Retirement - Drawdown vs UFPLS vs Annuity
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- เผยแพร่เมื่อ 13 พ.ค. 2024
- Drawdown, UFPLS or Annuity? Since the pension freedoms of 2015, taking money out of a pension has been more flexible than ever. But having more options can lead to confusion and then inertia - we’re unable to make a decision because we don’t understand all the options. So let me help you out...
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Chapters:
00:00 Your options
00:33 Introduction
01:29 Confrontation of Problem
01:43 The Options Explained
06:53 When you would use an annuity
08:02 When you would use Flexi-Access Drawdown
09:18 When you would use UFPLS
09:59 Conclusion
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Also, you might like:
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Love it. Great video Pete.
Thanks for this Pete, I found it really useful.
Hi Pete, thanks for the great video.
Great video Pete, please do a second one to give some more detail.
Thank you 😊
Love your simple jargon-light run throughs Pete. You nailed this one. A part 2 on options to carefully manage sustainable drawdown would be, well, on the money!
Excellent video as always Pete, with simple graphics. I think Part 2 with some examples would help people see how the different options might work for them
Really useful, UFPLS was new to me and very powerful, part 2 please!
Really useful illustration Pete. You highlighted the value of not crystallising too much in one go. My kids will be delighted, one day.
, yes Pete a part 2 is the way to go
As a visual learner, this was amazing. Thank you
I think a part two would be good Pete as this is a complex area 👍🏻
Noted, Matt - thank you
I'm guessing all of these options might mean restrictions on further contributions you can make if you're still working full time or part time?
Great video, as usual Pete. I am just considering my options and still need to get my head around the FAD vs UFPLS differences, and how it would work best for my needs. Also agree with various other comments that help on how the tax works would be really beneficial, constantly having to reclaim tax is a real pain. Def need for a part 2.
Nice video Pete. It’s good to see the simple digram as too many advisers on TH-cam just talk over some on screen numbers without showing how the money ‘moves’. Perhaps in Part 2 you can show where the ‘inheritance tax line’ is and what changes if death is before or after age 75. Keep up the good work!
Great video and well explained as always, thanks! I feel like one could probably do a 10 part series does on UFPLS vs flexi access drawdown! This feels like a bit of a maze to navigate. Would be great to explore pros and cons of each in a bit more detail (as Ramin would say!)
Excellent video. I started drawing on my pension last year and this is one of the best summaries of the main options that I've seen. There seem to be so many possible choices to make it's bewildering - even with the aid of the free government advice line.
That said, I really appreciated getting specific and tailored advice from my financial advisor who helped quantify my needs, ambitions, and objectives to find (what I hope is) the best arrangement for my retirement.
Pls do one on how to pay tax when drawing down 👍
I thought that was simple, from my reading you are taxed at source by the pension provider at the standard taxable rate I.e 0-12k Zero 12k-50k 20% above that 40%
I’ll be taking a small lump sum at 59 in 3 years.
Then take a bit each year as a tax free lump and then 45k taxed at 20% and no national insurance.
@@dazzassti are you taxed at source from a SIPP? Or need to do a tax return?
@@haroldbetterson1877 can’t see any reason HMR. Would require a tax return unless you had millions and were taking 100k lol
Should just be done by the pension provider in my view.
Thanks Pete. Very clear illustration of the main differences between FAD and UFPLS. Could we have a part two on when and how crystallised amounts are tested against the LTA in each of the different scenarios please? Especially in the instance when a mix of DB, annuity and either FAD or UFPLS are being combined. Thanks again.
Looking forward to part 2
Best overview I've seen so far - thank you! Clear, simple and easy to understand.
Glad it was helpful, Roman - thank you!
I've only watched a few of your videos so far. But have learnt so much. Definitely got a new subscriber!
Great to have you with us!
UFPLS is new to me although completely logical. Also, I’d not realised the drawdown is managed, and presumably charged, as a separate account. As always VERY helpful. Thank you Pete for such excellent advice all the time
Plain speaking and easily understandable content to make sense of pensions. Thanks Pete.
Cheers, Ken - glad it was helpful!
Thanks Pete, clearest explanation of the complexities of drawdown I’ve seen. 👍 How does drip feed drawdown fit within the model.. drips of UFPLUS? Also interested in covering the question that most providers insist on an adviser to allow drawdown… ie you can’t do it yourself… thanks again, great content..
