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Savings and Investments thread
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It's very technical & probably not something easily explained on here......but I'll give it a go.PragueAddick said:Speaking of SIPPs, I've been meaning to ask for a while how drawdown works. I have, of course, read H-L's blurb on it, and guess what, I'm not clear as a result about a fairly fundamental question
I understand that I can take out max 25%. I don't understand whether I can take it all out in one chunk or not. If not, how much can I take out at any one time? Presumably you have to make a decision on a certain day that you are opting for drawdown, as otherwise how can it be defined, the size of the withdrawal amount that constitutes 25%?
Let's assume you have £400k in your Pension plan. Taking any money out is known as a "Crystallization Benefit Event" and there are a number of different ones depending on how you want to structure payments, but I'll go through the 2 main ones here.
You do not have to take out all the 25% tax-free element in one go & can withdraw as much or as little of the 25% as you like until the full 25% has been used.
Example 1.
You want to take all 25% out on day 1 when you turn 60. Before you take any money the funds are known as being "uncrystalised". Once you take the 25% (in this case £100k) the remaining £300k is "crystallised" and therefore no further tax free amounts can be taken. Your £300k can stay invested (which it should) and will fluctuate as before. So say 5 years later at age 65 you want to start drawing out an income, then you start taking taxable amounts from the "crystallised" pot, hoping that it might now be worth in excess of the £300k.
Example 2
You only want to take out £50k from your £400k pension pot at age 60. (This is where it become technical & tricky to explain).
£200k of your pension pot is "crystallised", so that the maximum tax free amount you can take is (25%x£200k) £50k. The remaining £200k is left "uncrystalised" so that you can take a further 25% from it at a later date.
5 years later you want to take your pension (as in example 1). You now have 2 pension pots, 1 crystallised & 1 not. Assuming both have grown by 5% pa (therefore by 25% over the 5 years) you could have:
1) a crystallised pot of £187,500
2) an uncrystalised pot of £250,000
Pot 1 you can only take taxable benefits from but pot 2 you can still take a 25% tax free amount......in this case £62,500 and then the rest is taxable.
There are many other examples but I wont go into them now. Suffice to say that anyone who has a personal pension nowdays should be making sure that it can facilitate being a "Flexi-acces Drawdown" plan. Many can't & thus why advisers 😉 are always trying to get clients in old pp's or Stakeholder plans to switch into a new plan.
Another benefit (apart from the flexibility of staged payments) is that upon death (before age 75) then the remaining fund can be inherited TAX FREE by a spouse or dependants. After age 75 tax will be charged at the beneficiaries own tax rate. You can see why an annuity might not be quite the right product anymore when retiring.
One final thing. We talk about the 25% being "tax-free" and it has been known as this since forever. But HMRC changed the wording a few years back and now any initial lump sum taken from a pension is called a "Pension Commencement Lump Sum" or PCLS for short. I wonder why they dropped the words "tax-free.....? You have been warned.
HTH.5 -
A good summary, as to the last point, the day I get to 57 i'm taking 25% although as thats 9 years away i'm not convinced it'll be tax free by then anyway, but here's hoping.golfaddick said:
It's very technical & probably not something easily explained on here......but I'll give it a go.PragueAddick said:Speaking of SIPPs, I've been meaning to ask for a while how drawdown works. I have, of course, read H-L's blurb on it, and guess what, I'm not clear as a result about a fairly fundamental question
I understand that I can take out max 25%. I don't understand whether I can take it all out in one chunk or not. If not, how much can I take out at any one time? Presumably you have to make a decision on a certain day that you are opting for drawdown, as otherwise how can it be defined, the size of the withdrawal amount that constitutes 25%?
Let's assume you have £400k in your Pension plan. Taking any money out is known as a "Crystallization Benefit Event" and there are a number of different ones depending on how you want to structure payments, but I'll go through the 2 main ones here.
You do not have to take out all the 25% tax-free element in one go & can withdraw as much or as little of the 25% as you like until the full 25% has been used.
Example 1.
You want to take all 25% out on day 1 when you turn 60. Before you take any money the funds are known as being "uncrystalised". Once you take the 25% (in this case £100k) the remaining £300k is "crystallised" and therefore no further tax free amounts can be taken. Your £300k can stay invested (which it should) and will fluctuate as before. So say 5 years later at age 65 you want to start drawing out an income, then you start taking taxable amounts from the "crystallised" pot, hoping that it might now be worth in excess of the £300k.
Example 2
You only want to take out £50k from your £400k pension pot at age 60. (This is where it become technical & tricky to explain).
£200k of your pension pot is "crystallised", so that the maximum tax free amount you can take is (25%x£200k) £50k. The remaining £200k is left "uncrystalised" so that you can take a further 25% from it at a later date.
5 years later you want to take your pension (as in example 1). You now have 2 pension pots, 1 crystallised & 1 not. Assuming both have grown by 5% pa (therefore by 25% over the 5 years) you could have:
1) a crystallised pot of £187,500
2) an uncrystalised pot of £250,000
Pot 1 you can only take taxable benefits from but pot 2 you can still take a 25% tax free amount......in this case £62,500 and then the rest is taxable.
