Here are the two videos I mentioned: 🔴 th-cam.com/video/jEbYkc1EwZc/w-d-xo.html - Click here to watch Pension Death Benefits 🔴 th-cam.com/video/NOIivz8_QuA/w-d-xo.html - Click here to watch Drawdown vs UFPLS vs Annuity
The way the world is and the "sudden" decline in peoples health I'd advise in taking ALL your pensions if over 55 and enjoy it while you can , when the crash comes you'll lose most of it anyway!
The reason I want to take out my full tax free cash is I want to bridge the gap between late 50’s and a D pension at 65 and subsequently a state pension at 67. If I draw around £16k per year I could take 25% tax free and the rest would keep me at or below the tax free earnings allowance. However, I can’t live on around 16k but if I take more I will be taxed. If I take my full 25% on day one I can live off that for quite a few years while still drawing exactly the tax fee allowance from my pot each year. So I get more tax free out. Eventually I will run out of tax free cash and by that time I will need to pay tax on earnings over the tax free allowance. But in the years to that point I have extracted and lived off a significant amount of my pension tax free.
Yes please! Reasons why you should take all your TFC would be great. In my 40s and love dorking out, thinking about retirement planning! Love the vids (and podcast)
If you don't take the tax free lump sum and buy an annuity (get quotes & compare with & without TF lump sum) it generally takes in the region of 12 years for this to be 'paid back'. If you die in this time it's lost, if you take it, you can earn interest / invest it or spend it and pass it on in your estate albeit it would then be taxed. In the UK life expectancy is approx 85 this is even more relevant if you take the pension later in life eg early to mid 70s. None of us know how long we have got left!
Being ‘intentional’ is the key word, as you say Pete. I took out 2 chunks of tax-free pension cash to fund a property project 3 years ago, partly because I didn’t want to leave all my pension eggs in one basket and at the mercy of the stock market. The house is now complete and I’m cashing in and selling up. If the agent is correct, the property has doubled in value. In contrast, the stock market has struggled. It was a risk, but it appears to have paid off, although I’m glad I have left the rest of the pension to build for another day
Good move by you. For the last 25 year plus, property prices have, on average, kept well ahead of inflation. Currently there are over 3 million rentiers in the UK, who own at least one property which is rented out. Flipping houses, buying cheap at auction and doing them up, then quickly selling them, is also a good idea. However, Buy to Let, with now higher than usual interest rates, is not such a good prospect.
Thanks Pete for another great video. One reason I have thought it would be good to take the tax free lump sum for a DB scheme is where taking the tax free cash brings the annual pension payments below the 40% tax band. Not taking the tax free cash may leave the pensioner with a higher gross income but paying more tax as he/she is left above the 40% tax band.
The success of this approach depends on how rosy the commutation factor is in your DB scheme and your life expectancy. In my DB scheme, the low factor means a lump sum makes a relatively big dent in my Pension. In scenario A), I take a lump sum to reduce the 40% tax burden on my pension and then draw down the invested Tax-Free lump sum to augment my reduced pension. My lump sum cash will last about 12 yrs. After that, I have to live with my dented Pension and reduced NET. In scenario B), I don’t take a lump sum, so I pay more tax as more pension is exposed to the 40% rate (as per your comment). The calcs show that, ultimately, I will receive more NET every month for my whole life - which is hopefully more than 12yrs retirement. I take the difficult mindset that paying extra Tax is necessary. I consider the DB scheme as an inexhaustible pot of money that I didn’t earn through hard work. So, when I detach myself from it’s provenance, I have less concern for the higher tax taken. If I live longer than 12 yrs, then I will receive higher NET overall than any lump sum 'trade-off'.
Always useful but aimed at those with large pot and savings. I am a "waspie" not allowed to join company pension hntil 25 years old but then took time out to care for children. My pot is no where near the size you mention - perhaps one aimed at my level would be helpful to lots of people. Also my pension pot lost £12000 last year - am mortified! Still paying, along with my employer, into this bottomless pit.
Would love to see reasons TO take the lump sum please. I'm currently about 3 years from an early retirement and taking the lump or part of it to bring down my mortgage payment once my fixed rate finishes is definitely a consideration. Thing is though if I leave it invested I can probably afford the bigger mortgage anyway...... I guess it'll come down to interest rates at the time and also whether my fund is in reasonable shape. Thank you for all of your videos, they've been a huge help to me in recent months planning my retirement. I'm now completely "intentional".....
Don't often comment Pete, but just wanted to say how incredibly useful this video was... I'm going to retire in about 3 years time and always have been rather perplexed/confused as to why taking the 'conventional wisdom' of taking the tax free lump sum was a good idea. Surely better to take the tax free cash as needed over time and leave the rest to grow in the pension wrapper.
Glad it was useful, John - thank you. The point really is to be intentional and think through the options for YOU and your situation. Conventional wisdom is at best a kind of mushed up average of what kinda makes sense for many people, but it might make no sense for us as individuals.
Some compelling reasons not to take the tax free lumpsum from a DC pension fund Pete. I live outside the UK so my comments might not be entirely correct. However if one is drawing an income from the DC fund it makes business sense to take the maximum tax free portion and live off these funds first. If you didn't do so you would be paying tax on any drawdowns unnecessarily as these are taxed as income from the very first payment. If one has sufficient discretionary funds to live off then your points about estate planning benefits etc makes perfect sense. In some Countries the tax gets progressively higher as one draws a larger lumpsum from a DC fund at retirement. Even under this scenario it may still make sense to draw the maximum lumpsum factoring in the progressive taxation especially if this equates to a lesser overall tax rate when compared to just drawing a regular income. I'm sure you will address these issues in a future presentation. Great content. Thanks
Hi Harold - interesting points. I can't speak to the position in other countries, of course. And a great deal depends on the individual situation. you may actually want to draw taxable income from a pension if that income falls within the 0% tax band - the personal allowance. As ever, there are as many different situations as there are viewers, which is why I can only present things to think about, rather than definitive answers. I'm glad they're helpful though - thanks for watching!
@@MeaningfulMoney you're absolutely right Pete. I live in South Africa and youtube recommended your video. Whilst the laws differ from Country to Country some points of principle and strategy are universal hence I find your content useful. Most of your comments regarding Not taking the tax free lumpsum apply to us as well. However, our tax threshold is so low as to be of no benefit to anyone so maximizing any taxfree lumpsums is the way to go unless one factors in everything you covered earlier. Will continiue to watch your content as you have a refreshing presentation style and very topical subject matter. It's also noteworthy that you see fit to respond to as many viewers as you do. Best wishes.
Always useful information Pete. As several other comments have said, a comparative video on why we SHOULD take the 25% tax free cash would be really helpful. Would help to make our intentional decisions!
I was thinking placing it in a GIA for 12.5k CGT , combine that with 12.5k IncTx allowance, thats 25k tax free. So its more tax efficient than just keeping the whole lot solely in a pension. Everyone I speak to thinks its a terrible idea though so I'm deffo out of step on it.
I took my maximum allowed lump sum 5 years ago. We wanted to finance the build of an extension on our property, without borrowing any cash. We no longer have a mortgage. The extension cost around £30k, so I still had a tidy sum left over for a rainy day...