Brilliant video extremely clear explanation of a complex area. 👍🏽
Thank you! 🙏🏻
Another vote for part 2 looking at the tax implications/practicalities of the different options and how to make the right decisions with regard to tax. I am still early in my career and am currently lucky to have a DB pension so I'm thinking that as that will use up all my tax free allowance the tax on any DC pots will play a significant role in my decisions with regards to additional pension provision planning. Given I'm still within the lifetime ISA contribution age bracket I'm wondering if I should focus more on adding money there than to a DC pension along side my DB pension although I know that your video on LISA v pension showed that the overall pot size for the same contributions favoured the pension still!
Very clear explanation, thank you.
You’re welcome Paul - glad it was helpful!
Thanks for a great explanation, I’m at that stage now where I need to do something with my pensions but it looks a minefield and navigating it is a worry
The best explanation on TH-cam and a must watch for everyone approaching retirement!
Very kind, thank you! 🙏🏻
I see that a fixed term annuity was not covered. Do you have information on these as another possible option. Thanks in advance .
Great Video, thanks. Please do a part 2 video that shows what we might do if our fund is lucky enough to reach a million or the lifetime allowance threshold. How that might affect our pot crystallization process. What would be a sensible strategy in that situation ? Especially if the investment might still be growing at a steady 7% py.
Good shout, Stuart - noted.
I’d also love to see this..thanks you
Yep, another vote for this. Would seem a good idea to at least do a £80k FAD each year to use your £20k ISA allowance in those circumstances. Would be great to have a part 2 that at least touched on such considerations.
I would love to see it as well
It will depend on individual circumstances and noting that pension is not subject to inheritance tax which is usually a big consideration.
Taking money from pension every year can help (and topping up your ISA, partners pension) either up to your personal allowance or using all your basic rate tax allowance. Also taking the full tax free lump sum reduces funds growing in your pension, but that typically then means managing a large taxable account and probably also an increased inheritance tax liability.
Hi Pete, really well presented as ever.
In terms of what else could be expanded on, I’m just a little confused as to what the actual difference between flexi drawdown and UFPLS is?
Is it purely the extra step of a drawdown account? Am I naive to think that’s just an extra account on your platform called ‘drawdown’ instead of ‘pension’?
Fine to keep the money invested as ever, it’s now just outside of the pension wrapper for things like IHT if you go down the drawdown route?
Assuming you’re pretty handy with the platforms, any reason not to just UFPLS as and when needed?
Great video Pete. I've been a keen follower of your content for a few years now (mainly podcasts) and I really appreciate the down-to-earth approach, breaking down potentially complex subjects into easy-to-understand bite-size chunks. It's my understanding that there's a further potential benefit to the UFPLS option with respect to limiting exposure to pension recycling, particularly for non-taxpayers. For example, someone who has built up a pension lump sum (i.e. in a SIPP) over a number of years can continue to contribute to the SIPP whilst at the same time drawing money from it. This is only permitted if the money taken out is as an UFPLS and is less than £7,500pa. This means it's possible to get tax relief on the contributions without triggering the criteria for pension recycling. This is not available (as I understand it) if the drawdown option is chosen. For non-taxpayers who have been saving up to £3,600pa into a SIPP over a number of years, this could be a helpful way to have a net increase in income, whilst maintaining the ability to continue saving into a pension fund with associated tax relief benefits. That's my understanding, but please correct me if I'm wrong as I'd hate to mislead anyone! Thank you for all you do and keep up the good work!
Hi Pete - I’ve been trying to work out some things relative to pensions for a while but not got as far as I would have liked in my understanding of options. However, after happening upon, and then binge-watching a load of your videos, most of what I was trying to understand has now been clarified - so many thanks for that. I know, most people are binge-watching Netflix, not pension videos, but hey-ho… needs must… :-)
I appreciate your clear coverage and content, but one area I still don’t understand is - what happens to the uncrystallised pot when taking slices off it (through the various methods)? You explain everything I need to know but then I am waiting to see what your opinions / the options are on the remaining pot - but that never seems to come up.