There are many other examples but I wont go into them now. Suffice to say that anyone who has a personal pension nowdays should be making sure that it can facilitate being a "Flexi-acces Drawdown" plan. Many can't & thus why advisers 😉 are always trying to get clients in old pp's or Stakeholder plans to switch into a new plan.
Another benefit (apart from the flexibility of staged payments) is that upon death (before age 75) then the remaining fund can be inherited TAX FREE by a spouse or dependants. After age 75 tax will be charged at the beneficiaries own tax rate. You can see why an annuity might not be quite the right product anymore when retiring.
One final thing. We talk about the 25% being "tax-free" and it has been known as this since forever. But HMRC changed the wording a few years back and now any initial lump sum taken from a pension is called a "Pension Commencement Lump Sum" or PCLS for short. I wonder why they dropped the words "tax-free.....? You have been warned.
HTH.
It still surprises me that many people still take the annuity route.0 -
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Thanks. Interesting.Rob7Lee said:0 -
Always had Rob7Lee down as a lot older and more mature than 48 , proper grown up, nearer 60Rob7Lee said: the day I get to 57 i'm taking 25% although as thats 9 years away
I say this as a 50 year old who is nearer 27 (mentally) and 67(physically)8 -
I see Tullow Oil up very strongly today, @Rob7Lee you still holding shares in these as you tipped them early part of this year?SP though is still well down on this years high as are most Oil companies,I have a few UJO shares that ain’t doing much at all.0
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I have been listening/watching quite a few webinars from various Investment Houses recently & one of the main reasons why the UK stockmarket has lagged behind other major markets is because the FTSE is heavily weighted towards banks and oil companies - neither of which are currently in favour and been hit hard by the pandemic & associated recovery measures. In contrast, the S&P is heavily weighted to tech stocks & the big 5 (Facebook, Amazon, Apple, Netflix & Google) make up a large portion of that.Daarrzzetbum said:I see Tullow Oil up very strongly today, @Rob7Lee you still holding shares in these as you tipped them early part of this year?SP though is still well down on this years high as are most Oil companies,I have a few UJO shares that ain’t doing much at all.
Personally I feel that the UK is still a good place to be & at some point will recover most of its March - May losses...............although the mantra still stands that you should have a well balanced portfolio, covering all asset classes, all sectors & countries and to diversify, diversify & diversify.
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question for an IFA if there is one on here .... and these are hypothetical figures.
If someone is about to reach 55 and has £300k in their pension pot they are entitled to take £75k (25%) as a tax free lump sum. However, they only want to take £25k leaving the rest in to hopefully increase in value, so they do this reducing their pot to £275k.
In five years time their pot is now worth £400k and they want to take the rest of their 25% tax free sum. Is it then calculated as 25% of £400k so £100k less the £25k previously taken so meaning they can take a further £75k?0 -
Novacyt just hit £10 - the rise continues.0
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Yes have bought and sold a few times, not hugely up overall but still have some, last one's I bought at around 12.5pDaarrzzetbum said:I see Tullow Oil up very strongly today, @Rob7Lee you still holding shares in these as you tipped them early part of this year?SP though is still well down on this years high as are most Oil companies,I have a few UJO shares that ain’t doing much at all.0 -
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I think if you want to spread it out, everything you take, whenever, is 25% tax free. i.e. if you took £25k now only £6.25k would be tax free. Golfie will advise better!LargeAddick said:question for an IFA if there is one on here .... and these are hypothetical figures.
If someone is about to reach 55 and has £300k in their pension pot they are entitled to take £75k (25%) as a tax free lump sum. However, they only want to take £25k leaving the rest in to hopefully increase in value, so they do this reducing their pot to £275k.
In five years time their pot is now worth £400k and they want to take the rest of their 25% tax free sum. Is it then calculated as 25% of £400k so £100k less the £25k previously taken so meaning they can take a further £75k?0 -
Have a read of Golfie's post of 15 Oct.LargeAddick said:question for an IFA if there is one on here .... and these are hypothetical figures.
If someone is about to reach 55 and has £300k in their pension pot they are entitled to take £75k (25%) as a tax free lump sum. However, they only want to take £25k leaving the rest in to hopefully increase in value, so they do this reducing their pot to £275k.
In five years time their pot is now worth £400k and they want to take the rest of their 25% tax free sum. Is it then calculated as 25% of £400k so £100k less the £25k previously taken so meaning they can take a further £75k?1 -
Read my post of a few days ago where I go into this in great depth. Sadly it seems even @PragueAddick, who asked the same question, doesn't appear to have read it yet....😔LargeAddick said:question for an IFA if there is one on here .... and these are hypothetical figures.
If someone is about to reach 55 and has £300k in their pension pot they are entitled to take £75k (25%) as a tax free lump sum. However, they only want to take £25k leaving the rest in to hopefully increase in value, so they do this reducing their pot to £275k.
In five years time their pot is now worth £400k and they want to take the rest of their 25% tax free sum. Is it then calculated as 25% of £400k so £100k less the £25k previously taken so meaning they can take a further £75k?1 -
Not true.Rob7Lee said:
I think if you want to spread it out, everything you take, whenever, is 25% tax free. i.e. if you took £25k now only £6.25k would be tax free. Golfie will advise better!LargeAddick said:question for an IFA if there is one on here .... and these are hypothetical figures.