Yes to the next video I was in the NHS 95 scheme took it at 62 and took the max lump sum. Rejoined the new 2015 scheme. This was to reduce my tax (higher rate) on my new Inc pension. Intention is to ISA the lump sum. Reduce income by paying additional amounts into the new pension. Hopefully leveling up life time income and having cash available for big spends IE new car uPVC double glazing. Holidays etc. Hope it works out ..........😊
@@stevemccann4327 and quite right too. Pensioners have never been better off than now and it’s all at the expense of the younger generation. We need to accelerate wealth redistribution from the richer old generation to the poorer young generation
Great. More information for members of DB schemes would be useful. I am a member of a DB scheme. I found the 25% cash free amount from the scheme was about 50k. I looked at buying an annuity to replace the lost income the cost was around 100k (at best). Not a good deal. The reason is the scheme was setup decades ago when life expectancies were much lower. The formulas used to calculate the 25% have probably never been reviewed as is likely to cost the scheme money. Hence subtle promotion of the 25% as likely to save the scheme in the long term and reduces future potential liabilities. Only two circumstances I can think of for taking cash from a DB scheme are poor health or high interest debt.
@@MeaningfulMoney Thanks. I also have a question about inheritance. Can pension funds also be inherited by non-dependants ? For example more distant relatives like cousins or even charities. Would it still come outside Inheritance Tax ?
An old video, but it got me thinking about buying a nicer house for retirement. Would love to see a video on using tax-free cash vs income drawdown to buy a home and the tax implications of this. Keep up the awesome work, Pete! 🙂
Hi Pete thanks for the excellent video. However please could you update this after the 2024 budget, You have to take into account the changes future governments could make , like removing the tax free cash , or they could make pensions taxable on death . Currently uncertain times under the current government
Thanks Pete. I'm retiring in a few years time and thinking of taking full TFC as hit LTA limit. Pay off mortgage and use the rest to live on while taking the my personal annual allowance £12570 out of the remaining pension pot until the TFC is used up. I can then worry about taxed pension withdrawal.
I would definitely like to see the reasons why to take the maximum tax free cash video Pete, particularly addressing the issue of the LTA. Because surely if you’re close to or already over the LTA, then taking cash out now from a DC find would help in mitigating against future growth and exceeding the LTA (with its eye watering 55% tax rate).
Its great to get some clear and unbiased advice regarding pensions, thank you. I rang one advisor who said they couldn't advise me because mine is a local government pension and they are 'very complicated'...(great!) My actual pension office were better...but said that I would pay tax on a yearly pension of 11k...I thought anything under 12.5 k wasn't taxable?
You’re right - if your £11k pension is your only income you wouldn’t pay tax. It’s taxable income, but it would be taxed at 0% if you see what I mean, aa it would fall within the personal allowance. Once your state pension kicks in, this would take up much of your personal allowance, making more of your work pension taxable.
i took full pension from my wroks pension, best thing i ever done, all the other people i worked with took lump sums out of their pensions and said i was mad not too, but pension is almost my old working wage ,
I plan on taking a big chunk of tax free. I want it to be readily accessible to pay for house repairs etc. Check out the cost of jobs at moment on my four bed modern home. New plastic facias and gutters 6k. New garage door 1 k. New boiler 3.5k. New windows 16 k. I am also planning to buy a bigger home on retirement.
Many thanks for posting this and it all made good sense, your videos are clear and you keep things simple which I really like. I have a few questions about retirement including how to fund a second place. We'd like a little base in Flanders with a budget of €250,000 and wonder whether we should use tax free cash from the pensions or cash from our ISAs. Is that the sort of thing I should get answers to from subscribing to MeaningfulAcademy?
This video is at least 2 years old. At age 72, with unvested pensions, and the threat (however speculative) of the tax free cash option being removed in the October 24 budget, the option of taking tax free cash finishing at age 75 anyway, and the stock market being relatively high at the moment, who WOULDN’T take their 25% now and switch the rest to Drawdown? I certainly am doing!
I will be only drawing out my DC fund’s tax free cash over many years on a flexible drawdown basis but I think the considerations are different for my work DB pension and plan to take that lump sum. This is because it seems to be a one-off offer with a DB scheme, ie if you don’t take it when you retire, you don’t get the opportunity again and, with a reasonable investment strategy, I should be able to produce an income which exceeds the lowering of the regular DB income. What are your thoughts on these differences?
Taking the tax free cash is a very sensible thing to do especially when your pot is performing woefully yet still incurring management fees.If you don’t wish to spend it while you can at least invest it in 1 or 2 year bonds that are guaranteed to give you a return.Managed funds are not so beware of false growth predictions.
Great set of videos. Yes to why you should take TFC. Also, loved the three scenarios from the recent video you did explaining the LTA issues. Any chance you could explain reaching the LTA before age 75 and what then happens at age75 wrt paying more LTA. Thanks again for these invaluable videos
Hi Pete, I think everything you say is true for DC pensions but in my (recently closed) DB scheme I can swap about £4k of pension for £172k of tax free cash (and still leave a DB pension of about £26k at age 60). Given that if I took the money as extra DB pension it would be taxed at 20% it seems to me it would be rude to refuse the cash as I would never live long enough to get the extra £172k. Plus if I died young my family would miss out on the tax free cash as the DB pension essentially dies with me (even if they did end up having to pay IHT).
I'm in the same position Richard with roughly the same numbers & have come to the same conclusion. At the risk of stating the obvious, it's worth mentioning that the £172K doesn't just sit there, it can be used to generate additional income OR save on expenses (e.g. if you have an outstanding mortgage it may make more sense to pay this down than take the additional income). For me it will go towards buying a Condo in Thailand & save me the £750 pm rent I currently pay (£750 * 12 = £9K pa so giving up £4k to be able to do this without selling any of my other UK assets feels like the best thing to do) Pete: Thanks for the great videos, as many others have said would love to hear your views on why it makes sense to take the cash free lump sum.
Here is one reason you might CRYSTALLISE but leave invested, your max TFC. I am expecting that at some point the Government will move to reduce the TFC allowance. Maybe abolish it altogether. But the point about leaving the money in the pension wrapper to protect it from IHT is an excellent point, which is missed by many.
Hi Pete, another excellent video. thank you. In the next video, I'd be interested to know your views on re-investing £4k Money Purchase Annual Allowance (MPAA) back into a SIPP after accessing the pot. Also to explain the rules & tax relief.
I was in a DB scheme. I seemed to be in a minority by opting to take the minimum lump sum and getting a higher annual pension. I retired at 54 so a higher indexed linked annual pension seemed the best option. As you said Pete I didn’t have a need for the cash and interest rates were so low.
Such a necessary video, Pete. I know too many people who hit 55 and take the cash, without even a second thought. Why save for retirement, if you spend a quarter of your pension before retirement? I have my plans and I want to build that tax-free amount as much as I can. The only issue I have is, my former employer doesn't index the DB pension in payment. They promised to, when they took over the company and scheme, but have reneged on that. As such, retirees have seen their pensions lose 12 % in real terms. I intend to negate that, somewhat. I will take the pcls, and put it into S&S ISAs. Take from them as I need, until state pension age.
Hold on a second.... I have a DB pension. I've been told by certain retirees that if I die while still employed.... My wife gets a 50% widows pension + my kids get half the lump sum each. However..... If I die after retirement then wife still gets 50% pension I would've received but the kids get nothing.....
You'll need to check your scheme rules, Chris. The death in service benefits will be different from the benefits if you die after you've retired. The lump sum you talk about the kids getting is probably not the same as a pension lump sum - it'll be a kind of employer sponsored life insurance payout most likely, as part of your employee benefits.
This seems to be all down to the opinion of the advisor. Yesterday I watched a video on here where it was stated that you should ALWAYS take your tax free lump sum. Looks like you have to weigh it all up for yourself and do what you think is best.
