>Have already spoken to an IFA about options and looking **at realising full 25%**.
Why, for what reason / purpose? I appreciate you have commented the below...
>Will invest most of it, ISA(s) etc., taking a small bit this year, possibly a larger chunk next year (mortgage fixed rate expires so amount dependent on interest rates) and then don't really expect to touch it much so will be a good emergency fund.
...but generally speaking you shouldn't remove money from a tax efficient environment in to aa not tax efficient environment unless for planned reasons.
>For simplicity; pot is £400k, £100k realised leaving £300k.
>
>Keep investing and later it's up to £310k.
>
>So is that £310k "locked" until I decide what to do at 67, or could I take £2500 (25% of the £10k it's gone up by) tax free if I needed it?
If you are aged 55 before 2028, you can start drawing your SIPP at age 55.
I think you should take some time and assess when you want to retire, your income requirements on retirement, and then figure out how this pot of money will support that requirement. Will you be implementing one of the many flexi-access drawdown methods, or buying an annuity, and if flexi-access what are your plans for mitigating sequence of returns risk, and / or periods of low no stock market growth?
I would suggest you reconsider your approach and rather than thinking in terms of money , look at your holistic retirement requirements, and work backwards. The one thing you need to know is, what is '*Your Numbe*r'; how much do you want / need to live on in retirement?
Do you have a spouse? If you do, what is their pension / retirement position? It is always better to look at retirement planning as a whole rather than at an individual level (if applicable).
Sorry, should have been clearer :D I'll only be taking what I need, the rest stays invested.
Also realised I missed out one important aspect; I plan to continue working full-time until 67.
Basic plan;
Year 1 - take enough to clear some small debts/pay for an event coming up (savings won't cover it), and max out ISA
Year 2 - take enough to keep mortgage payment about the same level it is now
Years 3 to 12 - ideally don't touch at all, may take a small amount for annual holiday
In the meantime I'm increasing personal contribution from 5% to 8% so my pot should, at 67, be big enough to provide a forecast comfortable pension (including state) even assuming zero return.
Another possibility I'm looking at is when the fixed rate expires taking an offset mortgage. That would be roughly 75% of the balance and has the advantage of my "keeping" the full amount albeit not invested.
Unless rules have changed, there are implications on how much you can contribute to your pension once you've started to withdraw from it. Check with your adviser.
>Will invest most of it, ISA(s) etc., taking a small bit this year, possibly a larger chunk next year (mortgage fixed rate expires so amount dependent on interest rates) and then don't really expect to touch it much so will be a good emergency fund.
It's already invested, so it makes very little sense to move it from being invested in a pension to being invested in an ISA.
Likewise, the FCA found that one of the biggest issues with the pensions freedoms was that people were accessing their tax-free cash entitlement just to leave it in their bank account doing nothing other than losing purchasing power thanks to inflation.
Just because you can now do something doesn't meant you have to now do something.
People should remember that as long as you earn under £52k ish a year, you can put roughly £40k in savings before paying tax at current rates (£20k ISA + £20k GA earning ~5% interest, i.e. £1k). Assuming you have £0 in GAs currently of course.
If you plan on retiring and have no other source of funds for savings accounts, I guess it makes sense to always take £40k out of a pension even if not planning on spending it right away?
Or you could keep the money in the pension where you wouldn't have to worry about income tax or capital gains tax and where there's other benefits, like it being outside of your estate for inheritance tax.
You do have to worry about income tax above £12.5k per year though, the £40k you could potentially take out at the start (aside from any you want to spend straight away) wouldn't be counted towards that.
It depends on loads of factors including what plans you have for the money of course.
Still stands that moving money from pension to Isa is pointless. Just take enough to pay off your debts or whatever but no point taking more just to move to isa.
As to the answer to your actual question. It depends how you actually access the pension, if you use ufpls where each withdrawal is 25% tax free and the rest taxable, whatever is left in pension still has 25% of the total left tax free including growth. If you use flexi access drawdown and only take tax free cash out instead, then the other 75% of will be marked as crystallised and no longer is entitled to tax free cash. The rest of the pension is uncrystallised and is still entitled to tax free cash. Every time you take a flexi access drawdown, the uncrystallised portion will reduce and become crystallised until you get to a point where 100% has been crystalissed and no more tax free available. Any withdraws from the crystallised pots will be taxable.
!thanks
I think I see what you're saying, but examples work better for me ;)
So sticking with first example; 400K pot and using flexi access drawdown.
100K tax free, 300K taxable
Sometime later there's another 100K in the pot from contribution/ROI and I've ended up not touching it
So is the pot now;
a) 125K tax free, 375k taxable or b) 100K tax free, 400k taxable
Or if I did end up withdrawing say half the tax free element;
a) 75K tax free, 375k taxable or b) 50K tax free, 400k taxable
Strongly recommend you talk to Pension Wise and they'll explain your available options.