This is the: ‘asking for a friend’ bit 😊. Let’s say someone is 57 years old - wants to consider options on their pension today (as per all your videos I’ve digested thus far) - but at the same time has no realistic intention of leaving their employer until 65 years old. What happens to the uncrystallised pot during that interim period? I presume it continues to be contributed to and matched by the employer during these additional 8 years working - but what are the implications on taxation or moving more money during that interim period? I.e., could an UFPLS request be made - and then nothing further done to the pot for 8 years?
Sorry if that doesn’t make sense - but I’ve watched about a dozen videos now - and several times you’ve got so close to what I thought would cover this eventuality and then it never happens.
Thanks again for the excellent, clear, concise, and informative videos. Cheers!
Having read the comments a trip to see an IFA seems sensible. If you do a part 2 please an you touch upon IFA charges for setting up these options?
Yes useful as always - Five star :-)
Great stuff, Pete. I’d be keen to know more about how crystallisation works. If you take chunks over a few years, as I am doing, how does the percentage tot up and do you need to tell the tax man each time?
Interesting video Pete, you touched on an example that's exactly my position, small pension at 60, more at 65 then state at 67 👍
Great Video. Please do a part two video!! Interestingly a few of your viewers have been saying what I was thinking do you still have to pay tax on drawdown that is less than or exactly the years personal tax allowance I assume not but not sure? Also generally speaking should a flexible drawdown plan grow similarly to the funds in the original pension scheme?
Thank you thank you thank you. This is by far the most simple explanation of what can be a minefield for the less well educated in this subject. You just gained another follower.
And I’m grateful to have you with us, Rogue! Thanks for watching!
Just shows that the flexibility we have on retirement is adding confusion to which option to go for. In addition having DB pension which is inflexible by nature muds the water further. To finish it off add ill health into the mix and now I am seriously confused on making right choices😢
I’m 55 in a few months so this was much appreciated thanks. 😀
Really glad it was. helpful, Julia. 55 is just a number though - just because your pensions options become available then, doesn't mean you have to take them. plan carefully, the navigate the system to meet your goals.
Excellent video, I am thinking of retiring at 55,as work has got to stressful, I will want to work in my retirement but a basic job,I have 2 schemes with a company,a final that is now closed and a normal one,I have a long time I hope before I receive state pension, I am thinking of a annuity for the small pot I have to keep me paying the bills,no mortgage etc,and what you explained has helped me thank you
Great video many thanks Pete
Glad you enjoyed it, Gary - thanks for watching!
Very useful video and would like a follow up detailing the tax implications of UFPL vs drawdown.
Thanks Pete, very helpful, what would be the difference, having taken the 25% tax free amount, in leaving the balance within the company pension scheme or moving across into drawdown ? Surely the opportunity to grow and cost incurred are the same ?
Great video Pete. UFPLS was new to me but a bit confused. From your examples wouldn't flexible drawdown be more tax efficient.
Great Video, as you mentioned, its very high level. It would be good to give 3 scenarios for the draw down option based on what you would like to withdrawn percent wise. From a personal perspective, my wife is 15 years younger than me, and i will plan to retire in 10-15 years, so will be mainly living off her income, so my pension will primarily be a nest egg for her and my son.
Consise and to the point, really well presented. Thanks
Thank you Gordy!
Great video thanks, how easy would it be to take a regular ufplus say quarterly, leaving the remainder uncrystallised pension to continue to grow? Is this a common feature offered.
thank you for your video. my understanding on annunity was , that you will alway get incoming through out your retirement from your pot if it is CPI
Great video. Many thanks
Glad it was helpful, Chris - thanks for watching 🙏🏻
Really useful video Pete, good work.
Although... Cardinals fan? Oh dear.
Blocked.
(Not really!)
@@MeaningfulMoney 😂😂
Hi Pete, another great video. Easy to understand in simple language. I have a hybrid DB pension. But I want the flexibility as well as the improved death benefits from a draw down pension. I have tried to get the advice I need to make the transfer. But twice now my applications have returned with abridged advice recommending not to transfer. What would be a good reason apart from my imminent death for a positive outcome. Also, apparently I can go against the advise as an insistent basis. What if any would be the negative result of this action?
Thank you so much for making a complex subject simpler to understand. . I have three questions 1. How late can I change my mind to delay retirement for both state and private pensions? 2. How / where do I approach financial institutions to get Annuity offers? 3. How much do pension / financial advisors charge to help plan pensions when one is 8 years from retirement age?