Pete many thanks once again for really useful advice. At a mere 51, this helps me to make better decisions in the future. Yes 5 reasons why would be great. Keep up the good work :)
With the new budget on 30 Oct 2024, government has informally indicated that they will limit lump sum tax free and make DC subject to IHT. If that happens then it make sense to draw tax free money now. For death after age of 75 years income or withdrawal by children from crystallised pot will be taxed at children's marginal tax rate at the moment but change in IHT law means that children would be paying 40% tax instead of say 20% income tax 25% tax free could be passed on using 7 year rule to children now. All government seems to close tax saving measures and injects too much uncertainty especially for anyone with health issues and lower life expectancy
I have a DB pension and a SIPP. If I retire and trigger my DB pension at 55 years old but not do not touch my SIPP, am I able to continue to pay into my SIPP? Are my SIPP allowances/annual threshold affected in anyway?
As ever great video. For me these have been confirmation that I have taken the right approach (I had to do loads of research of my these videos would have really helped me 3-4 years ago). Keep them coming 👍👍👍
My small DB pension, payable as standard at 60, goes up at 8% a year plus inflation, so I intend to defer it until 75. I also have a DC pension which should hit £500k in today's money by the time I'm 60, so I'll draw down on that and take the DC at 75 alongside the deferred state pension.
I have only recently come across your channel, so I hope it isn't out of order to make a suggestion: about equity release. As far as I can tell, you haven't done a video on this topic for about 10 years(?) during which time house prices have reached truly insane levels and (although they are beginning to rise again now) interest rates are still really low. For what it is worth, my own motivation is to release some money for our children. If it's possible to do an update including plans that you can mitigate by making repayments, that would be really helpful. Apologies if I have missed something more recent.
It depends on your circumstances but i'd say take the money. My wife took her tax free lump sum when she was 62 and in very good health. She died suddenly 5 years later. All that sum would have been lost under the terms of her pension. You don't know how much time you have. i'd always take the money and make my own decisions.
It is the best argument for taking the lump sum. I have seen this happen all to often. I took my lump sum, invested it and drew off it when needed. Remember the old adage, you never know what’s round the corner.
Agree that a video on why you should take tax-free cash would be helpful. Might taking it and putting it in a GIA mitigate the effects of LTA charge at 75?
If you take dividends from your sipp but do not touch the actual pot, are they tax-free ? As they are paid as cash and sit separately from the main investment.
I'm a UK expat in usa for 14 years now. Just became a usa citizen. I have $30k (in pounds sterling obviously) and want to know how to get it here basically with minimum tax burden. I opted out of SERPS in 1989 and used Aviva. I just need the cash. I have all my properties paid off, rental income and no debt. Any advice welcomed.
Thanks. but the more in the pension growing does that not mean more commision for the pension provider gets in commision or the fiannace advisor gets?. Maybe I've got it wrong, would love to see the maths on this one.
In the UK, commission has been abolished on pensions and investments since 2013. But if you pay your adviser an ‘ad valorem’ or percentage-based fee, then yes, as the pension grows, so does the fee to your adviser and the pension provider. It’s up to you how you pay your adviser though - fees are agreed between you 👍🏻
Great video! Luckily we started quite early investing into our ISA's and we are hoping to retire a little bit earlier (still 20 years to go!). I have a DB and OH has DC which we have both paid into but we dont even factor it into our retirement planning, so hopefully it will be a nice bonus when we get there. It will also be super beneficial tax wise as my allowance will only be used up with my DB and State pension whilst my ISA will hopefully remain tax free to withdraw from.
All true. Don't discount the benefits of complementing your ISA savings with pensions. I did a video called Pension vs ISA - might be worth a watch: th-cam.com/video/y-4s1wqwQ7k/w-d-xo.html
Retired 2 years ago, my wife and I have found it so much cheaper to live now not working. House paid for, all be it with a Homewise agreement. ( I would recommend looking at Homewise for any house purchase later in life). 70 now and still have not touched pension savings, except for part of the tax free cash used for our house purchase. I recommend to everyone, a range of savings going forward, ISA cash and stocks and shares, cash ( at least a years expenses), premium bonds ( we live in hope for the million but you still have the fall back to cash in,) state pension ( for us oldies SERPS was a huge help} don't forget the annuity ( took out two small annuities and really was a great move regular monthly income helps. Life is comfortable for us, but you need to plan and plan early in life.
Great advice, I am only 32 but luckily me and my partner have been investing in our ISA's from a young age whilst our friends were financing cars. Hopefully our pots will be large enough we dont have to rely on our pensions but every bit helps!
doesn't make sense to me - if i have a DB pension it makes sense to be to take 25% tax free and investing that - the capital becomes tax free whereas if left in the DB scheme it will all be paid out as taxable income
If you have one very large career pension fund and two or three smaller funds from earlier employment, then it may well be beneficial to take cash from the smaller pensions, after all, having a £10k lump sum in cash is a lot easier than having to save or otherwise find £10k for some urgent need. Otherwise, I would agree that in the case of index linked pensions, keep every last penny in the pension and receive a larger payment each month. Another point worth considering is your general state of health at retirement age. We would all like to think we will live forever but certain jobs and lifestyles do tend to have a relatively short period of survival after retirement. In such cases, taking a lump sum to do with as you please may be more important than looking forward to 30 or 40 years of having to live off your pension savings.
Pete, yes I'd be interested in further discussion of tax free lump sum. No children in our case so beneficiaries irrelevant. Other than indexation of a DB pension I can't see why I wouldn't take the 25% as I can shelter that in ISAs outside the pension wrapper, the only issue being multiples of annual ISA allowances needed. But maybe multiple extractions is better than a single extraction for that reason alone.
Watch this space, Robert. But remember, even though you can only add £20k (each) into an ISA, you could still be investing that money in a GIA and shifting it sideways to an ISA each year. At least then the money is working. But yes, by taking TFC in tranches, you could potentially increase your TFC over time.
Yes also agree that a videos on why you should take 25% tax free is a good idea. I may move to a country with no such benefit (Aus.) so under my circumstances is it sensible to take it out? An investment of that cash in equity would still be subject to cbt I think.
I did that video here, Graham: th-cam.com/video/iTTOzX8dAGA/w-d-xo.html Your specific question about taking the cash and moving to Australia is a bit out of my area, so I’ll pass on that one!
What about people who don't have beneficiaries and are going to leave their estate to charity ? So many different combinations, love your channel and advice is always well thought out. Have you done a video on how to find a good Independent Financial Adviser if you are not happy with the one you have now ?
Something I'd never considered, whats the point in just adding to your savings if you already have some tucked away for emergencies like a broken boiler or washing machine etc ayway....a very good point. Im confused though, why do I read that you are not taxed on the first 25 percent of a lump sum, but I've been told by someone in my lgps pensions department that its all tax free???
@@MeaningfulMoney thank you, much appreciated...I definitely wont take that after you point about just adding to what I already have..it might 'feel good' to have a decent bit in the bank, but its pointless, being a small amount it would get spent in no time, and I wouldn't consider investing it, I'm not really a gambler
I lost my kid some years ago & spent years paying off medical bills. Now I'm nearly 55, I have little savings, no pension & I have no idea what I'm going to do. For the last 10 years I've been living on a Greek island as its much cheaper than living in the UK. What, if anything, can I do to turn things around? I get no help from Greece or the UK, I've just been working online living from month to month. I'm really worried.
