, and presumably I am then responsible for liquidising enough of the assets in the SIPP into the cash part as I see fit, ready for the transfer. But what if, by the time I have done this, the value of the entire SIPP has gone down? Do I have to (am I allowed to?) take as tax-free cash what would then be more than 25% of the value of the SIPP at that point?

    (BTW what is the standard way of quoting previous posts on this site?)
    Originally posted by Gerbert
    BLUE QUOTE button below the post you want to quote

    I've not got to the drawdown stage myself so not sure how it works in practical terms.
    • Fermion
    • By Fermion 5th Jan 18, 11:31 PM
    • 83 Posts
    • 32 Thanks
    Fermion
    So the alternative answer is that crystallising and taking 25% entails literally removing that 25% entirely from the SIPP. That's a bother.

    I am glad I asked the same question twice now. Is everyone on board with that answer? Fermion too?
    Yes I agree - you have to take it out of the SIPP wrapper, but of course you can reinvest it in a different S&S ISA or simply a managed fund or S&S wrapper. This is what I did with my 25% lump sum, sold funds and shares to get to sufficient cash in the SIPP but then afterwards invested in other non SIPP wrapper. I assumed what you meant was to reinvest back into the same funds in a separate wrapper.

    Interestingly, if you only go for partial drawdown (less than 100% ) then your drawdown provider will move the residual drawdown pot into a separate drawdown wrapper. Your residual uncrystallised will stay in the original SIPP wrapper. I left £1000 in my SIPP and went for partial drawdown so I could continue to invest £2880/per annum in my SIPP and get tax relief.
    • GSP
    • By GSP 5th Jan 18, 11:33 PM
    • 189 Posts
    • 45 Thanks
    GSP
    Sorry guys I'm lost with the latest posts, but glad it may have hopefully helped someone.

    Overall, interesting to read earlier the suggestion to keep all the money invested, while others suggest taking out as soon as possible. What to do!

    Another question, very unlikely but say if rates shot up and annuities became very attractive to buy. Can both crystallised and uncrystallised money be used to buy these.
    Thanks
    • zagfles
    • By zagfles 6th Jan 18, 11:23 AM
    • 13,196 Posts
    • 11,201 Thanks
    zagfles
    Sorry guys I'm lost with the latest posts, but glad it may have hopefully helped someone.

    Overall, interesting to read earlier the suggestion to keep all the money invested, while others suggest taking out as soon as possible. What to do!

    Another question, very unlikely but say if rates shot up and annuities became very attractive to buy. Can both crystallised and uncrystallised money be used to buy these.
    Thanks
    Originally posted by GSP
    Yes. Generally with uncrystallised you'd take the 25% PCLS and buy the annuity with the 75%
    • Gerbert
    • By Gerbert 6th Jan 18, 2:50 PM
    • 11 Posts
    • 0 Thanks
    Gerbert
    Interestingly, if you only go for partial drawdown (less than 100% ) then your drawdown provider will move the residual drawdown pot into a separate drawdown wrapper. Your residual uncrystallised will stay in the original SIPP wrapper. I left £1000 in my SIPP and went for partial drawdown so I could continue to invest £2880/per annum in my SIPP and get tax relief.
    Originally posted by Fermion
    These 'wrappers' are purely logical constructs, correct? How the moneys are allocated to investments is unaffected by moving them from one wrapper to another? And am I right in thinking that in this case any increase in value of the investments in the new 'drawdown wrapper' are tax-free just like in the original SIPP? Is a new drawdown wrapper set up for each partial crystallisation, or can they be amalgamated? (I can't see any advantage in having lots of them)

    The realisation that I cannot leave the PCLS all invested in the SIPP has rather shifted my thinking. I had planned to take rather modest UFPLS amounts to live on each year until crystallising everything when the total pot value got close to the LTA, and then extracting enough from the drawdown fund each year until age 75 to prevent that limit being exceeded. But that gives me the problem of what to do with such a large PCLS all at once, given the £20K annual limit on S&S ISAs. Lazily I had hoped to leave it where it was.