Hi Pete,
I've really taken an interest in retirement planning over the last couple of years, as I entered my 50's, funnily enough.
I'm currently buying class 3 NI years for my wife, as this is a cast iron winner. She is 5 years older than me, so her pension will be helping me to retire early.
I have a DB pension that will pay slightly more than state pension, and a pot of 90k which I'm adding 8k p.a. to.
My DB lump sum (65k) will bridge the gap to my state pension. So my SIPP and workplace pensions are able to stay invested and chase growth, before going into drawdown. I may drawdown a little amount earlier than at 67, but after that, it will mainly be inheritance building.
I recognise how fortunate I am, that I began work at 16, with a good final salary pension, until it closed 26 years later.
When I talk with my peers, who have different work histories, I'm amazed at how many have taken or are taking their tax-free lump sums early, with little understanding of the future impact. It isn't even as though any of it is a strategy for security, like readying a home for sale, or investing in an alternative income vehicle.
Holidays, cars and "giving the kids something" is the order of the day.
Could you do a video that shows the impact of cashing out, on future earnings, as there seems to be a swathe of people trading their future comfort for "free money" now?
Excellent video and very timely! I'm weighing up options right now with the possibility of retiring within the next two years. The difference between UFPLS and flexi drawdown have been confusing me - this has helped a great deal but I still feel as though I need more. It would also be good to understand more about crystallization events and the LTA implications with respect to both options.
Agree, was wondering the same...does the LTA 'counter' only start once a crystallisation event happens to a drawdown account?
jblue, Mark, I would really consider getting some good advice from a reputable IFA.
I was recommended one and he was excellent at walking through all the options and the terminology.
The main LTA checks only happen at crystallisation (DB, annuity, UFPLS or drawdown event) and at age 75 / death. Each crystallisation has an LTA usage percentage assigned to it (e.g. 10.35%). When you cause a crystallisation that takes you across the 100% line then you start paying LTA excess charge.
Hi, just wanted to thank you for this video. I'm currently sitting my R0 Exams to become a qualified Financial Advisor and it has really helped me out !
Really glad it was helpful, James. Good luck with your studies!
Thank you so much! I'm early 40's and recently (along with my wife) become mortgage free, which has for the most part (but not entirely) been at the expense of retirement saving. So now we're fully in retirement saving/planning mode. I want to retire at 58, but I could not get the numbers to add up, particularly between 58 and State Pension age (thinking my only real option was the annuity route). The flexible draw-down option is what I was missing, where the bulk of the money continues to achieve a return (hopefully!). I've suddenly gone from thinking the numbers don't work to thinking they very much do. We'll probably want to draw down more from 58 to State Pension age, and then reduce the draw down when State Pension kicks in.
Amazing what that missing piece of knowledge will do! At the risk of coming across salesy, Meaningful Academy Retiement Planning will help you out a plan together for investing and drawing down of your pots. There’s a discount code of TH-cam if you think it’s for you: meaningfulacademy.com/retirementplanning
Very helpful Pete and explained in simple terms. Would like to understand a bit more about the pros and cons of drawdown v. UFPLS as I cant see any advantage to going into drawdown?
My understanding is that with UFPLS, you're basically forced to take the 25% taxfree and 75% taxable at the same time. With flexi drawdown, you can take the 25% cash only, leaving the remaining 75% invested. Basically, FAD can do the same thing as UFPLS, but it gives you more choice.
Hi Pete, Another great video, also been following your podcasts for a couple of years, thanks for all you do! I'm with Standard Life and I requested and took my very first UFPLS withdrawal this tax year, the tax free portion went straight into my account but confusingly and contrary to your statement it didn't "avoid" a Drawdown pot, there was a period of days where the taxable portion went into a Drawdown pot (I had to assign associated funds to it), then eventually a week later it landed in my bank account (after tax). So it seems my UFPLS is actually flexi-drawdown that auto-feeds my bank account 7 days later! Confusing eh! 😕
Very! Doesn’t sound right to me…More like a hacked workaround version of UFPLS!
Quantitative easing has buggered the bond market, and hence annuities.
How does pru growth plus or similar platforms where returns are smoothed over a period of time fit in your explanation on types of drawdown? Are they platforms you would consider or have a view on?
Thanks, I have learned quite a bit from this video. Retiring at the end of the year and reluctantly think I need to understand pension options.