I’m sorry for your loss, Stuart 😞 - As to what you can do now, there’s no magic bullet. You’ll likely have to work for a while yet, and make radical changes to how you live, most likely. You’ll have to save and invest money so that you can spend it in the future. You’ll need to dig up details of any old pensions you might have had while in the UK and see what they might add up to. But other than that, as a non-UK resident, I can’t help much, sort. I wish you well…
@@MeaningfulMoney Thank you for your valuable feedback, its appreciated. I did meet someone here who told me I can keep paying into the state pension from here, at a lower rate. And I did manage to half my expenses my moving here too. I suppose I'll have to try and get as much work as I can over the next 10 years or so & hope for the best. Thanks once again.
Maybe - depends on when they started investing and what they bought their shares at! But yes, it might make sense to delay taking tax-free cash in particularly volatile market conditions. Though bear in mind that the cash could easily be invested again...
Rightly or otherwise I took my 25% tax free and put into my self build house. Another investment vehicle and as my principal home free of CGT. No family to leave pension too, spend it b4 I exit.
Well, it really depends doesn’t it ?!. If you don’t have much in savings but want a fund for holidays whilst you are still healthy, you would take the tax free amount, assuming you can live on the smaller income left. If you have other pension pots, that will keep you in reasonable income, then tax free amount from one pot (the smallest one) also is a reasonable idea. The balance is having enough income but minimising your tax liability. The wealthier you are, the more likely it is that you will grab the tax free lump. The dire returns on annuities right now has driven up the tax free withdrawals. You would need to live about 30 years in retirement to return your money from an annuity investment. Safe investment of your 75% remaining funds in a drawdown will only provide a very small return right now. If you are risk adverse (remember the world isn’t as safe as it was last few months) your safe pension fund would probably do better in premium bonds, such is the low returns.
Yep. “It depends” is exactly right. Stay tuned for a video on reasons why you should take your tax-free cash shortly. I’d disagree with some of your points. The wealthier you are, the less likely you are to take money out of a pension fund, simply because you’d be making an inheritance tax position worse. You’re right that annuities are low-return, but for some the guarantees are worth it. I’d also disagree with your assessment that drawdown plans are low return. That depends on the underlying investments. While things are volatile right now, most drawdown funds will be invested for decades, so short-term market shenanigans are irrelevant. And so we come back to your first thought: it depends, and that’s exactly right. It depends on your health, risk profile, understanding of markets and tolerance for their vagaries, capacity for loss and short-term spending needs. Everyone has to find the best solution for their unique circumstances - that’s the challenge, but hopefully my offerings here provide some food for thought.
Ha, I wish I had similar amounts to my pension pot in bank accounts premium bonds etc🤣. Like you said, I think you should make the other video because the first use you said for cash was to spend......maybe a reward for 40+ years of working.
Hi Pete. Wouldn't it make sense for me to take my tax free cash: I was above the LTA so can now only take the 25% of the old LTA (assuming there is no market crash before I retire in 2025!). If I take my PCLS I will invest that money and any capital gain is likely to be taxed at 10% and dividends at 8.75%. I will be taking about £30k PA out of the remaining pension, so will be liable for income tax at 20%. Since the highest of these tax rates is 20%, I would appear to be better off investing the PCLS money outside my pension (including using my £20k per year ISA allowance). Do you agree? Many thanks.
You've mentioned in two videos how inheritance tax does not apply to pensions. However if the person dying is over 75, the inherited pension is taxable as income tax, which could turn out even higher than 40%. Have I misinterpreted something?
Potentially, but only if they take the pot as a lump sum the point is they have flexibility as to when they take it and so may have the ability to only pay basic rate income tax or even zero rate.
Even with a DB pension (which I have), it is not a good idea to max out on the tax free lump sum. Doing so reduces the annuity. To paraphrase what Pete is saying: "Don't grab it, just because you can!"
If your pension far exceeded the LTA, would you encourage taking all tax free option of the LTA even if you do not need to use the cash at the time. Invest it in ISA’s or other investment options?
Yes - reason to take out video would be very useful I am retiring early at the end of this year I have savings and a DB to get me to State Pension age (5 years time) I also have three DC pensions that I can combine and take as a Drawdown or UFPLS when I get to retirement age. To give me a 3 year buffer to draw from if the value of my pot falls, I was planning to take 1/3 of my tax free sum from it and put it to work elsewhere not affected (or as much) by the market place. Would this be a good compromise to leaving it in the DC?
I can't offer advice to your specific situation here, Peter, sorry. But your'e thinking in the right way - mapping out your income and expenditure over the early years of retirement and making sure it all adds up...
Cheers for this. I'm going through this consideration for next years DB pension. The quote I have for the additional income that I'd get if I took a 12.5% PCLS rather than 25% meant my extra DB income would only pass my lower DB income plus lump sum after age 84. Does this seem a sensible way to think about it?
Yes, definitiely. have you factored indexation into the income so it rises each year? But yes., you're definitely thinking on the right lines. Watch this space for more on this subject
Very helpful, but suppose I have a Defined Benefit pension, where the 'pot' is lost on death and I could invest the cash lump sum to generate a greater income that I will lose by taking the lump sum?
Most people don’t, actually. Some, but definitely not most, in my experience. Most people have paid off their mortgage by the time they get to retirement.
Here are the two videos I mentioned:
🔴 th-cam.com/video/jEbYkc1EwZc/w-d-xo.html - Click here to watch Pension Death Benefits
🔴 th-cam.com/video/NOIivz8_QuA/w-d-xo.html - Click here to watch Drawdown vs UFPLS vs Annuity
What if you have a limited life expectancy.
Yes, please on filming the video on the reasons to take your tax free lump sum.
Noted, thank you. Keep an eye on the channel…
Amen
Ditto
Reasons to take tax free sum please 👍
The way the world is and the "sudden" decline in peoples health I'd advise in taking ALL your pensions if over 55 and enjoy it while you can , when the crash comes you'll lose most of it anyway!
The reason I want to take out my full tax free cash is I want to bridge the gap between late 50’s and a D pension at 65 and subsequently a state pension at 67. If I draw around £16k per year I could take 25% tax free and the rest would keep me at or below the tax free earnings allowance. However, I can’t live on around 16k but if I take more I will be taxed. If I take my full 25% on day one I can live off that for quite a few years while still drawing exactly the tax fee allowance from my pot each year. So I get more tax free out. Eventually I will run out of tax free cash and by that time I will need to pay tax on earnings over the tax free allowance. But in the years to that point I have extracted and lived off a significant amount of my pension tax free.
Just going back over your videos. Very informative and confidence boosting moving toward my own retirement stage of life - 54 years old at the moment.
Yes please! Reasons why you should take all your TFC would be great. In my 40s and love dorking out, thinking about retirement planning! Love the vids (and podcast)
Dorking out - love it! Thanks for being here, James
If you don't take the tax free lump sum and buy an annuity (get quotes & compare with & without TF lump sum) it generally takes in the region of 12 years for this to be 'paid back'. If you die in this time it's lost, if you take it, you can earn interest / invest it or spend it and pass it on in your estate albeit it would then be taxed. In the UK life expectancy is approx 85 this is even more relevant if you take the pension later in life eg early to mid 70s. None of us know how long we have got left!
Being ‘intentional’ is the key word, as you say Pete. I took out 2 chunks of tax-free pension cash to fund a property project 3 years ago, partly because I didn’t want to leave all my pension eggs in one basket and at the mercy of the stock market. The house is now complete and I’m cashing in and selling up. If the agent is correct, the property has doubled in value. In contrast, the stock market has struggled. It was a risk, but it appears to have paid off, although I’m glad I have left the rest of the pension to build for another day
Love this! Intentional indeed. Thought through, considered and it paid off. Kudos!