    Now I'm inclined to think it is better to go for phased (partial) crystallisation over 5-6 years, taking enough PCLS each year to cover living expenses plus £20K to go into a S&S ISA. A back of an envelope calculation suggests the difference would be that there would be correspondingly less PCLS at the end of the period than in the UFPLS route - but it would all be safely tucked away in a S&S ISA - and correspondingly more in the drawdown fund. It should still be possible to siphon off any gains each year (at basic rate tax) to avoid LTA trouble at age 75.

    But I feel I should apologise to GSP for hijacking his/her thread like this. Once I have come to a settled conclusion about what to do I shall start one of my own, to see if anyone can unsettle it again.
    • GSP
    • By GSP 6th Jan 18, 4:40 PM
    • 189 Posts
    • 45 Thanks
    GSP
    No probs Gerbert.

    Reading many of the posts the suggestions are either to keep money invested in the fund if its not being used, or take it out as soon as possible to keep away from LTA.

    The question is which advice is right?
    • Gerbert
    • By Gerbert 6th Jan 18, 6:26 PM
    • 11 Posts
    • 0 Thanks
    Gerbert
    What I take away from all this is that (assuming one is not yet 75) the fund should be left invested unless and until it gets to the point where there is a danger of it hitting the LTA, and then should be crystallised - either in one go or bit by bit - so that you can

    (a) pull out PCLS(s) from the tax-free SIPP wrapper (into eg a tax-free ISA wrapper) so that any growth there no longer counts in pushing you towards the LTA; and

    (b) monitor the drawdown fund and each year withdraw whatever is necessary to prevent the total fund value(*) exceeding the LTA

    (*) ie not just the drawdown fund value but the total fund, including the total of the PCLS(s) and anything yet uncrystallised (plus whatever other DB entitlements one might have of course)

    And after the age of 75 the drawdown fund can be left to grow without limit without ever having to be tested against the LTA again, should you wish it to eg for tax-efficient inheritance purposes (though who knows what legislation the govt will have passed into law by then...).
    Last edited by Gerbert; 06-01-2018 at 6:27 PM. Reason: grammar etc
    • GSP
    • By GSP 6th Jan 18, 7:56 PM
    • 189 Posts
    • 45 Thanks
    GSP
    Thanks for this Gerbert.
    When would you say the danger point is of hitting the LTA.
    Thanks
    • Gerbert
    • By Gerbert 6th Jan 18, 8:44 PM
    • 11 Posts
    • 0 Thanks
    Gerbert
    Thanks for this Gerbert.
    When would you say the danger point is of hitting the LTA.
    Thanks
    Originally posted by GSP
    In post #63 of this thread, jamesd remarked that a pension fund of 81.8% of the LTA is "perilously close" (sorry, I don't know how to link to this directly). I take it that his judgement on this sort of thing is considerably better informed than my own, but FWIW that sounds about right to me

    My own experience of my own occupational pension scheme over the last two decades is that gains of 20% or more in a single year have occurred three times out of twenty, which is not that uncommon (though the largest - 30% - was to some extent a recovery from the immediately preceding financial crisis of 2007-8 which lost 17% of the value over two years, and I imagine such a high figure as 30% is unlikely to occur except in such very unusual circumstances). So anyway I reckon that if my pension pot is within 80% of the LTA in any one year, I really shouldn't be too surprised if in the next year it crashes through it: that would require a 25% increase in one year, which is unusual but not unheard of. So the point at which the fund gets to 80% of the LTA strikes me as the latest point one should want to put off crystallising at least some of the fund.

    OTOH of course, it has also happened that my pension pot has lost 20% of its value in one single year. This happened during the dotcom crash of 2000-3. In fact over those three years the fund lost 36% of its nominal value - more if you take inflation into account.