If someone is about to reach 55 and has £300k in their pension pot they are entitled to take £75k (25%) as a tax free lump sum. However, they only want to take £25k leaving the rest in to hopefully increase in value, so they do this reducing their pot to £275k.
In five years time their pot is now worth £400k and they want to take the rest of their 25% tax free sum. Is it then calculated as 25% of £400k so £100k less the £25k previously taken so meaning they can take a further £75k?0 -
Might be worth mentioning that once you've taken anything out of your pension, you can only pay 4K per year into any pension from then on. I think that's right?LargeAddick said:question for an IFA if there is one on here .... and these are hypothetical figures.
If someone is about to reach 55 and has £300k in their pension pot they are entitled to take £75k (25%) as a tax free lump sum. However, they only want to take £25k leaving the rest in to hopefully increase in value, so they do this reducing their pot to £275k.
In five years time their pot is now worth £400k and they want to take the rest of their 25% tax free sum. Is it then calculated as 25% of £400k so £100k less the £25k previously taken so meaning they can take a further £75k?
You can potentially lose a lot of future tax relief by dipping in for a quick 25K.
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I certainly did, and gave you a like. Planning to return to the topic.golfaddick said:
Read my post of a few days ago where I go into this in great depth. Sadly it seems even @PragueAddick, who asked the same question, doesn't appear to have read it yet....😔LargeAddick said:question for an IFA if there is one on here .... and these are hypothetical figures.
If someone is about to reach 55 and has £300k in their pension pot they are entitled to take £75k (25%) as a tax free lump sum. However, they only want to take £25k leaving the rest in to hopefully increase in value, so they do this reducing their pot to £275k.
In five years time their pot is now worth £400k and they want to take the rest of their 25% tax free sum. Is it then calculated as 25% of £400k so £100k less the £25k previously taken so meaning they can take a further £75k?1 -
Again, wrong.stevexreeve said:
Might be worth mentioning that once you've taken anything out of your pension, you can only pay 4K per year into any pension from then on. I think that's right?LargeAddick said:question for an IFA if there is one on here .... and these are hypothetical figures.
If someone is about to reach 55 and has £300k in their pension pot they are entitled to take £75k (25%) as a tax free lump sum. However, they only want to take £25k leaving the rest in to hopefully increase in value, so they do this reducing their pot to £275k.
In five years time their pot is now worth £400k and they want to take the rest of their 25% tax free sum. Is it then calculated as 25% of £400k so £100k less the £25k previously taken so meaning they can take a further £75k?
You can potentially lose a lot of future tax relief by dipping in for a quick 25K.
The £4k limit only applies once you start taking payments AFTER you have taken the tax-free element.
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FTSE dropping again today. In your opinion, will a brexit deal boost the FTSE or not? As it seems a deal would boost the pound which then weakens the big UK stocks also. I suppose that's only a temporary effect, and it will grow later on.golfaddick said:
I have been listening/watching quite a few webinars from various Investment Houses recently & one of the main reasons why the UK stockmarket has lagged behind other major markets is because the FTSE is heavily weighted towards banks and oil companies - neither of which are currently in favour and been hit hard by the pandemic & associated recovery measures. In contrast, the S&P is heavily weighted to tech stocks & the big 5 (Facebook, Amazon, Apple, Netflix & Google) make up a large portion of that.Daarrzzetbum said:I see Tullow Oil up very strongly today, @Rob7Lee you still holding shares in these as you tipped them early part of this year?SP though is still well down on this years high as are most Oil companies,I have a few UJO shares that ain’t doing much at all.
Personally I feel that the UK is still a good place to be & at some point will recover most of its March - May losses...............although the mantra still stands that you should have a well balanced portfolio, covering all asset classes, all sectors & countries and to diversify, diversify & diversify.
FTSE just seems dead with barely a pulse these days.0 -
why 57, thought you can take it from 55?Rob7Lee said:
A good summary, as to the last point, the day I get to 57 i'm taking 25% although as thats 9 years away i'm not convinced it'll be tax free by then anyway, but here's hoping.golfaddick said:
It's very technical & probably not something easily explained on here......but I'll give it a go.PragueAddick said:Speaking of SIPPs, I've been meaning to ask for a while how drawdown works. I have, of course, read H-L's blurb on it, and guess what, I'm not clear as a result about a fairly fundamental question
I understand that I can take out max 25%. I don't understand whether I can take it all out in one chunk or not. If not, how much can I take out at any one time? Presumably you have to make a decision on a certain day that you are opting for drawdown, as otherwise how can it be defined, the size of the withdrawal amount that constitutes 25%?
Let's assume you have £400k in your Pension plan. Taking any money out is known as a "Crystallization Benefit Event" and there are a number of different ones depending on how you want to structure payments, but I'll go through the 2 main ones here.
You do not have to take out all the 25% tax-free element in one go & can withdraw as much or as little of the 25% as you like until the full 25% has been used.
Example 1.