Good move by you. For the last 25 year plus, property prices have, on average, kept well ahead of inflation. Currently there are over 3 million rentiers in the UK, who own at least one property which is rented out. Flipping houses, buying cheap at auction and doing them up, then quickly selling them, is also a good idea. However, Buy to Let, with now higher than usual interest rates, is not such a good prospect.
Thanks Pete for another great video. One reason I have thought it would be good to take the tax free lump sum for a DB scheme is where taking the tax free cash brings the annual pension payments below the 40% tax band. Not taking the tax free cash may leave the pensioner with a higher gross income but paying more tax as he/she is left above the 40% tax band.
Yep, that could be a reason for sure. Thanks for watching!
The success of this approach depends on how rosy the commutation factor is in your DB scheme and your life expectancy. In my DB scheme, the low factor means a lump sum makes a relatively big dent in my Pension.
In scenario A), I take a lump sum to reduce the 40% tax burden on my pension and then draw down the invested Tax-Free lump sum to augment my reduced pension. My lump sum cash will last about 12 yrs. After that, I have to live with my dented Pension and reduced NET.
In scenario B), I don’t take a lump sum, so I pay more tax as more pension is exposed to the 40% rate (as per your comment). The calcs show that, ultimately, I will receive more NET every month for my whole life - which is hopefully more than 12yrs retirement.
I take the difficult mindset that paying extra Tax is necessary. I consider the DB scheme as an inexhaustible pot of money that I didn’t earn through hard work. So, when I detach myself from it’s provenance, I have less concern for the higher tax taken. If I live longer than 12 yrs, then I will receive higher NET overall than any lump sum 'trade-off'.
Always useful but aimed at those with large pot and savings. I am a "waspie" not allowed to join company pension hntil 25 years old but then took time out to care for children. My pot is no where near the size you mention - perhaps one aimed at my level would be helpful to lots of people.
Also my pension pot lost £12000 last year - am mortified!
Still paying, along with my employer, into this bottomless pit.
I hope your pension pot has shown a large increase in the last year. It should have.
Would love to see reasons TO take the lump sum please.
I'm currently about 3 years from an early retirement and taking the lump or part of it to bring down my mortgage payment once my fixed rate finishes is definitely a consideration.
Thing is though if I leave it invested I can probably afford the bigger mortgage anyway...... I guess it'll come down to interest rates at the time and also whether my fund is in reasonable shape.
Thank you for all of your videos, they've been a huge help to me in recent months planning my retirement.
I'm now completely "intentional".....
Noted! And you’re welcome!
Great info again. Like to here your comments on taking lump sum. , one reason not married and no kids. So no dependants what so ever.
A valid reason indeed - thanks for watching!
Don't often comment Pete, but just wanted to say how incredibly useful this video was... I'm going to retire in about 3 years time and always have been rather perplexed/confused as to why taking the 'conventional wisdom' of taking the tax free lump sum was a good idea.
Surely better to take the tax free cash as needed over time and leave the rest to grow in the pension wrapper.
Glad it was useful, John - thank you. The point really is to be intentional and think through the options for YOU and your situation. Conventional wisdom is at best a kind of mushed up average of what kinda makes sense for many people, but it might make no sense for us as individuals.
Some compelling reasons not to take the tax free lumpsum from a DC pension fund Pete. I live outside the UK so my comments might not be entirely correct. However if one is drawing an income from the DC fund it makes business sense to take the maximum tax free portion and live off these funds first. If you didn't do so you would be paying tax on any drawdowns unnecessarily as these are taxed as income from the very first payment. If one has sufficient discretionary funds to live off then your points about estate planning benefits etc makes perfect sense.
In some Countries the tax gets progressively higher as one draws a larger lumpsum from a DC fund at retirement. Even under this scenario it may still make sense to draw the maximum lumpsum factoring in the progressive taxation especially if this equates to a lesser overall tax rate when compared to just drawing a regular income.
I'm sure you will address these issues in a future presentation.
Great content. Thanks
Hi Harold - interesting points. I can't speak to the position in other countries, of course. And a great deal depends on the individual situation. you may actually want to draw taxable income from a pension if that income falls within the 0% tax band - the personal allowance. As ever, there are as many different situations as there are viewers, which is why I can only present things to think about, rather than definitive answers. I'm glad they're helpful though - thanks for watching!
@@MeaningfulMoney you're absolutely right Pete. I live in South Africa and youtube recommended your video. Whilst the laws differ from Country to Country some points of principle and strategy are universal hence I find your content useful.
Most of your comments regarding Not taking the tax free lumpsum apply to us as well. However, our tax threshold is so low as to be of no benefit to anyone so maximizing any taxfree lumpsums is the way to go unless one factors in everything you covered earlier.
Will continiue to watch your content as you have a refreshing presentation style and very topical subject matter. It's also noteworthy that you see fit to respond to as many viewers as you do.
Best wishes.
Always useful information Pete. As several other comments have said, a comparative video on why we SHOULD take the 25% tax free cash would be really helpful. Would help to make our intentional decisions!
OK Celia - watch this space.
I was thinking placing it in a GIA for 12.5k CGT , combine that with 12.5k IncTx allowance, thats 25k tax free. So its more tax efficient than just keeping the whole lot solely in a pension. Everyone I speak to thinks its a terrible idea though so I'm deffo out of step on it.
New to your channel. I'm a pensioner this year. Thanks for your advice.
I took my maximum allowed lump sum 5 years ago. We wanted to finance the build of an extension on our property, without borrowing any cash. We no longer have a mortgage. The extension cost around £30k, so I still had a tidy sum left over for a rainy day...
Sounds perfect, Brian! 👍🏻
Yes to the next video I was in the NHS 95 scheme took it at 62 and took the max lump sum. Rejoined the new 2015 scheme. This was to reduce my tax (higher rate) on my new Inc pension. Intention is to ISA the lump sum. Reduce income by paying additional amounts into the new pension. Hopefully leveling up life time income and having cash available for big spends IE new car uPVC double glazing. Holidays etc. Hope it works out ..........😊
One good reason to take the maximum drawdown is that it won’t be one before the government attack pension income by increasing taxation
absolutely right thats the next labour target
@@stevemccann4327 and quite right too. Pensioners have never been better off than now and it’s all at the expense of the younger generation. We need to accelerate wealth redistribution from the richer old generation to the poorer young generation
Great. More information for members of DB schemes would be useful. I am a member of a DB scheme. I found the 25% cash free amount from the
scheme was about 50k. I looked at buying an annuity to replace the lost income the cost was around 100k (at best). Not a good deal. The reason is the scheme
was setup decades ago when life expectancies were much lower. The formulas used to calculate the 25% have probably never been reviewed as is likely to cost the
scheme money. Hence subtle promotion of the 25% as likely to save the scheme in the long term and reduces future potential liabilities. Only two circumstances
I can think of for taking cash from a DB scheme are poor health or high interest debt.
I mention exactly this point in the video coming on Monday
@@MeaningfulMoney Thanks. I also have a question about inheritance. Can pension funds also be inherited by non-dependants ? For example more distant relatives like cousins or even charities. Would it still come outside Inheritance Tax ?
An old video, but it got me thinking about buying a nicer house for retirement. Would love to see a video on using tax-free cash vs income drawdown to buy a home and the tax implications of this.