    I have no idea if my experience is typical. I suggest you look through your own records, if you still have them, to see what happened over the last 20 years or so, and use that to inform your sense of what is possible or likely.

    I read today that Jeremy Grantham of GMO apparently thinks that the current bull market might well go into overdrive in the next year or so, only to then lose fully half its value in an almighty crash that brings the world economy to its knees. The final crisis of capitalism, and the end of western democracy, or something. Who knows?

    (I tried to post a link but "as a new user" I am not permitted to. Anti-spam precaution apparently. Fair enough. You can google if you are interested)
    Last edited by Gerbert; 06-01-2018 at 8:46 PM. Reason: stylistics
    • k6chris
    • By k6chris 6th Jan 18, 9:08 PM
    • 221 Posts
    • 380 Thanks
    k6chris
    [QUOTE=Gerbert;73674475

    (I tried to post a link but "as a new user" I am not permitted to. Anti-spam precaution apparently. Fair enough. You can google if you are interested)[/QUOTE]

    https://www.bloomberg.com/news/articles/2018-01-03/gmo-s-grantham-says-stocks-could-be-heading-for-a-melt-up
    EatingSoup
    • Gerbert
    • By Gerbert 6th Jan 18, 9:09 PM
    • 11 Posts
    • 0 Thanks
    Gerbert
    That's it, thanks!
    • GSP
    • By GSP 6th Jan 18, 11:50 PM
    • 189 Posts
    • 45 Thanks
    GSP
    Thanks very much Gerbert. Seems I don't have to do anything right now then.

    With so many so called experts getting forecasts wrong now it seems, trying to forecast up to 10 years out when their six month attempt is wrong, I am pretty sceptical of these now, but they can't be ignored.
    • Gerbert
    • By Gerbert 7th Jan 18, 10:03 AM
    • 11 Posts
    • 0 Thanks
    Gerbert
    On further reflection though it strikes me that if one intends to phase one's crystallisations over a number of years (as I am inclined to think I should do myself), waiting for the total value to go above 80% of the LTA may be a bit late. That's because a high, say 20%, rise in value in the following year (unusual, but by no means unthinkable) would put you immediately on 96% and give you no choice but to crystallise everything immediately, contrary to your plan.

    Once again, reviewing the ups and down of my own pension fund over the last 20 years (as they say: your experience may differ), I see that over no four-year period has the total rise in value been more than 33%, EXCEPT in the immediate aftermath of a crash (dotcom and financial). (BY "immediate aftermath" I mean the following two years, where the market is - I take it - reconsidering its recent negative overreaction). So given that we are not in that immediate aftermath position, beginning a phased drawdown over 4 years when the fund gets to 75% of the LTA should mean that one can complete it without hitting the LTA. No guarantees though, obvs.

    That agrees with jamesd's suggestion in the post I referenced before: "I suggest you consider crystallising with 25% of the lifetime allowance each year", except that I think he meant 25% of the uncrystallised funds, given his analysis just before that.

    What I don't understand though is why he then recommended, in the event of a big drop in the market, crystallising everything that remains immediately. I should have thought that if that happened, you could relax, as your fund would then be significantly further from the LTA and the pressure to crystallise would be correspondingly reduced.

    jamesd seems to have left the thread, but maybe someone else could explain what he was getting at there?
    Last edited by Gerbert; 07-01-2018 at 10:05 AM. Reason: spelling
  • jamesd
    Does this mean I actually have to spend a million pounds before I was taxed for exceeding the allowance?
    Originally posted by GSP
    No, the tax is either at crystallisation or age 75. If you have any uncrystallised money at 75 that's also checked against the allowance, like any growth in value of crystallised bits. So you can't avoid the lifetime allowance by not crystallising. That one is BCE 5b, here's the full list of BCEs.

    Also, would should my IFA know all this information you have posted? He will be retiring himself in the next five years, maybe sooner. I wonder what his appetite is for coming up with advice of this magnitude, and a plan.