You want to take all 25% out on day 1 when you turn 60. Before you take any money the funds are known as being "uncrystalised". Once you take the 25% (in this case £100k) the remaining £300k is "crystallised" and therefore no further tax free amounts can be taken. Your £300k can stay invested (which it should) and will fluctuate as before. So say 5 years later at age 65 you want to start drawing out an income, then you start taking taxable amounts from the "crystallised" pot, hoping that it might now be worth in excess of the £300k.
Example 2
You only want to take out £50k from your £400k pension pot at age 60. (This is where it become technical & tricky to explain).
£200k of your pension pot is "crystallised", so that the maximum tax free amount you can take is (25%x£200k) £50k. The remaining £200k is left "uncrystalised" so that you can take a further 25% from it at a later date.
5 years later you want to take your pension (as in example 1). You now have 2 pension pots, 1 crystallised & 1 not. Assuming both have grown by 5% pa (therefore by 25% over the 5 years) you could have:
1) a crystallised pot of £187,500
2) an uncrystalised pot of £250,000
Pot 1 you can only take taxable benefits from but pot 2 you can still take a 25% tax free amount......in this case £62,500 and then the rest is taxable.
There are many other examples but I wont go into them now. Suffice to say that anyone who has a personal pension nowdays should be making sure that it can facilitate being a "Flexi-acces Drawdown" plan. Many can't & thus why advisers 😉 are always trying to get clients in old pp's or Stakeholder plans to switch into a new plan.
Another benefit (apart from the flexibility of staged payments) is that upon death (before age 75) then the remaining fund can be inherited TAX FREE by a spouse or dependants. After age 75 tax will be charged at the beneficiaries own tax rate. You can see why an annuity might not be quite the right product anymore when retiring.
One final thing. We talk about the 25% being "tax-free" and it has been known as this since forever. But HMRC changed the wording a few years back and now any initial lump sum taken from a pension is called a "Pension Commencement Lump Sum" or PCLS for short. I wonder why they dropped the words "tax-free.....? You have been warned.
HTH.
It still surprises me that many people still take the annuity route.0 -
have read now, everything much clearer now, thanks Golfiesuperclive98 said:
Have a read of Golfie's post of 15 Oct.LargeAddick said:question for an IFA if there is one on here .... and these are hypothetical figures.
If someone is about to reach 55 and has £300k in their pension pot they are entitled to take £75k (25%) as a tax free lump sum. However, they only want to take £25k leaving the rest in to hopefully increase in value, so they do this reducing their pot to £275k.
In five years time their pot is now worth £400k and they want to take the rest of their 25% tax free sum. Is it then calculated as 25% of £400k so £100k less the £25k previously taken so meaning they can take a further £75k?1 -
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Consensus from today's webcast were that it would boost the UK stockmarket overall if a trade deal was agreed. A no deal might weaken sterling & therefore the FTSE100 might go up a bit, like after the referendum on 2016, but a no deal would also impact other areas so overall wouldnt be good for UK equities. Quite a few fund houses are negative / underweight in the UK but I can't help looking at the premium based on where the FTSE is now compared to February.balham red said:
FTSE dropping again today. In your opinion, will a brexit deal boost the FTSE or not? As it seems a deal would boost the pound which then weakens the big UK stocks also. I suppose that's only a temporary effect, and it will grow later on.golfaddick said:
I have been listening/watching quite a few webinars from various Investment Houses recently & one of the main reasons why the UK stockmarket has lagged behind other major markets is because the FTSE is heavily weighted towards banks and oil companies - neither of which are currently in favour and been hit hard by the pandemic & associated recovery measures. In contrast, the S&P is heavily weighted to tech stocks & the big 5 (Facebook, Amazon, Apple, Netflix & Google) make up a large portion of that.Daarrzzetbum said:I see Tullow Oil up very strongly today, @Rob7Lee you still holding shares in these as you tipped them early part of this year?SP though is still well down on this years high as are most Oil companies,I have a few UJO shares that ain’t doing much at all.
Personally I feel that the UK is still a good place to be & at some point will recover most of its March - May losses...............although the mantra still stands that you should have a well balanced portfolio, covering all asset classes, all sectors & countries and to diversify, diversify & diversify.
FTSE just seems dead with barely a pulse these days.
A slide I saw earlier shower the UK stockmarket being the worst performing market for the past 10 years when compared to the World Index. P/E wise we are 40% below where we were 10 years ago.2 -
Sorry!golfaddick said:
Again, wrong.stevexreeve said:
Might be worth mentioning that once you've taken anything out of your pension, you can only pay 4K per year into any pension from then on. I think that's right?LargeAddick said:question for an IFA if there is one on here .... and these are hypothetical figures.
If someone is about to reach 55 and has £300k in their pension pot they are entitled to take £75k (25%) as a tax free lump sum. However, they only want to take £25k leaving the rest in to hopefully increase in value, so they do this reducing their pot to £275k.
In five years time their pot is now worth £400k and they want to take the rest of their 25% tax free sum. Is it then calculated as 25% of £400k so £100k less the £25k previously taken so meaning they can take a further £75k?
You can potentially lose a lot of future tax relief by dipping in for a quick 25K.