Keep up the awesome work, Pete! 🙂
Hi Pete thanks for the excellent video. However please could you update this after the 2024 budget, You have to take into account the changes future governments could make , like removing the tax free cash , or they could make pensions taxable on death . Currently uncertain times under the current government
Thanks Pete. I'm retiring in a few years time and thinking of taking full TFC as hit LTA limit. Pay off mortgage and use the rest to live on while taking the my personal annual allowance £12570 out of the remaining pension pot until the TFC is used up. I can then worry about taxed pension withdrawal.
Sounds like a decent plan! 👍🏻
Another informative video, thanks for sharing in uncomplicated jargon - you keeping making the videos and we will continue to watch them for sure.
I'm grateful, Paul - thank you for being here!
I would definitely like to see the reasons why to take the maximum tax free cash video Pete, particularly addressing the issue of the LTA. Because surely if you’re close to or already over the LTA, then taking cash out now from a DC find would help in mitigating against future growth and exceeding the LTA (with its eye watering 55% tax rate).
Noted, maddog167, thank you
Its great to get some clear and unbiased advice regarding pensions, thank you. I rang one advisor who said they couldn't advise me because mine is a local government pension and they are 'very complicated'...(great!)
My actual pension office were better...but said that I would pay tax on a yearly pension of 11k...I thought anything under 12.5 k wasn't taxable?
You’re right - if your £11k pension is your only income you wouldn’t pay tax. It’s taxable income, but it would be taxed at 0% if you see what I mean, aa it would fall within the personal allowance. Once your state pension kicks in, this would take up much of your personal allowance, making more of your work pension taxable.
@@MeaningfulMoney thank you 👍🏽
i took full pension from my wroks pension, best thing i ever done, all the other people i worked with took lump sums out of their pensions and said i was mad not too, but pension is almost my old working wage ,
Love that!
I plan on taking a big chunk of tax free. I want it to be readily accessible to pay for house repairs etc. Check out the cost of jobs at moment on my four bed modern home. New plastic facias and gutters 6k. New garage door 1 k. New boiler 3.5k. New windows 16 k. I am also planning to buy a bigger home on retirement.
Good advice relevant to me. More of this please.
Thanks Andy - glad it was helpful!
Many thanks for posting this and it all made good sense, your videos are clear and you keep things simple which I really like. I have a few questions about retirement including how to fund a second place. We'd like a little base in Flanders with a budget of €250,000 and wonder whether we should use tax free cash from the pensions or cash from our ISAs. Is that the sort of thing I should get answers to from subscribing to MeaningfulAcademy?
This video is at least 2 years old. At age 72, with unvested pensions, and the threat (however speculative) of the tax free cash option being removed in the October 24 budget, the option of taking tax free cash finishing at age 75 anyway, and the stock market being relatively high at the moment, who WOULDN’T take their 25% now and switch the rest to Drawdown? I certainly am doing!
I have db public sector pension. Not sure if u should take the lump sum for a smaller pension. Or take a smaller lump for a larger pension ?
Great video. Straight to the point, no nonsense. And yes please - video why to take the tax free lump sum.
Noted, Ivor - watch this space!
I will be only drawing out my DC fund’s tax free cash over many years on a flexible drawdown basis but I think the considerations are different for my work DB pension and plan to take that lump sum. This is because it seems to be a one-off offer with a DB scheme, ie if you don’t take it when you retire, you don’t get the opportunity again and, with a reasonable investment strategy, I should be able to produce an income which exceeds the lowering of the regular DB income. What are your thoughts on these differences?
Taking the tax free cash is a very sensible thing to do especially when your pot is performing woefully yet still incurring management fees.If you don’t wish to spend it while you can at least invest it in 1 or 2 year bonds that are guaranteed to give you a return.Managed funds are not so beware of false growth predictions.
Great set of videos. Yes to why you should take TFC. Also, loved the three scenarios from the recent video you did explaining the LTA issues. Any chance you could explain reaching the LTA before age 75 and what then happens at age75 wrt paying more LTA.
Thanks again for these invaluable videos
Thanks Richard - all noted!
Hi Pete, I think everything you say is true for DC pensions but in my (recently closed) DB scheme I can swap about £4k of pension for £172k of tax free cash (and still leave a DB pension of about £26k at age 60). Given that if I took the money as extra DB pension it would be taxed at 20% it seems to me it would be rude to refuse the cash as I would never live long enough to get the extra £172k. Plus if I died young my family would miss out on the tax free cash as the DB pension essentially dies with me (even if they did end up having to pay IHT).
And that's exactly a reason to take it, Richard - looks like the maths stacks up for you!
I'm in a similar position Richard. It's a no brainer. Enjoy it while you can. 😁
I'm in the same position Richard with roughly the same numbers & have come to the same conclusion.
At the risk of stating the obvious, it's worth mentioning that the £172K doesn't just sit there, it can be used to generate additional income OR save on expenses (e.g. if you have an outstanding mortgage it may make more sense to pay this down than take the additional income).
For me it will go towards buying a Condo in Thailand & save me the £750 pm rent I currently pay (£750 * 12 = £9K pa so giving up £4k to be able to do this without selling any of my other UK assets feels like the best thing to do)
Pete: Thanks for the great videos, as many others have said would love to hear your views on why it makes sense to take the cash free lump sum.
Here is one reason you might CRYSTALLISE but leave invested, your max TFC.
I am expecting that at some point the Government will move to reduce the TFC allowance. Maybe abolish it altogether.
But the point about leaving the money in the pension wrapper to protect it from IHT is an excellent point, which is missed by many.
Glad I found your channel, I'm a financial planner from South Africa. I like your style
Always an honour to have the videos watched by fellow professionals. Great to have you with us, Melissa!
Good to see you’ve found another hobby after your ski jumping fiasco has finished Eddie though I did enjoy your film it was very good
Yes to the follow up video on Why you should take the tax free cash.
OK Liza - watch this space!
Hi Pete, another excellent video. thank you. In the next video, I'd be interested to know your views on re-investing £4k Money Purchase Annual Allowance (MPAA) back into a SIPP after accessing the pot. Also to explain the rules & tax relief.
Noted, Richard, and thanks!
The alternate view would be a good video to watch to weigh up the pros and cons
I was in a DB scheme. I seemed to be in a minority by opting to take the minimum lump sum and getting a higher annual pension. I retired at 54 so a higher indexed linked annual pension seemed the best option. As you said Pete I didn’t have a need for the cash and interest rates were so low.
Sound perfect!
Noted - watch this space!!
Such a necessary video, Pete.
I know too many people who hit 55 and take the cash, without even a second thought.
Why save for retirement, if you spend a quarter of your pension before retirement?
I have my plans and I want to build that tax-free amount as much as I can.
The only issue I have is, my former employer doesn't index the DB pension in payment. They promised to, when they took over the company and scheme, but have reneged on that.
As such, retirees have seen their pensions lose 12 % in real terms.
I intend to negate that, somewhat.
I will take the pcls, and put it into S&S ISAs. Take from them as I need, until state pension age.
Hold on a second.... I have a DB pension. I've been told by certain retirees that if I die while still employed.... My wife gets a 50% widows pension + my kids get half the lump sum each.
However..... If I die after retirement then wife still gets 50% pension I would've received but the kids get nothing.....
You'll need to check your scheme rules, Chris. The death in service benefits will be different from the benefits if you die after you've retired. The lump sum you talk about the kids getting is probably not the same as a pension lump sum - it'll be a kind of employer sponsored life insurance payout most likely, as part of your employee benefits.
