Not wrong but not right either. Reinvest the tax free lump sum. If it’s chunky go it over a few years into an ISA. Only draw up to the tax free allowance from the pension pot. Draw the rest from other sources. Therefore most years you pay no tax and you’ve also protected yourself from the govt retrospectively getting rid of the 25% lump sum. Your investment returns will be approx the same whether left in the pension or shifted to an ISA. Pension providers only tell you to keep it where it is because 1. They don’t want you to have your money. 2. The pension provider (and perhaps financial advisor too) maintain their level of fees.
Good and clear video. You did not mention one minor and one major point. At 3.30 you did not include inflation, so the increase is not 6% but 3-4% in real terms. Also you did not include the caveat that your pension fund can also fall, they do not always grow each year so dependent on timing you could be worse off.
After 2027, the pension scheme administrator will report & pay any inheritance tax due on unused funds. Over 75s should take their tax-free cash because the more crystallised money in their pension, the more HMRC will pay towards the IHT bill by missing out on the tax due.
Thank goodness for your case at 7 minutes. This is what I did. I didn’t trust the govt not to get rid of the tax free sum. I felt between general account, ISA, cash and premium bonds that I still had a sensible portfolio. Also I looked at everything as a whole and had the risk assets in the pension and safer in the general account. Reduced the chance of big taxable gains. I’ve not regretted it
Any chance of doing a video on drawdown and the emergency tax code problem? Including examples covering UPFLS and FAD with the latter having a single drawdown a tax year vs regular monthly income drawdown.
Dreadful idea - Rem you take all the risk... If you die early, the pension provider takes the rest of the fund, they don't give your partner a refund because they only paid out 3 years...( on say what could potential be a 300K pension pt easy - So they walk away from 250k +)
What’s your thoughts? I have the max tax free cash and looking to take it over 11 years to state pension age c£24k per year. In addition I would take £12570 from drawdown. This would give me c £36.5k pa which is all I need.
I'm in the same situation. Plan to take my max lump sum but take the max income withdrawal that only applies 20%. Due the the tax changes in the last budget. The tfc pays off my mortgage and is then my emergency fund plus any interest earned.
Similar to Terry here. Had max tfc, took it all, paid off mortgage so now totally debt free and put rest into emergency fund / paid off daughters uni fees. Must say not as afraid of spending what is left now that IHt in play for whatever I have left. People get transfixed on not paying tax and sacrifice what the tfc can do for you now when you are in your spending go go years. All down to what you have left in your pot post tfc and how much you need each year, everyone’s case is different but of course financial advisors on a % of invested assets as a fee base will tell you to not withdraw!
@ absolutely Mikey. They were taking 1% from me for an annual review! Most expensive cup of coffee I ever had!! Now I have exactly the same funds and review myself. Pays to invest some time in educating yourself on finance, withdraw methods etc . Best of luck with retirement 👍🏻
I guess in your position where you have already hit the max tax free amount there is no gain in withdrawing using UFPLUS method ie tax free is 25% of the amount your withdrawing. My pots are Much more modest and following redundancy I took lump sum to get a car as had been in a company car. My total funds at the time were just over 200K. Fortunately the pot I took the cash from has recovered and has grown above where it was when I took the cash out. A second smaller crystallised pot I have been drawing down in for my income until a work pension due in Feb then a year later full state pension. I had planned to retire April 24 redundancy moved it forward 5 months. One thing he didn’t mention in his video, if taking money out to invest elsewhere such as ISA then it make sense to take the money early March invest £20K as one years ISA max, then after April 6 invest the next £20K
I guess in that case the argument around taking it or leaving it is more nuanced and it may be that it’s neutral tax wise as your growth in fund by leaving it in the pension doesn’t impact on the amount of tax free cash you can have, assuming the government doesn’t increase that maximum tax free amount ever
The protection racket called "Government" will keep legally stealing from you until you have nothing left. Most people choose to pay for more "protection". I was astounded that more people didn't vote for Reform when it announced its policies on IHT and CGT, and most importantly Income Tax where they would have a £20,000 0% threshold instead of 12,570. But that's the way it is. Turkeys do vote for Globalist Uniparty pseudo Socialism without fail every 4 years.
The government should probably get rid of the 25% tax free amount. It's basically a tax fiddle, and one we cannot afford given the state of the economy.
All well and good until a Labour Gov starts tinkering with the taxable free amounts, which they will do from next year onwards, they can't help themselves... Rem - Politicians have gold plated civil service pensions which are protected and basically die with them (or their partner) and hence they don;t care about hiking inheritance tax as they in fact enjoy increased perks/payment levels while they live
Private pension industry is finished. No tax shielding for IHT now, so your children get hit with a 40% bill. My own pension has performed dismally compared to a simple cash investment, then take out the fees for the poorly managed fund means it is not what advisors want you to believe it is. R and D tax credits did make it beneficial for close company use until the rates were stripped back last year. Finally, how long do you think it will be before the 25% tax free sum is abolished? Get out while you can !