The £4k limit only applies once you start taking payments AFTER you have taken the tax-free element.
The whole thing seems ridiculously complicated - almost designed to discourage reluctant young people from saving!
Should everybody who is still working take that tax free element at 55 and recycle it back into another pension so they can claim even more tax relief?
I'm too old to worry about this anyway!
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Now that would be illegal under the pension recycling rules.stevexreeve said:
Sorry!golfaddick said:
Again, wrong.stevexreeve said:
Might be worth mentioning that once you've taken anything out of your pension, you can only pay 4K per year into any pension from then on. I think that's right?LargeAddick said:question for an IFA if there is one on here .... and these are hypothetical figures.
If someone is about to reach 55 and has £300k in their pension pot they are entitled to take £75k (25%) as a tax free lump sum. However, they only want to take £25k leaving the rest in to hopefully increase in value, so they do this reducing their pot to £275k.
In five years time their pot is now worth £400k and they want to take the rest of their 25% tax free sum. Is it then calculated as 25% of £400k so £100k less the £25k previously taken so meaning they can take a further £75k?
You can potentially lose a lot of future tax relief by dipping in for a quick 25K.
The £4k limit only applies once you start taking payments AFTER you have taken the tax-free element.
The whole thing seems ridiculously complicated - almost designed to discourage reluctant young people from saving!
Should everybody who is still working take that tax free element at 55 and recycle it back into another pension so they can claim even more tax relief?
I'm too old to worry about this anyway!1 -
The minimum age at which you can take a pension rises to 57 in 2028. Won't worry either of us though!LargeAddick said:
why 57, thought you can take it from 55?Rob7Lee said:
A good summary, as to the last point, the day I get to 57 i'm taking 25% although as thats 9 years away i'm not convinced it'll be tax free by then anyway, but here's hoping.golfaddick said:
It's very technical & probably not something easily explained on here......but I'll give it a go.PragueAddick said:Speaking of SIPPs, I've been meaning to ask for a while how drawdown works. I have, of course, read H-L's blurb on it, and guess what, I'm not clear as a result about a fairly fundamental question
I understand that I can take out max 25%. I don't understand whether I can take it all out in one chunk or not. If not, how much can I take out at any one time? Presumably you have to make a decision on a certain day that you are opting for drawdown, as otherwise how can it be defined, the size of the withdrawal amount that constitutes 25%?
Let's assume you have £400k in your Pension plan. Taking any money out is known as a "Crystallization Benefit Event" and there are a number of different ones depending on how you want to structure payments, but I'll go through the 2 main ones here.
You do not have to take out all the 25% tax-free element in one go & can withdraw as much or as little of the 25% as you like until the full 25% has been used.
Example 1.
You want to take all 25% out on day 1 when you turn 60. Before you take any money the funds are known as being "uncrystalised". Once you take the 25% (in this case £100k) the remaining £300k is "crystallised" and therefore no further tax free amounts can be taken. Your £300k can stay invested (which it should) and will fluctuate as before. So say 5 years later at age 65 you want to start drawing out an income, then you start taking taxable amounts from the "crystallised" pot, hoping that it might now be worth in excess of the £300k.
Example 2
You only want to take out £50k from your £400k pension pot at age 60. (This is where it become technical & tricky to explain).
£200k of your pension pot is "crystallised", so that the maximum tax free amount you can take is (25%x£200k) £50k. The remaining £200k is left "uncrystalised" so that you can take a further 25% from it at a later date.
5 years later you want to take your pension (as in example 1). You now have 2 pension pots, 1 crystallised & 1 not. Assuming both have grown by 5% pa (therefore by 25% over the 5 years) you could have:
1) a crystallised pot of £187,500
2) an uncrystalised pot of £250,000
Pot 1 you can only take taxable benefits from but pot 2 you can still take a 25% tax free amount......in this case £62,500 and then the rest is taxable.
There are many other examples but I wont go into them now. Suffice to say that anyone who has a personal pension nowdays should be making sure that it can facilitate being a "Flexi-acces Drawdown" plan. Many can't & thus why advisers 😉 are always trying to get clients in old pp's or Stakeholder plans to switch into a new plan.
Another benefit (apart from the flexibility of staged payments) is that upon death (before age 75) then the remaining fund can be inherited TAX FREE by a spouse or dependants. After age 75 tax will be charged at the beneficiaries own tax rate. You can see why an annuity might not be quite the right product anymore when retiring.
One final thing. We talk about the 25% being "tax-free" and it has been known as this since forever. But HMRC changed the wording a few years back and now any initial lump sum taken from a pension is called a "Pension Commencement Lump Sum" or PCLS for short. I wonder why they dropped the words "tax-free.....? You have been warned.
HTH.