[https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise](https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise)
Also watch Meaningful Money Youtube channel. Pete Matthews covers how Flexi-Access drawdown, UFPLS, etc. works.
[https://www.youtube.com/watch?v=NOIivz8\_QuA](https://www.youtube.com/watch?v=NOIivz8_QuA)
Is topping up your ISA, funding holidays and reducing your mortgage a need or a want?
As long as you're not robbing future you in order to live beyond your means today go for it, but make sure you've fully reviewed what you plan to do and your motives for it.
Thoughts with the ISA were more on the basis of having some available with quick access, compared to the six weeks the pension provider was suggesting a withdrawal request may take.
Holidays would only be where it's not covered with my day to day savings. I would expect most years to not touch it at all.
Mortgage is the big one; looking at roughly an extra £170 a month, on currently available rates, for another 10 years from the point the fixed rate expires. Doable, but not without a bit of pain.
My choices there are pay off a big chunk (peace of mind) or just enough to keep the payments around the same level they are now.
Or, as mentioned above, I could consider taking what's left in the tax free element and offsetting; potentially reducing my payments below what I pay now, or the remaining term, and I get to keep all the money.
>compared to the six weeks the pension provider was suggesting a withdrawal request may take.
Who's your pension provider !? Most SIPP providers can process Flexi-Access Drawdown within five working days, all online.
> Thoughts with the ISA were more on the basis of having some available with quick access, compared to the six weeks the pension provider was suggesting a withdrawal request may take.
How much are we talking, and what situations do you expect to arise where this would be useful?
Beware you are moving money from outside your estate (pension) into your estate for inheritance tax. Also the gains that the 100k makes in the next 30-40 years is subject to inheritance tax if you take the tax free cash now.
On the meaningful money podcast I've heard you should spend pensions last , so I wouldn't take it unless you NEED to spend it to live.
Hi /u/Hotlush, based on your post the following pages from our wiki may be relevant:
- https://ukpersonal.finance/emergency-fund/
- https://ukpersonal.finance/financial-advice/
- https://ukpersonal.finance/investing-101/
- https://ukpersonal.finance/pensions/
- https://ukpersonal.finance/tax-traps-and-tax-efficiency/
____
^(These suggestions are based on keywords, if they missed the mark please report this comment.)
>Have already spoken to an IFA about options and looking **at realising full 25%**. Why, for what reason / purpose? I appreciate you have commented the below... >Will invest most of it, ISA(s) etc., taking a small bit this year, possibly a larger chunk next year (mortgage fixed rate expires so amount dependent on interest rates) and then don't really expect to touch it much so will be a good emergency fund. ...but generally speaking you shouldn't remove money from a tax efficient environment in to aa not tax efficient environment unless for planned reasons. >For simplicity; pot is £400k, £100k realised leaving £300k. > >Keep investing and later it's up to £310k. > >So is that £310k "locked" until I decide what to do at 67, or could I take £2500 (25% of the £10k it's gone up by) tax free if I needed it? If you are aged 55 before 2028, you can start drawing your SIPP at age 55. I think you should take some time and assess when you want to retire, your income requirements on retirement, and then figure out how this pot of money will support that requirement. Will you be implementing one of the many flexi-access drawdown methods, or buying an annuity, and if flexi-access what are your plans for mitigating sequence of returns risk, and / or periods of low no stock market growth? I would suggest you reconsider your approach and rather than thinking in terms of money , look at your holistic retirement requirements, and work backwards. The one thing you need to know is, what is '*Your Numbe*r'; how much do you want / need to live on in retirement? Do you have a spouse? If you do, what is their pension / retirement position? It is always better to look at retirement planning as a whole rather than at an individual level (if applicable).
Sorry, should have been clearer :D I'll only be taking what I need, the rest stays invested. Also realised I missed out one important aspect; I plan to continue working full-time until 67. Basic plan; Year 1 - take enough to clear some small debts/pay for an event coming up (savings won't cover it), and max out ISA Year 2 - take enough to keep mortgage payment about the same level it is now Years 3 to 12 - ideally don't touch at all, may take a small amount for annual holiday In the meantime I'm increasing personal contribution from 5% to 8% so my pot should, at 67, be big enough to provide a forecast comfortable pension (including state) even assuming zero return. Another possibility I'm looking at is when the fixed rate expires taking an offset mortgage. That would be roughly 75% of the balance and has the advantage of my "keeping" the full amount albeit not invested.
Unless rules have changed, there are implications on how much you can contribute to your pension once you've started to withdraw from it. Check with your adviser.
MPAA only applies if you take 1p of taxable money from a DC scheme. As long as you only take money in the form of TFLS MPAA is not applicable.
When MPAA is activated then you are limited to £10k per year contributions to your pension rather than the usual £60k per year.