Playing devils advocate - a pension is for you, to be used during your lifetime. Not a generational tax dodge. Spend it now. Secondly, manage your pension yourself (eg bond ladder and MM funds to mitigate equity volatility) and avoid high management fees. I'll worry about tax free cash being abolished when it is a distinct possibility (or not if I'm in a Stoic frame of mind). YMMV 😊
Agreed, while the inclusion in IHT came as a shock ( due in 2027 ) and might be changed yet, my thoughts have always been that my pension pot was to live on and not just to be passed onto my kids. OK my funds are modest and with luck I’ll live to a point where my assets are below the IHT thresholds anyway. Live in the north so my house is not silly money. The changes for those with larger estates are a big shock. Regarding the 25% tax free, hopefully this doesn’t get attacked but I would be drawing down on my DC fund rather than taking a TF lump sum. It might change and be put into an ISA but I wouldn’t put it past Labour to go after these in the next few years or introduce a maximum tax free limit
@@guyr7351 Not really, i have a £1.1M pension pot and fully expect it to grow to £10m by 2040, yeah my kids will have to pay £4m tax, but still be left with £3m each - What's the shock in that?
@@JohnBeeblebroxcompletely agree, if I earned £125k the tax relief is at 60% on paying in to my pension, why should I be able to build a million pound pension, where by I put it £400k and the government put in £600k and I don’t use it and pass this £600k tax refund on to my children? If I had saved to ISAs I’d only have £400k.and that £400k ISA could be taxed at 40% if my estate is over £500k or £1million if I have a legal partner.
Not wrong but not right either. Reinvest the tax free lump sum. If it’s chunky go it over a few years into an ISA. Only draw up to the tax free allowance from the pension pot. Draw the rest from other sources. Therefore most years you pay no tax and you’ve also protected yourself from the govt retrospectively getting rid of the 25% lump sum. Your investment returns will be approx the same whether left in the pension or shifted to an ISA. Pension providers only tell you to keep it where it is because 1. They don’t want you to have your money. 2. The pension provider (and perhaps financial advisor too) maintain their level of fees.
Good and clear video. You did not mention one minor and one major point. At 3.30 you did not include inflation, so the increase is not 6% but 3-4% in real terms. Also you did not include the caveat that your pension fund can also fall, they do not always grow each year so dependent on timing you could be worse off.
After 2027, the pension scheme administrator will report & pay any inheritance tax due on unused funds. Over 75s should take their tax-free cash because the more crystallised money in their pension, the more HMRC will pay towards the IHT bill by missing out on the tax due.
Thank goodness for your case at 7 minutes. This is what I did. I didn’t trust the govt not to get rid of the tax free sum. I felt between general account, ISA, cash and premium bonds that I still had a sensible portfolio. Also I looked at everything as a whole and had the risk assets in the pension and safer in the general account. Reduced the chance of big taxable gains. I’ve not regretted it
New subscriber really enjoyed your content,will be seeking out the rest
Any chance of doing a video on drawdown and the emergency tax code problem? Including examples covering UPFLS and FAD with the latter having a single drawdown a tax year vs regular monthly income drawdown.
If you preserve the tax free portion inside your pension pot then you can take £20k every year at almost zero tax cost.
That’s all ok on drawdown unless the market crashes what about an annuity ?
Dreadful idea - Rem you take all the risk... If you die early, the pension provider takes the rest of the fund, they don't give your partner a refund because they only paid out 3 years...( on say what could potential be a 300K pension pt easy - So they walk away from 250k +)
What’s your thoughts?
I have the max tax free cash and looking to take it over 11 years to state pension age c£24k per year. In addition I would take £12570 from drawdown. This would give me c £36.5k pa which is all I need.
I'm in the same situation. Plan to take my max lump sum but take the max income withdrawal that only applies 20%. Due the the tax changes in the last budget. The tfc pays off my mortgage and is then my emergency fund plus any interest earned.
Similar to Terry here. Had max tfc, took it all, paid off mortgage so now totally debt free and put rest into emergency fund / paid off daughters uni fees. Must say not as afraid of spending what is left now that IHt in play for whatever I have left. People get transfixed on not paying tax and sacrifice what the tfc can do for you now when you are in your spending go go years. All down to what you have left in your pot post tfc and how much you need each year, everyone’s case is different but of course financial advisors on a % of invested assets as a fee base will tell you to not withdraw!