@@MeaningfulMoney Yes absolutely. Thanks for this. I'm 51 & planning ahead. Great videos 😄👌
Another great price of advice - I didn’t see all of these myself some but not all
Glad it was helpful, Nick
This seems to be all down to the opinion of the advisor. Yesterday I watched a video on here where it was stated that you should ALWAYS take your tax free lump sum. Looks like you have to weigh it all up for yourself and do what you think is best.
Pete many thanks once again for really useful advice. At a mere 51, this helps me to make better decisions in the future. Yes 5 reasons why would be great. Keep up the good work :)
Thanks Adrian - lots more to come...
Just subscribed - this is really useful info. I’m in my mid 30’s and just getting my head around this for future planning.
Good to have you with us, Jamie - glad it was helpful!
With the new budget on 30 Oct 2024, government has informally indicated that they will limit lump sum tax free and make DC subject to IHT. If that happens then it make sense to draw tax free money now. For death after age of 75 years income or withdrawal by children from crystallised pot will be taxed at children's marginal tax rate at the moment but change in IHT law means that children would be paying 40% tax instead of say 20% income tax
25% tax free could be passed on using 7 year rule to children now. All government seems to close tax saving measures and injects too much uncertainty especially for anyone with health issues and lower life expectancy
I have a DB pension and a SIPP. If I retire and trigger my DB pension at 55 years old but not do not touch my SIPP, am I able to continue to pay into my SIPP? Are my SIPP allowances/annual threshold affected in anyway?
As ever great video. For me these have been confirmation that I have taken the right approach (I had to do loads of research of my these videos would have really helped me 3-4 years ago). Keep them coming 👍👍👍
Sorry to be late to the party! Glad all has ended well…
Great Video Pete - yes it would be useful to do a video on Why we Should take the tax free sum out of our pension pot
Noted, thank you!
I think reasons for tax free cash would be interesting. I’m taking some to pay off buy to let mortgage. Means more income now which is useful for me.
Cool. Watch this space!
Bridging from 57 with the entirety of the SIPP to a DB pension kicking in at 65 is the way
For you, yes. Not necessarily for everyone though!
Depending on your scheme.
My DB is optimal at 60.
The lump sum drops after that, and the annual payment stays the same.
My small DB pension, payable as standard at 60, goes up at 8% a year plus inflation, so I intend to defer it until 75. I also have a DC pension which should hit £500k in today's money by the time I'm 60, so I'll draw down on that and take the DC at 75 alongside the deferred state pension.
@@tancreddehauteville764 defer it until 126 c,unt
Hi Pete
Yes please to why shouldn’t take cash.
Watch this space, Ian!
I have only recently come across your channel, so I hope it isn't out of order to make a suggestion: about equity release. As far as I can tell, you haven't done a video on this topic for about 10 years(?) during which time house prices have reached truly insane levels and (although they are beginning to rise again now) interest rates are still really low. For what it is worth, my own motivation is to release some money for our children. If it's possible to do an update including plans that you can mitigate by making repayments, that would be really helpful. Apologies if I have missed something more recent.
That's actually a really good idea, Barry - thanks for the nudge and watch this space!
It depends on your circumstances but i'd say take the money. My wife took her tax free lump sum when she was 62 and in very good health. She died suddenly 5 years later. All that sum would have been lost under the terms of her pension. You don't know how much time you have. i'd always take the money and make my own decisions.
I’m sorry for your loss, Phil 😞. But yes, that is an argument for taking your tax-free cash, definitely.
It is the best argument for taking the lump sum. I have seen this happen all to often. I took my lump sum, invested it and drew off it when needed. Remember the old adage, you never know what’s round the corner.
Agree that a video on why you should take tax-free cash would be helpful. Might taking it and putting it in a GIA mitigate the effects of LTA charge at 75?
Potentially, yes - definitely a consideration
If you take dividends from your sipp but do not touch the actual pot, are they tax-free ? As they are paid as cash and sit separately from the main investment.
I'm a UK expat in usa for 14 years now. Just became a usa citizen. I have $30k (in pounds sterling obviously) and want to know how to get it here basically with minimum tax burden. I opted out of SERPS in 1989 and used Aviva. I just need the cash. I have all my properties paid off, rental income and no debt. Any advice welcomed.
Great video. Yes please for the reasons to take the sum tax free
Thanks Andy, and noted!
Very informative!
Thank you 🙏🏻
Great info, I'd like a video on why you should take your tax free cash too as I'm in a DB scheme and will have this decision to make in a few years 👍
Thanks Ken - I'll get right on it!
Thanks. but the more in the pension growing does that not mean more commision for the pension provider gets in commision or the fiannace advisor gets?. Maybe I've got it wrong, would love to see the maths on this one.
In the UK, commission has been abolished on pensions and investments since 2013. But if you pay your adviser an ‘ad valorem’ or percentage-based fee, then yes, as the pension grows, so does the fee to your adviser and the pension provider.
It’s up to you how you pay your adviser though - fees are agreed between you 👍🏻
yep, lets see the reasons why you should plz. love the content!
Coming on Monday!
Quality show dude thanks for your efforts ☺️
Cheers Jock - I appreciate it! 🙏🏻👊🏻
Good, clear advice.
Glad it was helpful!
Pete, great video as usual.
Cheers, Vernon!
Great video! Luckily we started quite early investing into our ISA's and we are hoping to retire a little bit earlier (still 20 years to go!). I have a DB and OH has DC which we have both paid into but we dont even factor it into our retirement planning, so hopefully it will be a nice bonus when we get there. It will also be super beneficial tax wise as my allowance will only be used up with my DB and State pension whilst my ISA will hopefully remain tax free to withdraw from.
All true. Don't discount the benefits of complementing your ISA savings with pensions. I did a video called Pension vs ISA - might be worth a watch: th-cam.com/video/y-4s1wqwQ7k/w-d-xo.html
Retired 2 years ago, my wife and I have found it so much cheaper to live now not working. House paid for, all be it with a Homewise agreement. ( I would recommend looking at Homewise for any house purchase later in life). 70 now and still have not touched pension savings, except for part of the tax free cash used for our house purchase. I recommend to everyone, a range of savings going forward, ISA cash and stocks and shares, cash ( at least a years expenses), premium bonds ( we live in hope for the million but you still have the fall back to cash in,) state pension ( for us oldies SERPS was a huge help} don't forget the annuity ( took out two small annuities and really was a great move regular monthly income helps. Life is comfortable for us, but you need to plan and plan early in life.
Great advice, I am only 32 but luckily me and my partner have been investing in our ISA's from a young age whilst our friends were financing cars. Hopefully our pots will be large enough we dont have to rely on our pensions but every bit helps!
Yes, Dave - planning and being intentional is everything!
One day those friends will be looking at you with envious eyes...
doesn't make sense to me - if i have a DB pension it makes sense to be to take 25% tax free and investing that - the capital becomes tax free whereas if left in the DB scheme it will all be paid out as taxable income
I've been talking to my colleagues about your channel...so you should have some new subs about..........now... brilliant as always Pete
And I’m very grateful, Matt!
Yes please as well to reasons why you should take your tax free cash
Noted - thank you!
If you have one very large career pension fund and two or three smaller funds from earlier employment, then it may well be beneficial to take cash from the smaller pensions, after all, having a £10k lump sum in cash is a lot easier than having to save or otherwise find £10k for some urgent need. Otherwise, I would agree that in the case of index linked pensions, keep every last penny in the pension and receive a larger payment each month.