It still surprises me that many people still take the annuity route.0 -
10 years from the State Retirement age......so could be age 60 before too long.Ashers said:
The minimum age at which you can take a pension rises to 57 in 2028. Won't worry either of us though!LargeAddick said:
why 57, thought you can take it from 55?Rob7Lee said:
A good summary, as to the last point, the day I get to 57 i'm taking 25% although as thats 9 years away i'm not convinced it'll be tax free by then anyway, but here's hoping.golfaddick said:
It's very technical & probably not something easily explained on here......but I'll give it a go.PragueAddick said:Speaking of SIPPs, I've been meaning to ask for a while how drawdown works. I have, of course, read H-L's blurb on it, and guess what, I'm not clear as a result about a fairly fundamental question
I understand that I can take out max 25%. I don't understand whether I can take it all out in one chunk or not. If not, how much can I take out at any one time? Presumably you have to make a decision on a certain day that you are opting for drawdown, as otherwise how can it be defined, the size of the withdrawal amount that constitutes 25%?
Let's assume you have £400k in your Pension plan. Taking any money out is known as a "Crystallization Benefit Event" and there are a number of different ones depending on how you want to structure payments, but I'll go through the 2 main ones here.
You do not have to take out all the 25% tax-free element in one go & can withdraw as much or as little of the 25% as you like until the full 25% has been used.
Example 1.
You want to take all 25% out on day 1 when you turn 60. Before you take any money the funds are known as being "uncrystalised". Once you take the 25% (in this case £100k) the remaining £300k is "crystallised" and therefore no further tax free amounts can be taken. Your £300k can stay invested (which it should) and will fluctuate as before. So say 5 years later at age 65 you want to start drawing out an income, then you start taking taxable amounts from the "crystallised" pot, hoping that it might now be worth in excess of the £300k.
Example 2
You only want to take out £50k from your £400k pension pot at age 60. (This is where it become technical & tricky to explain).
£200k of your pension pot is "crystallised", so that the maximum tax free amount you can take is (25%x£200k) £50k. The remaining £200k is left "uncrystalised" so that you can take a further 25% from it at a later date.
5 years later you want to take your pension (as in example 1). You now have 2 pension pots, 1 crystallised & 1 not. Assuming both have grown by 5% pa (therefore by 25% over the 5 years) you could have:
1) a crystallised pot of £187,500
2) an uncrystalised pot of £250,000
Pot 1 you can only take taxable benefits from but pot 2 you can still take a 25% tax free amount......in this case £62,500 and then the rest is taxable.
There are many other examples but I wont go into them now. Suffice to say that anyone who has a personal pension nowdays should be making sure that it can facilitate being a "Flexi-acces Drawdown" plan. Many can't & thus why advisers 😉 are always trying to get clients in old pp's or Stakeholder plans to switch into a new plan.
Another benefit (apart from the flexibility of staged payments) is that upon death (before age 75) then the remaining fund can be inherited TAX FREE by a spouse or dependants. After age 75 tax will be charged at the beneficiaries own tax rate. You can see why an annuity might not be quite the right product anymore when retiring.
One final thing. We talk about the 25% being "tax-free" and it has been known as this since forever. But HMRC changed the wording a few years back and now any initial lump sum taken from a pension is called a "Pension Commencement Lump Sum" or PCLS for short. I wonder why they dropped the words "tax-free.....? You have been warned.
HTH.
It still surprises me that many people still take the annuity route.0 -
I definitely agree with that. But it's at a piece with the entire tax regime, and designed to enrich the financial services industry as usual.stevexreeve said:
Sorry!golfaddick said:
Again, wrong.stevexreeve said:
Might be worth mentioning that once you've taken anything out of your pension, you can only pay 4K per year into any pension from then on. I think that's right?LargeAddick said:question for an IFA if there is one on here .... and these are hypothetical figures.
If someone is about to reach 55 and has £300k in their pension pot they are entitled to take £75k (25%) as a tax free lump sum. However, they only want to take £25k leaving the rest in to hopefully increase in value, so they do this reducing their pot to £275k.
In five years time their pot is now worth £400k and they want to take the rest of their 25% tax free sum. Is it then calculated as 25% of £400k so £100k less the £25k previously taken so meaning they can take a further £75k?
You can potentially lose a lot of future tax relief by dipping in for a quick 25K.
The £4k limit only applies once you start taking payments AFTER you have taken the tax-free element.
The whole thing seems ridiculously complicated - almost designed to discourage reluctant young people from saving!
Should everybody who is still working take that tax free element at 55 and recycle it back into another pension so they can claim even more tax relief?
I'm too old to worry about this anyway!
For example, I have a SIPP which is now on the Hargreaves Lansdowne platform. In my naivety I supposed that I can just directly withdraw amounts up to the limit directly. Oh no. For a reason which is not explained, I have to apply to make it a drawdown pension. H-L claims that there are no extra charges. I am not sure I believe that, but either way, why do we have this bureaucracy?0 -
Too true !!Ashers said:
The minimum age at which you can take a pension rises to 57 in 2028. Won't worry either of us though!LargeAddick said:
why 57, thought you can take it from 55?Rob7Lee said:
A good summary, as to the last point, the day I get to 57 i'm taking 25% although as thats 9 years away i'm not convinced it'll be tax free by then anyway, but here's hoping.golfaddick said:
It's very technical & probably not something easily explained on here......but I'll give it a go.PragueAddick said:Speaking of SIPPs, I've been meaning to ask for a while how drawdown works. I have, of course, read H-L's blurb on it, and guess what, I'm not clear as a result about a fairly fundamental question
I understand that I can take out max 25%. I don't understand whether I can take it all out in one chunk or not. If not, how much can I take out at any one time? Presumably you have to make a decision on a certain day that you are opting for drawdown, as otherwise how can it be defined, the size of the withdrawal amount that constitutes 25%?