It'll help you make an informed decision, Andy. but this is the best time of your life to seek professional advice too - lots of options and the repercussions of your choices will last a long time. Good luck!
Excellent video. I’ve been withdrawing using UFPLS for about 4 years. (Different amounts each year to maximise my free-tax). Now I’m fully retired and, through your video, understand the balance of my pension fund is ‘non-crystallised’. Does this mean, though I’ve taken some UFPLS’s I still have the option of the ‘FAD’, & withdrawing up to 25% of the remaining fund tax free? Thank you.
I am even more confused now :-) Pete please make part 2 with examples for the long term for each option
Noted, David - thank you!
Great video Pete cheers, changing job from public sector 23 years pension DB to being self employed at 50 end of this year😀 all very confusing don't have any children so going to load Isa every year for most flexible tax wrapper . Part two would be greatly appreciated Pete very new to investment world and find your videos very informative thanks again.😀
You're missing out on a taxman bonus of 20% or more,by not using your pension.
The older you get, the closer you are to getting access to it.
Thanks for commenting 🙂 may open a sipp alongside Isa , however investments are focused on property renovation for next 12 to 18 months so need liquid funds. Very interesting site and great community comments 👍
Great video. I was part of a final salary scheme that did not offer an option to stagger or phase annuity payments. I have a, service pension also. Retired at 57 so wife and I have around 10 years to State pension. At that stage, we would have 'too much' pension, but at 57 not enough with annuity.
I chose to take a Cash Equivalent Transfer Value and transferred all funds (including AVCs) into my own SIPP. Never looked back!
Crystallised around a third to pay off small mortgage, and I take a moderate drawdown monthly. Around 2/3rds is uncrystallised and is invested, when our state pensions cut in, we intend to reduce drawdown by about the £20k. Happy that in the unfortunate event of my death, all funds go tax free to wife, and eventually to kids. QED.
@MulberryEllie no glad you asked. It can be fairly simple and you need to find a good adviser. If your reasoning is sound you will get it past the censors. I can message you separately if you would like more info. To transfer out of a DB scheme has become increasingly difficult. Without sound reasons, near impossible. If you can privide sound, reasoned justification and your advisor can present that cohesively, you'll be fine. Most advisors put the case to an independent auditor for two reasons. 1. they're acting responsibly, and 2. their insurance underwriters insist on it. My advisor worked to 1 and 2. My justification was really twofold, to ensure my wife and dependents got all of my fund in the unfortunate event of my death, and to bridge the gap to state pension age whilst retiring earlier.
Hope you can make it work for you.
If you take the 25% tax free cash from the pre-retirement pot. Does the rest of the pot have to more into drawdown and trigger MPAA? Or can it be left in pre-retirement?
Hi Pete, you didn't explain what the options are for us who are public servants in DB schemes. Are there any choices for us. Public Service Pensions have been a complete Shambles since 2012 and no-one seems to know what they are entitled to or when they can retire.
Cheers Pete. How does it work if you have a decent amount of money in stocks and shares ISAs invested in a split of shares and bonds? How does drawdown work there?
Very informative video - thanks! I didn't know of the UFLPS option - but one question in that situation - where does the uncrystallised pension fund lie? Does it stay invested in the original pension pot - and hopefully grows?
Yes, what you don't withdraw as UFPLS remains invested in your original uncrystallised pot.
Good starter video. What about personal pension allowances and the impact these could have on FAD or UFPLS. Could a part 2 to this video cover that subject?
Yep - duly noted!
I’d really encourage people to part with a small amount of money to get professional financial advice. I’m so glad I did recently. It pays for itself. (I’m an IT worker not an FA by the way!)
Hi Pete,
UFPLUS / Flexi Access Drawdown.
Assume I do not have a job, therefore £12570 income tax allowance. How to manage the UFPLUS vs Flexi Access Drawdown?
Hello Pete
Is there any limit to the number of times one can take money by UFPLS per annum? I know the answer may be dependent on who provides the service but does HMRC have any rules regarding this?
Hello Pete I have a question about stocks who have been so successful over last couple of years that they are having to split their stocks to keep investors interested and invested i.e Google and Amazon? Are there any signs that we should be looking out for before i buy more after the split?
Great video as usual with simple to understand explanations. Is any money in a Drawdown also exempt from IHT?