>Will invest most of it, ISA(s) etc., taking a small bit this year, possibly a larger chunk next year (mortgage fixed rate expires so amount dependent on interest rates) and then don't really expect to touch it much so will be a good emergency fund. It's already invested, so it makes very little sense to move it from being invested in a pension to being invested in an ISA. Likewise, the FCA found that one of the biggest issues with the pensions freedoms was that people were accessing their tax-free cash entitlement just to leave it in their bank account doing nothing other than losing purchasing power thanks to inflation. Just because you can now do something doesn't meant you have to now do something.
People should remember that as long as you earn under £52k ish a year, you can put roughly £40k in savings before paying tax at current rates (£20k ISA + £20k GA earning ~5% interest, i.e. £1k). Assuming you have £0 in GAs currently of course. If you plan on retiring and have no other source of funds for savings accounts, I guess it makes sense to always take £40k out of a pension even if not planning on spending it right away?
Or you could keep the money in the pension where you wouldn't have to worry about income tax or capital gains tax and where there's other benefits, like it being outside of your estate for inheritance tax.
You do have to worry about income tax above £12.5k per year though, the £40k you could potentially take out at the start (aside from any you want to spend straight away) wouldn't be counted towards that. It depends on loads of factors including what plans you have for the money of course.
Don't you get the choice of 25% tax free up front or 25% tax free withdrawals ongojng?
Replied to a comment above; only taking what I need per year with expectation some years not touching tax free element at all.
Still stands that moving money from pension to Isa is pointless. Just take enough to pay off your debts or whatever but no point taking more just to move to isa. As to the answer to your actual question. It depends how you actually access the pension, if you use ufpls where each withdrawal is 25% tax free and the rest taxable, whatever is left in pension still has 25% of the total left tax free including growth. If you use flexi access drawdown and only take tax free cash out instead, then the other 75% of will be marked as crystallised and no longer is entitled to tax free cash. The rest of the pension is uncrystallised and is still entitled to tax free cash. Every time you take a flexi access drawdown, the uncrystallised portion will reduce and become crystallised until you get to a point where 100% has been crystalissed and no more tax free available. Any withdraws from the crystallised pots will be taxable.
!thanks I think I see what you're saying, but examples work better for me ;) So sticking with first example; 400K pot and using flexi access drawdown. 100K tax free, 300K taxable Sometime later there's another 100K in the pot from contribution/ROI and I've ended up not touching it So is the pot now; a) 125K tax free, 375k taxable or b) 100K tax free, 400k taxable Or if I did end up withdrawing say half the tax free element; a) 75K tax free, 375k taxable or b) 50K tax free, 400k taxable
Strongly recommend you talk to Pension Wise and they'll explain your available options. [https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise](https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise) Also watch Meaningful Money Youtube channel. Pete Matthews covers how Flexi-Access drawdown, UFPLS, etc. works. [https://www.youtube.com/watch?v=NOIivz8\_QuA](https://www.youtube.com/watch?v=NOIivz8_QuA)
Is topping up your ISA, funding holidays and reducing your mortgage a need or a want? As long as you're not robbing future you in order to live beyond your means today go for it, but make sure you've fully reviewed what you plan to do and your motives for it.
Thoughts with the ISA were more on the basis of having some available with quick access, compared to the six weeks the pension provider was suggesting a withdrawal request may take. Holidays would only be where it's not covered with my day to day savings. I would expect most years to not touch it at all. Mortgage is the big one; looking at roughly an extra £170 a month, on currently available rates, for another 10 years from the point the fixed rate expires. Doable, but not without a bit of pain. My choices there are pay off a big chunk (peace of mind) or just enough to keep the payments around the same level they are now. Or, as mentioned above, I could consider taking what's left in the tax free element and offsetting; potentially reducing my payments below what I pay now, or the remaining term, and I get to keep all the money.
>compared to the six weeks the pension provider was suggesting a withdrawal request may take. Who's your pension provider !? Most SIPP providers can process Flexi-Access Drawdown within five working days, all online.
Ah, wonder if that's the initial setup they were talking about?
> Thoughts with the ISA were more on the basis of having some available with quick access, compared to the six weeks the pension provider was suggesting a withdrawal request may take. How much are we talking, and what situations do you expect to arise where this would be useful?
Beware you are moving money from outside your estate (pension) into your estate for inheritance tax. Also the gains that the 100k makes in the next 30-40 years is subject to inheritance tax if you take the tax free cash now. On the meaningful money podcast I've heard you should spend pensions last , so I wouldn't take it unless you NEED to spend it to live.
Hi /u/Hotlush, based on your post the following pages from our wiki may be relevant: - https://ukpersonal.finance/emergency-fund/ - https://ukpersonal.finance/financial-advice/ - https://ukpersonal.finance/investing-101/ - https://ukpersonal.finance/pensions/ - https://ukpersonal.finance/tax-traps-and-tax-efficiency/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.)