Let's assume you have £400k in your Pension plan. Taking any money out is known as a "Crystallization Benefit Event" and there are a number of different ones depending on how you want to structure payments, but I'll go through the 2 main ones here.
You do not have to take out all the 25% tax-free element in one go & can withdraw as much or as little of the 25% as you like until the full 25% has been used.
Example 1.
You want to take all 25% out on day 1 when you turn 60. Before you take any money the funds are known as being "uncrystalised". Once you take the 25% (in this case £100k) the remaining £300k is "crystallised" and therefore no further tax free amounts can be taken. Your £300k can stay invested (which it should) and will fluctuate as before. So say 5 years later at age 65 you want to start drawing out an income, then you start taking taxable amounts from the "crystallised" pot, hoping that it might now be worth in excess of the £300k.
Example 2
You only want to take out £50k from your £400k pension pot at age 60. (This is where it become technical & tricky to explain).
£200k of your pension pot is "crystallised", so that the maximum tax free amount you can take is (25%x£200k) £50k. The remaining £200k is left "uncrystalised" so that you can take a further 25% from it at a later date.
5 years later you want to take your pension (as in example 1). You now have 2 pension pots, 1 crystallised & 1 not. Assuming both have grown by 5% pa (therefore by 25% over the 5 years) you could have:
1) a crystallised pot of £187,500
2) an uncrystalised pot of £250,000
Pot 1 you can only take taxable benefits from but pot 2 you can still take a 25% tax free amount......in this case £62,500 and then the rest is taxable.
There are many other examples but I wont go into them now. Suffice to say that anyone who has a personal pension nowdays should be making sure that it can facilitate being a "Flexi-acces Drawdown" plan. Many can't & thus why advisers 😉 are always trying to get clients in old pp's or Stakeholder plans to switch into a new plan.
Another benefit (apart from the flexibility of staged payments) is that upon death (before age 75) then the remaining fund can be inherited TAX FREE by a spouse or dependants. After age 75 tax will be charged at the beneficiaries own tax rate. You can see why an annuity might not be quite the right product anymore when retiring.
One final thing. We talk about the 25% being "tax-free" and it has been known as this since forever. But HMRC changed the wording a few years back and now any initial lump sum taken from a pension is called a "Pension Commencement Lump Sum" or PCLS for short. I wonder why they dropped the words "tax-free.....? You have been warned.
HTH.
It still surprises me that many people still take the annuity route.0 -
I expect it's because, as stated the other day, that there is a definitive distinction between a Personal pension (be it a PP, a Stakeholder or a Sipp) and a Drawdown plan. A drawdown pension (or to give it its proper name, a FLEXI-access drawdown scheme) has different tax treatments than a normal pension and has to distinguish between crystalised & uncrystalised funds.PragueAddick said:
I definitely agree with that. But it's at a piece with the entire tax regime, and designed to enrich the financial services industry as usual.stevexreeve said:
Sorry!golfaddick said:
Again, wrong.stevexreeve said:
Might be worth mentioning that once you've taken anything out of your pension, you can only pay 4K per year into any pension from then on. I think that's right?LargeAddick said:question for an IFA if there is one on here .... and these are hypothetical figures.
If someone is about to reach 55 and has £300k in their pension pot they are entitled to take £75k (25%) as a tax free lump sum. However, they only want to take £25k leaving the rest in to hopefully increase in value, so they do this reducing their pot to £275k.
In five years time their pot is now worth £400k and they want to take the rest of their 25% tax free sum. Is it then calculated as 25% of £400k so £100k less the £25k previously taken so meaning they can take a further £75k?
You can potentially lose a lot of future tax relief by dipping in for a quick 25K.
The £4k limit only applies once you start taking payments AFTER you have taken the tax-free element.
The whole thing seems ridiculously complicated - almost designed to discourage reluctant young people from saving!
Should everybody who is still working take that tax free element at 55 and recycle it back into another pension so they can claim even more tax relief?
I'm too old to worry about this anyway!
For example, I have a SIPP which is now on the Hargreaves Lansdowne platform. In my naivety I supposed that I can just directly withdraw amounts up to the limit directly. Oh no. For a reason which is not explained, I have to apply to make it a drawdown pension. H-L claims that there are no extra charges. I am not sure I believe that, but either way, why do we have this bureaucracy?1 -
Depends when you were born. Rises to 57 by 2028 I believe, two tear phase in, I was born in late 72 so will be 56 in late 2028. That said I’m not sure it’s been put through legislation yet.LargeAddick said:
why 57, thought you can take it from 55?Rob7Lee said:
A good summary, as to the last point, the day I get to 57 i'm taking 25% although as thats 9 years away i'm not convinced it'll be tax free by then anyway, but here's hoping.golfaddick said:
It's very technical & probably not something easily explained on here......but I'll give it a go.PragueAddick said:Speaking of SIPPs, I've been meaning to ask for a while how drawdown works. I have, of course, read H-L's blurb on it, and guess what, I'm not clear as a result about a fairly fundamental question
I understand that I can take out max 25%. I don't understand whether I can take it all out in one chunk or not. If not, how much can I take out at any one time? Presumably you have to make a decision on a certain day that you are opting for drawdown, as otherwise how can it be defined, the size of the withdrawal amount that constitutes 25%?
