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  • FIRST POST
    • Skinnydad
    • By Skinnydad 6th Apr 18, 9:39 AM
    • 63Posts
    • 3Thanks
    Skinnydad
    Tax free lump sum - is there a better way?
    • #1
    • 6th Apr 18, 9:39 AM
    Tax free lump sum - is there a better way? 6th Apr 18 at 9:39 AM
    If you have a SIPP of 400K you can take 100K tax free (25%)

    Is there a more cost-effective method of taking this money. i.e. could you take (say) 2K per month for 4 years tax free?Does this make sense as you would already have the 100K in the bank for instant access to 2K per month for approx. 4 years.With interest rates the way they are youd not make a great deal.

    Is there method in my madness, I was thinking that by only taking the 2K from your fund each month you would have a greater sum invested with the potential of earning a greater return on the larger pot. Possibly by the end of 4 years you would have more than the 300K in your fund or is my thinking skewed.

    Any comments appreciated.. thank you.
Page 1
    • Paul_Herring
    • By Paul_Herring 6th Apr 18, 10:26 AM
    • 6,376 Posts
    • 3,077 Thanks
    Paul_Herring
    • #2
    • 6th Apr 18, 10:26 AM
    • #2
    • 6th Apr 18, 10:26 AM
    With interest rates the way they are you!!!8217;d not make a great deal.
    There's nothing that says you're only restricted to cash savings accounts in which to put the money.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
    • AnotherJoe
    • By AnotherJoe 6th Apr 18, 10:33 AM
    • 10,628 Posts
    • 12,175 Thanks
    AnotherJoe
    • #3
    • 6th Apr 18, 10:33 AM
    • #3
    • 6th Apr 18, 10:33 AM
    If you have a SIPP of 400K you can take 100K tax free (25%)

    Is there a more cost-effective method of taking this money. i.e. could you take (say) 2K per month for 4 years tax free?Does this make sense as you would already have the 100K in the bank for instant access to 2K per month for approx. 4 years.With interest rates the way they are youd not make a great deal.

    Is there method in my madness, I was thinking that by only taking the 2K from your fund each month you would have a greater sum invested with the potential of earning a greater return on the larger pot. Possibly by the end of 4 years you would have more than the 300K in your fund or is my thinking skewed.

    Any comments appreciated.. thank you.
    Originally posted by Skinnydad
    Your thinking is skewed.
    1. The 100k could be invested same as it was inside the SIPP. You just assumed it would be held as cash.
    2. "By the end of 4 years you might have less than the 300k" in your fund. I've got about 10% less in mine since the start of the year. depends what teh markets can do.
    3. depends on your personal circumstances, what other money you have, what cash buffer, what ISA contributions you can make, and so on.
    • Brynsam
    • By Brynsam 6th Apr 18, 10:33 AM
    • 1,607 Posts
    • 1,163 Thanks
    Brynsam
    • #4
    • 6th Apr 18, 10:33 AM
    • #4
    • 6th Apr 18, 10:33 AM
    Have you looked at how much it would cost you to drawdown 2K each month in terms of provider fees?
    • dunstonh
    • By dunstonh 6th Apr 18, 10:42 AM
    • 94,552 Posts
    • 62,523 Thanks
    dunstonh
    • #5
    • 6th Apr 18, 10:42 AM
    • #5
    • 6th Apr 18, 10:42 AM
    If you have a SIPP of 400K you can take 100K tax free (25%)
    Just because you can, doesn't mean you should.

    Is there a more cost-effective method of taking this money. i.e. could you take (say) 2K per month for 4 years tax free?
    There are multiple methods.

    Does this make sense as you would already have the 100K in the bank for instant access to 2K per month for approx. 4 years.With interest rates the way they are you!!!8217;d not make a great deal.
    If you don't need the money, then why take it out at all at this stage?