    As for westv's comment, I should be the one awake all night.
    Originally posted by GSP
    He'll know this and more. Probably hasn't yet run the numbers to recognise that you have a lifetime allowance issue to solve. At least you have a good problem.

    This is an area too complex for a forum and you should seek professional advice, use pension Wise's free facility or read and digest this:
    https://www.gov.uk/guidance/pension-schemes-value-your-pension-for-lifetime-allowance-protection
    Originally posted by goRt
    Any mistakes were corrected. This stuff isn't too complicated for this forum. GSP is ineligible for Individual Protection 2016 but might be eligible for Fixed Protection 2016 and if eligible that would preserve the lifetime allowance at £1.25 million. Close timing since GSP was made redundant in early 2016. GSP, did you have any pension contributions made by anyone in your name on or after 6 April 2016?

    I did post up the correct position earlier in this thread but was ignored.
    Originally posted by goRt
    I doubt that your post was ignored, there just wasn't a need to write more about it because it was right.

    The simple/safe approach is to take your 25% PCLS now which crystallises your entire pot. Then bleed off from the SIPP all the fund growth each and every year. That way you avoid the issue on the LTA test at 75. This applies to people with 'large' funds like yourself.
    Originally posted by goRt
    That unnecessarily increases the amount that hasto be managed outside the pension immediately. GSP still has enough margin available to spread it out a bit, particularly if eligible for FP2016. It's not too bad, just not really necessary.

    Overall, interesting to read earlier the suggestion to keep all the money invested, while others suggest taking out as soon as possible. What to do!
    Originally posted by GSP
    Taking it out of the pension doesn't mean not investing it, just investing the withdrawn money outside the pension. You can and should do both withdrawing and keeping it invested.

    if rates shot up and annuities became very attractive to buy. Can both crystallised and uncrystallised money be used to buy these.
    Originally posted by GSP
    Yes but you wouldn't do it. The tax free lump sum ca be used to buy a non-pension annuity where most of the income is tax free. You'd lose that tax benefit if you bought with uncrystallised money.
    • GSP
    • By GSP 7th Jan 18, 10:36 AM
    • 189 Posts
    • 45 Thanks
    GSP
    Hey, and thanks jamesd.
    No there haven't been any contributions since April 2016.
  • jamesd
    Seems I don't have to do anything right now then.

    With so many so called experts getting forecasts wrong now it seems, trying to forecast up to 10 years out when their six month attempt is wrong, I am pretty sceptical of these now, but they can't be ignored.
    Originally posted by GSP
    You do. The problem with predictions is that they are about the future. I know that at current US equity valuations there's at least a 25% chance a year of a big drop. The problem is that doesn't say when, it's just a probability. There also has to be some sort of triggering event.

    Since I can't know when, hedging is needed. A big drop is great for someone at risk from the lifetime allowance. But I can't know whether one will come along at a convenient time. So in case the not soon enough happens I suggest doing quite a bit each year. That way you're in decent shape whichever way the future turns out.
    Last edited by jamesd; 07-01-2018 at 10:45 AM.
  • jamesd
    No there haven't been any contributions since April 2016.
    Originally posted by GSP
    Excellent! Time for you to read up on and apply for Fixed Protection 2016 to get back to the £1.25 million lifetime allowance. The existing percentage used can be recalculated once you tell the pension scheme your registration number for it. Very useful extra margin for you.

    Carry on with starting to crystallise more, though.

    And of course discuss with your IFA that you think you're eligible and want to apply. If they don't see why, explain about growth and the age 75 test.
  • jamesd
    What I don't understand though is why he then recommended, in the event of a big drop in the market, crystallising everything that remains immediately. I should have thought that if that happened, you could relax, as your fund would then be significantly further from the LTA and the pressure to crystallise would be correspondingly reduced
    Originally posted by Gerbert
    Markets bounce back up again, typically within a year or three. So to get the lifetime allowance benefit you need to crystallise during the down time, not wait. Which means crystallising all that remains if a drop comes along at a convenient time.
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