Let's assume you have £400k in your Pension plan. Taking any money out is known as a "Crystallization Benefit Event" and there are a number of different ones depending on how you want to structure payments, but I'll go through the 2 main ones here.
You do not have to take out all the 25% tax-free element in one go & can withdraw as much or as little of the 25% as you like until the full 25% has been used.
Example 1.
You want to take all 25% out on day 1 when you turn 60. Before you take any money the funds are known as being "uncrystalised". Once you take the 25% (in this case £100k) the remaining £300k is "crystallised" and therefore no further tax free amounts can be taken. Your £300k can stay invested (which it should) and will fluctuate as before. So say 5 years later at age 65 you want to start drawing out an income, then you start taking taxable amounts from the "crystallised" pot, hoping that it might now be worth in excess of the £300k.
Example 2
You only want to take out £50k from your £400k pension pot at age 60. (This is where it become technical & tricky to explain).
£200k of your pension pot is "crystallised", so that the maximum tax free amount you can take is (25%x£200k) £50k. The remaining £200k is left "uncrystalised" so that you can take a further 25% from it at a later date.
5 years later you want to take your pension (as in example 1). You now have 2 pension pots, 1 crystallised & 1 not. Assuming both have grown by 5% pa (therefore by 25% over the 5 years) you could have:
1) a crystallised pot of £187,500
2) an uncrystalised pot of £250,000
Pot 1 you can only take taxable benefits from but pot 2 you can still take a 25% tax free amount......in this case £62,500 and then the rest is taxable.
There are many other examples but I wont go into them now. Suffice to say that anyone who has a personal pension nowdays should be making sure that it can facilitate being a "Flexi-acces Drawdown" plan. Many can't & thus why advisers 😉 are always trying to get clients in old pp's or Stakeholder plans to switch into a new plan.
Another benefit (apart from the flexibility of staged payments) is that upon death (before age 75) then the remaining fund can be inherited TAX FREE by a spouse or dependants. After age 75 tax will be charged at the beneficiaries own tax rate. You can see why an annuity might not be quite the right product anymore when retiring.
One final thing. We talk about the 25% being "tax-free" and it has been known as this since forever. But HMRC changed the wording a few years back and now any initial lump sum taken from a pension is called a "Pension Commencement Lump Sum" or PCLS for short. I wonder why they dropped the words "tax-free.....? You have been warned.
HTH.
It still surprises me that many people still take the annuity route.0 -
I mean, really, what a load of old bollocks. I don't refer to you of course, but to the reasoning you are revealing. Show that to an average person and ask them if they understand a word. If the UK wants people to take responsibility for their own pensions,( a sentiment I agree with, within reason) then bloody well make it simple. But then that's just part of the complete massive mess which is the UK tax law.golfaddick said:
I expect it's because, as stated the other day, that there is a definitive distinction between a Personal pension (be it a PP, a Stakeholder or a Sipp) and a Drawdown plan. A drawdown pension (or to give it its proper name, a FLEXI-access drawdown scheme) has different tax treatments than a normal pension and has to distinguish between crystalised & uncrystalised funds.PragueAddick said:
I definitely agree with that. But it's at a piece with the entire tax regime, and designed to enrich the financial services industry as usual.stevexreeve said:
Sorry!golfaddick said:
Again, wrong.stevexreeve said:
Might be worth mentioning that once you've taken anything out of your pension, you can only pay 4K per year into any pension from then on. I think that's right?LargeAddick said:question for an IFA if there is one on here .... and these are hypothetical figures.
If someone is about to reach 55 and has £300k in their pension pot they are entitled to take £75k (25%) as a tax free lump sum. However, they only want to take £25k leaving the rest in to hopefully increase in value, so they do this reducing their pot to £275k.
In five years time their pot is now worth £400k and they want to take the rest of their 25% tax free sum. Is it then calculated as 25% of £400k so £100k less the £25k previously taken so meaning they can take a further £75k?
You can potentially lose a lot of future tax relief by dipping in for a quick 25K.
The £4k limit only applies once you start taking payments AFTER you have taken the tax-free element.
The whole thing seems ridiculously complicated - almost designed to discourage reluctant young people from saving!
Should everybody who is still working take that tax free element at 55 and recycle it back into another pension so they can claim even more tax relief?
I'm too old to worry about this anyway!
For example, I have a SIPP which is now on the Hargreaves Lansdowne platform. In my naivety I supposed that I can just directly withdraw amounts up to the limit directly. Oh no. For a reason which is not explained, I have to apply to make it a drawdown pension. H-L claims that there are no extra charges. I am not sure I believe that, but either way, why do we have this bureaucracy?0
https://www.youtube.com/watch?v=NpmnZtfQXKk