    What you do should match your objectives and needs, requirements and tax position.
    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.
    • Audaxer
    • By Audaxer 6th Apr 18, 12:50 PM
    • 1,284 Posts
    • 772 Thanks
    Audaxer
    • #6
    • 6th Apr 18, 12:50 PM
    • #6
    • 6th Apr 18, 12:50 PM
    With a SIPP you still get the 25% tax free element whether or not you take it at the start. You may be getting confused with a Defined Benefit (final salary) pension where if you want a tax free lump sum, you need to take it at the start.
    • Skinnydad
    • By Skinnydad 9th Apr 18, 2:37 PM
    • 63 Posts
    • 3 Thanks
    Skinnydad
    • #7
    • 9th Apr 18, 2:37 PM
    • #7
    • 9th Apr 18, 2:37 PM
    Thanks to all I'll need to re-think this and yes my apologies re skewed thinking. I didn't realise the differences in the 25% tax free element. 60 this year and some of my pensions are coming in and I'm just trying to decide what's the best options that's all. I understand that the value of the pension can fluctuate depending on the current market situation. My OH thinks it's always better to take the money and at least if the a** falls out of the fund you'll at least have that block of money. Plus I think she's quite worried that the government will stop the 25% tax free portion. as I said let me get my head around this and get back in touch. Thanks again to all who contributed..
    • Economic
    • By Economic 9th Apr 18, 2:56 PM
    • 305 Posts
    • 309 Thanks
    Economic
    • #8
    • 9th Apr 18, 2:56 PM
    • #8
    • 9th Apr 18, 2:56 PM
    With a SIPP you still get the 25% tax free element whether or not you take it at the start. You may be getting confused with a Defined Benefit (final salary) pension where if you want a tax free lump sum, you need to take it at the start.
    Originally posted by Audaxer
    What if you have a pension that is a combination of defined benefit (final salary and career average) and defined contribution (where one has also made additional contributions). The lump-sum from the defined benefit part and all the money from the defined contribution part could be taken as a tax-free lump-sum on retirement (less than 25% of the total pot). Could one delay taking the money from the defined contribution part (possibly transfer it to a SIPP) and still get it tax-free at a later date (if within 25% of the total pot)?
    • dunstonh
    • By dunstonh 9th Apr 18, 3:01 PM
    • 94,552 Posts
    • 62,523 Thanks
    dunstonh
    • #9
    • 9th Apr 18, 3:01 PM
    • #9
    • 9th Apr 18, 3:01 PM
    and some of my pensions are coming in and I'm just trying to decide what's the best options that's all.
    Whilst some pensions have a fixed scheme age, others (such as most money purchase schemes) have no fixed date and you dont have to take them. If you dont need the money, then leave them invested.

    My OH thinks it's always better to take the money and at least if the a** falls out of the fund you'll at least have that block of money.
    Equally, if you take the money out, you miss out on the growth that occurs (growth periods outnumber negative periods).

    Plus I think she's quite worried that the government will stop the 25% tax free portion.
    Despite the 25% TFC being introduced 30 years ago and not being reduced once since. And all the times since then that the Govt have reviewed the tax free cash, they have actually increased its availability. (such as SERPS/S2p contracted out plans getting 25% TFC when they didnt have any before)

    Plus, the tax-free cash stimulates the economy. Taking it away would damage the economy.

    Also, as tax benefits go, it is the least tax hit to the treasury of all the tax free benefits of pensions. Salary sacrifice now costs more. Tax relief towers over all other things.

    It has never made any consultation paper or Govt source that there is even a hint of TFC going away.
    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.
    • jim8888
    • By jim8888 9th Apr 18, 3:29 PM
    • 56 Posts
    • 41 Thanks
    jim8888
    Dunstonh thanks for those observations on the TFC, which is something I've worried about the government "reviewing" downward. Looks like the odds are they won't and, if they did, hopefully they'd signpost it early.
    • AnotherJoe
    • By AnotherJoe 9th Apr 18, 3:40 PM
    • 10,628 Posts
    • 12,175 Thanks
    AnotherJoe
    Thanks to all I'll need to re-think this and yes my apologies re skewed thinking. I didn't realise the differences in the 25% tax free element. 60 this year and some of my pensions are coming in and I'm just trying to decide what's the best options that's all. I understand that the value of the pension can fluctuate depending on the current market situation. My OH thinks it's always better to take the money and at least if the a** falls out of the fund you'll at least have that block of money. Plus I think she's quite worried that the government will stop the 25% tax free portion. as I said let me get my head around this and get back in touch. Thanks again to all who contributed..
    Originally posted by Skinnydad
    If you(or your wife) think you know what the markets will do you can also just sell 25% of the fund and leave it as cash inside the SIPP. Or indeed more than 25%. You could sell all the investments and leave them as cash.

    Statistically that would not be a good thing to do but there might be reasons for putting some or all in cash.

    You dont need to take it out apart from the somewhat paranoid thought that the 25% TFLS will be abolished, which seems incredibly unlikely. Many other things are far more likely if govt wants to raid raise more money in a way that will annoy fewer people voters such as abolishing or amending high rate tax relief for example.
    • Skinnydad
    • By Skinnydad 9th Apr 18, 9:26 PM
    • 63 Posts
    • 3 Thanks
    Skinnydad
    THanks Dunstonh and AnotherJoe for your observations..
    • kidmugsy
    • By kidmugsy 9th Apr 18, 10:00 PM
    • 11,599 Posts
    • 8,124 Thanks
    kidmugsy
    You could always just withdraw TFLS at the rate that lets you both fill an ISA each year.
    Free the dunston one next time too.
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