@ absolutely Mikey. They were taking 1% from me for an annual review! Most expensive cup of coffee I ever had!! Now I have exactly the same funds and review myself. Pays to invest some time in educating yourself on finance, withdraw methods etc . Best of luck with retirement 👍🏻
I guess in your position where you have already hit the max tax free amount there is no gain in withdrawing using UFPLUS method ie tax free is 25% of the amount your withdrawing.
My pots are
Much more modest and following redundancy I took lump sum to get a car as had been in a company car. My total funds at the time were just over 200K.
Fortunately the pot I took the cash from has recovered and has grown above where it was when I took the cash out. A second smaller crystallised pot I have been drawing down in for my income until a work pension due in Feb then a year later full state pension.
I had planned to retire April 24 redundancy moved it forward 5 months.
One thing he didn’t mention in his video, if taking money out to invest elsewhere such as ISA then it make sense to take the money early March invest £20K as one years ISA max, then after April 6 invest the next £20K
@ thanks for your thoughts Guy, really appreciated. Wish you the best in your retirement journey 👍🏻
Please include info on NHS pension in a future video.
What about if your pot was over a million
I guess in that case the argument around taking it or leaving it is more nuanced and it may be that it’s neutral tax wise as your growth in fund by leaving it in the pension doesn’t impact on the amount of tax free cash you can have, assuming the government doesn’t increase that maximum tax free amount ever
What about the IHT implications. Because nobody what’s to leave Inland Robin U 40% when they die
Depending on if you have a spouse, it’s only a problem if you have over £1m in assets
Buy an annuity instead.
There not robin U, there robin your kids.
What will happen, if tax free lump sum abolished?
Then you will pay tax...
The protection racket called "Government" will keep legally stealing from you until you have nothing left.
Most people choose to pay for more "protection". I was astounded that more people didn't vote for Reform when it announced its policies on IHT and CGT, and most importantly Income Tax where they would have a £20,000 0% threshold instead of 12,570.
But that's the way it is. Turkeys do vote for Globalist Uniparty pseudo Socialism without fail every 4 years.
Lots of people with pitchforks outside No.10 and No.11 Downing Street?
If it looks a serious possibility then people would pull the money out.
Don’t see that happening…….too much bad karma for them to do that
The government should probably get rid of the 25% tax free amount. It's basically a tax fiddle, and one we cannot afford given the state of the economy.
It encourages the UK to be financially responsible, keep it.
All well and good until a Labour Gov starts tinkering with the taxable free amounts, which they will do from next year onwards, they can't help themselves... Rem - Politicians have gold plated civil service pensions which are protected and basically die with them (or their partner) and hence they don;t care about hiking inheritance tax as they in fact enjoy increased perks/payment levels while they live
Pension funds are designed to give you a pension, not to be left to others as inheritance.
Private pension industry is finished. No tax shielding for IHT now, so your children get hit with a 40% bill. My own pension has performed dismally compared to a simple cash investment, then take out the fees for the poorly managed fund means it is not what advisors want you to believe it is. R and D tax credits did make it beneficial for close company use until the rates were stripped back last year. Finally, how long do you think it will be before the 25% tax free sum is abolished? Get out while you can !
Playing devils advocate - a pension is for you, to be used during your lifetime. Not a generational tax dodge. Spend it now.
Secondly, manage your pension yourself (eg bond ladder and MM funds to mitigate equity volatility) and avoid high management fees.
I'll worry about tax free cash being abolished when it is a distinct possibility (or not if I'm in a Stoic frame of mind).
YMMV 😊
Agreed, while the inclusion in IHT came as a shock ( due in 2027 ) and might be changed yet, my thoughts have always been that my pension pot was to live on and not just to be passed onto my kids.
OK my funds are modest and with luck I’ll live to a point where my assets are below the IHT thresholds anyway. Live in the north so my house is not silly money. The changes for those with larger estates are a big shock.
Regarding the 25% tax free, hopefully this doesn’t get attacked but I would be drawing down on my DC fund rather than taking a TF lump sum. It might change and be put into an ISA but I wouldn’t put it past Labour to go after these in the next few years or introduce a maximum tax free limit
@@guyr7351 Not really, i have a £1.1M pension pot and fully expect it to grow to £10m by 2040, yeah my kids will have to pay £4m tax, but still be left with £3m each - What's the shock in that?
@@JohnBeeblebroxcompletely agree, if I earned £125k the tax relief is at 60% on paying in to my pension, why should I be able to build a million pound pension, where by I put it £400k and the government put in £600k and I don’t use it and pass this £600k tax refund on to my children? If I had saved to ISAs I’d only have £400k.and that £400k ISA could be taxed at 40% if my estate is over £500k or £1million if I have a legal partner.
You need to get advice if your pension is not performing.