Yes, it is still within the pension wrapper
Watched a few of your videos now Pete, very informative. My question is, what are your thoughts on a Multi Year Guaranteed Annuity set up? I have been given this option by my financial advisor for using some of my available funds I have in preparation for retirement in 2 years. Any feedback would be most welcome.
Another great video. If you crystallise into drawdown in stages, do all the drawdown funds go into the same drawdown account or are new drawdown accounts created each time?
Usually the same account, but I can't see any reason why you couldn't have multiple drawdown accounts if that was a preference and the scheme/provider facilitated it
Pete great and clear video. May I just check, while funds are in draw down account, they're still within the pension wrapper?
While with UFPLS ,one looses pension wrapper as soon as the lump sum falls into one's account.
Correct, but only the UFPLS payment itself falls outside the pension wrapper. Any uncrystallised funds not used for the UFPLS payment remain within the pension wrapper in the original uncrystallised pot. Any crystallised drawdown funds not actually withdrawn also remain in the pension wrapper, but in a separate crystallised side pot and not in the original uncrystallised pot.
@@matttyrer9096 great explanation. Many thanks for sharing your knowledge and experience 🙏
UFPLUS seems like a very similar arrangement to Drawdown. There must be some reason for having both these methods of withdrawing money available. I would like to know what the difference is between them.
The clue's in the name, Lorna - The LS in UFPLS stands for Lump Sum. Drawdown allows you to draw regular or ad hoc amounts whenever you need from the drawdown fund. UFPLS is a one-off lump sum and avoids the need to set up a drawdown account altogether. Whenever you take an UFPLS, 25% is tax-free, the rest is taxable.
@@MeaningfulMoney Can you only do one UFPLUS per annum Pete ?
@@lesdunham3513depends entirely on the scheme/provider. There's not a statutory minimum such as one UFPLS per year.
I think the key difference is that UFPLS effectively forces you to take the 25% tax-free and 75% taxable cash in one lump. Drawdown gives you the option of taking the tax-free cash only, while keeping the 75% taxable part invested. Basically, it's more flexible
What’s your view on lifestrategy or similar funds . I’m 69 and want a simple drawdown . Many say lifestrategy is too uk biased
Would I have to take all of my tax free money at once, and is there any time limits for taking it. Thanks.
Excellent explanation of the different options. Question relating to UFPLS.... can i do it myself or again does it have to be done via a financial advisor.?
You can do it yourself easily enough, as long as your pension provider allows it
Morning, I have a DB pension and an AVC. Can UFPLS be applied to the AVC part like a DC pot or is a tax free drawdown handled along with the DB and applied consistently for both pots?
2. My wife is in an NHS DB pension and I was wondering if it would be be better to start a separate DC scheme or start an AVC with NHS? What is most flexible?
Great video thanks - you said there are some good platforms to help you manage your drawdown for future investment. - what are they ?
Lots of good options. HL, Interactive Investor, AJ Bell are the big hitters, but there are lots of good options. Suggest you check out the Boring Money website for a good comparison guide
Very clear, thanks Pete. There is a 4th option that you didn’t mention: take all of your pension as cash in one go. Probably this is not a good idea for most people though and better to leave as much as possible invested to (hopefully) grow or buy an annuity, although I recently got a quote for an annuity and it was pitifully small, I guess because I’m relatively young and a non-smoker etc.
Jeez - that's rarely going to make sense for anyone with a decent size fund, Steve. They'd pay 40 or 45% on most of it and then what's left would potentially be subject to a further 40% inheritance tax - ouch!
Would that not give a big tax bill ?
It's not a sensible option for 99% of retirees due to the proportion of the pot that would be eaten up by higher rate tax , far better to spread it out over a few years.
Am I missing something about UFPLS ? Why would I not just treat that as a drawdown and get lump sums as and when or even say monthly akin to I imagine how people would treat drawdown. Limits / costs / ???
(Also, great channel.. much appreciated !!)
I think I have a pretty simple scenario but I need to clarify something. I am 56 and have a defined pension pot, that I intend to Unchrystalise this year. My intention is to pay off my mortgage, using the tax free portion of this pot. The amount left on my mortgage is, give or take a few hundered pounds, exactly 25% of my available pension pot. So to use that 25% tax free amount to pay off my mortgage, is my only option moving the whole pot to a Flexi drawdown?
Great content - What is the difference between UFPLS and just selling some stock in your SIPP?
To get money OUT of a pension you have to crystallise in some form, usually either FAD, UFPLS or annuity. Selling stock within the SIPP doesn’t do that because the cash stays IN the SIPP. Make sense?
Thanks for this it was very clear to understand all the information as always!
I have a question, in my current job and previous I pay into my pension, like most they deduct it from my monthly pay. However, the funds don’t actually get deposited into my pension pot (previous company was standard life, now currently aviva) till around 21+ days after. Now this compounded over a lifetime of having my money in “limbo” as such, and not invested would add up greatly, surely? I understand there is a practical process of moving the funds over and this will take time, but 21 days in todays age seems excessive… anyone have any thoughts on this?
You'll still be taking advantage of the Pound Cost Averaging effects just the same so I wouldn't worry about it too much, tbh.
In your UFPLS example there was no mention of allowances. Can you please clarify that if you take full 25% tax free cash at 55 the first ~£12k of whats left is tax free ? I’m 51 and have approx £1m fund and being born in 1972 straddle the 55/57 age to access 25% tax free pot. To maximise my options and de-risk a different govt changing pension rules my pension coach is advising to take max cash to maximise my options. However just want to be sure if I do this is ANY amount then taxable or just that over 12k ?
Thats right. The remaining 75% is taxable , but your income allowance still applies - so you don't necessarily pay tax on the first 12k ish
Nice and clear but more details always welcome! The one area I've read that seems to be a real problem is the way HMRC taxes various options assuming they are regular payments but may in fact be a one-off.
Example - Say I have 1 DB pension, 1 DC pension and State Pension. What is my tax code based on? Does UFPLS cause over-tax every time?
I agree this is a real pain, Pete. I find myself continually warning clients that they might get over-taxed and have to wait for a reclaim. This is particularly challenging earlier on in the tax-year. This is the kind of thing that I might need to do a part two for, so thank you for raising it!
@@MeaningfulMoney Yes please Pete, I'd love a part 2 that covers how withdrawals are taxed as if they are recurring withdrawals, even though they are not.
Interested that you say it's harder earlier in the tax year. I was looking to time my retirement to the start of the new tax year. Would be interested to know why you say that, and what the timing implications are here
@@MeaningfulMoney is it actually better to start retirement at the start of a tax year. If you are lucky enough to have that option especially if you have 3 pensions kicking in at the same time
What happens if I retire in the EU and I need the money there and not in the UK? Is there any taxation or other benefit in doing so?
Hello I have contributed into a D.C and at the moment I was planning on retiring soon I have found that although I have contributed 184690 to date the balance in my pot is only 193586 ? Tge pension company defaulted me into retirement fund and a cash fund why has my pot grown by very little? What has gone wrong ?
Very helpfully explained, thank you. You showed clearly that draw down provides a "tap" of income that is part of your taxable income. But when you illustrated the annuity "drip" you didn't mention that it also forms part of taxable income. So if you have a State Pension and maybe income from rental of occasional work, the annuity is part of taxed income. This is right?
It is, Rob, yes.
Very good video.
What if you draw down the whole amount.. Take your tax free lump sum, and then put the rest into some sort of trust fund that gives you access to a tax free yearly amount.?
I thank you 🙏🏻
Thanks. Nice video. Do I have to open drawdown account in a bank or is it an account living within SIPP provider platform? Do I open it myself or will it be done kind of automatically the closer I get to the age of 58? Finally, what would be the super safe witdrawal rate for the retiree assuming his pot should run out of money after 15 years (after that, other income sources will take over)?
The drawdown ("crystallised") pot lives within the pension alongside the original uncrystallised pot. Not all SIPP providers necessarily offer it though. If not, you many have to consider a pension transfer to another provider who does.
Draw down pension comes with varying levels of fees. So, transferring in to drawdown small amounts you would be hit with higher fees. Typically fees are related to amount such as under £250k has a higher management fee than £300, over £500k no management fee. So, drip feeds into drawdown under the fee threshold’s will cost you in higher fees until you reach the fees free threshold. UFPLS is probably a better and cheaper option. Just manage where your pension pot is invested and chosing your fund(s) depending upon risk appetite!
Whats the advantage of leaving your funds uncrystallised? Why would you do that?