Another point worth considering is your general state of health at retirement age. We would all like to think we will live forever but certain jobs and lifestyles do tend to have a relatively short period of survival after retirement. In such cases, taking a lump sum to do with as you please may be more important than looking forward to 30 or 40 years of having to live off your pension savings.
Agree on all points, Michael!
Just awesome. This guy should be up for an OBE, for services to the not-yet-elderly.
Very kind, Richard. If you want to nominate me, I wouldn’t be averse to the idea!!!
This is brilliant.
Pete, yes I'd be interested in further discussion of tax free lump sum. No children in our case so beneficiaries irrelevant. Other than indexation of a DB pension I can't see why I wouldn't take the 25% as I can shelter that in ISAs outside the pension wrapper, the only issue being multiples of annual ISA allowances needed. But maybe multiple extractions is better than a single extraction for that reason alone.
Watch this space, Robert. But remember, even though you can only add £20k (each) into an ISA, you could still be investing that money in a GIA and shifting it sideways to an ISA each year. At least then the money is working. But yes, by taking TFC in tranches, you could potentially increase your TFC over time.
Good Informative and valuable video. Thank you Sir
Thank you Jayavel - appreciate the kind words
Yes also agree that a videos on why you should take 25% tax free is a good idea. I may move to a country with no such benefit (Aus.) so under my circumstances is it sensible to take it out? An investment of that cash in equity would still be subject to cbt I think.
I did that video here, Graham: th-cam.com/video/iTTOzX8dAGA/w-d-xo.html
Your specific question about taking the cash and moving to Australia is a bit out of my area, so I’ll pass on that one!
What about people who don't have beneficiaries and are going to leave their estate to charity ? So many different combinations, love your channel and advice is always well thought out.
Have you done a video on how to find a good Independent Financial Adviser if you are not happy with the one you have now ?
I haven't done one recently, Jackie, but I'll add it to the list for consideration, thank you!
Something I'd never considered, whats the point in just adding to your savings if you already have some tucked away for emergencies like a broken boiler or washing machine etc ayway....a very good point.
Im confused though, why do I read that you are not taxed on the first 25 percent of a lump sum, but I've been told by someone in my lgps pensions department that its all tax free???
The lump sum is 25% of the pension fund. All of the lump sum is tax free.
@@MeaningfulMoney thank you, much appreciated...I definitely wont take that after you point about just adding to what I already have..it might 'feel good' to have a decent bit in the bank, but its pointless, being a small amount it would get spent in no time, and I wouldn't consider investing it, I'm not really a gambler
Yes please make the next video ! 👍🏻
OK Nick - will do!
I lost my kid some years ago & spent years paying off medical bills. Now I'm nearly 55, I have little savings, no pension & I have no idea what I'm going to do. For the last 10 years I've been living on a Greek island as its much cheaper than living in the UK. What, if anything, can I do to turn things around? I get no help from Greece or the UK, I've just been working online living from month to month. I'm really worried.
I’m sorry for your loss, Stuart 😞 - As to what you can do now, there’s no magic bullet. You’ll likely have to work for a while yet, and make radical changes to how you live, most likely. You’ll have to save and invest money so that you can spend it in the future. You’ll need to dig up details of any old pensions you might have had while in the UK and see what they might add up to. But other than that, as a non-UK resident, I can’t help much, sort. I wish you well…
@@MeaningfulMoney Thank you for your valuable feedback, its appreciated. I did meet someone here who told me I can keep paying into the state pension from here, at a lower rate. And I did manage to half my expenses my moving here too. I suppose I'll have to try and get as much work as I can over the next 10 years or so & hope for the best. Thanks once again.
Yes reasons why please
No worries, Jonathan!
Another reason at present is the recent market downturn, so those who are liquidating shares from a SIPP account are crystallising a loss..
Maybe - depends on when they started investing and what they bought their shares at! But yes, it might make sense to delay taking tax-free cash in particularly volatile market conditions. Though bear in mind that the cash could easily be invested again...
Rightly or otherwise I took my 25% tax free and put into my self build house. Another investment vehicle and as my principal home free of CGT. No family to leave pension too, spend it b4 I exit.
Sounds great! One of my ambitions to do a self-build!
Uncle! I have found you at last!
Well, it really depends doesn’t it ?!. If you don’t have much in savings but want a fund for holidays whilst you are still healthy, you would take the tax free amount, assuming you can live on the smaller income left. If you have other pension pots, that will keep you in reasonable income, then tax free amount from one pot (the smallest one) also is a reasonable idea. The balance is having enough income but minimising your tax liability. The wealthier you are, the more likely it is that you will grab the tax free lump. The dire returns on annuities right now has driven up the tax free withdrawals. You would need to live about 30 years in retirement to return your money from an annuity investment. Safe investment of your 75% remaining funds in a drawdown will only provide a very small return right now. If you are risk adverse (remember the world isn’t as safe as it was last few months) your safe pension fund would probably do better in premium bonds, such is the low returns.
Yep. “It depends” is exactly right. Stay tuned for a video on reasons why you should take your tax-free cash shortly.
I’d disagree with some of your points. The wealthier you are, the less likely you are to take money out of a pension fund, simply because you’d be making an inheritance tax position worse. You’re right that annuities are low-return, but for some the guarantees are worth it. I’d also disagree with your assessment that drawdown plans are low return. That depends on the underlying investments. While things are volatile right now, most drawdown funds will be invested for decades, so short-term market shenanigans are irrelevant.
And so we come back to your first thought: it depends, and that’s exactly right. It depends on your health, risk profile, understanding of markets and tolerance for their vagaries, capacity for loss and short-term spending needs.
Everyone has to find the best solution for their unique circumstances - that’s the challenge, but hopefully my offerings here provide some food for thought.
Here in Ireland all clients are encouraged to take tax free cash.. never has this option been discussed..
Might be different rules there, Patrick - everything on this channel is UK-based 👍🏻
@@MeaningfulMoney although the point you make is very valid.
Keep up the good work.
Ha, I wish I had similar amounts to my pension pot in bank accounts premium bonds etc🤣. Like you said, I think you should make the other video because the first use you said for cash was to spend......maybe a reward for 40+ years of working.
I’ve made the follow-up video already, Chris! th-cam.com/video/iTTOzX8dAGA/w-d-xo.html
Hi Pete. Wouldn't it make sense for me to take my tax free cash: I was above the LTA so can now only take the 25% of the old LTA (assuming there is no market crash before I retire in 2025!). If I take my PCLS I will invest that money and any capital gain is likely to be taxed at 10% and dividends at 8.75%. I will be taking about £30k PA out of the remaining pension, so will be liable for income tax at 20%. Since the highest of these tax rates is 20%, I would appear to be better off investing the PCLS money outside my pension (including using my £20k per year ISA allowance). Do you agree? Many thanks.
You've mentioned in two videos how inheritance tax does not apply to pensions. However if the person dying is over 75, the inherited pension is taxable as income tax, which could turn out even higher than 40%. Have I misinterpreted something?
Potentially, but only if they take the pot as a lump sum the point is they have flexibility as to when they take it and so may have the ability to only pay basic rate income tax or even zero rate.
@@MeaningfulMoney Got it, thanks for clarifying. I would just be careful positioning it as it sounded to me like "you're avoiding all tax"
Even with a DB pension (which I have), it is not a good idea to max out on the tax free lump sum. Doing so reduces the annuity.
To paraphrase what Pete is saying: "Don't grab it, just because you can!"
I should have you write the scripts, Tony.
Yespkeasewouod be great to see why you should take tax free pension
Noted - cheers!
Reason #1 to take the full 25% asap.. Labour will abolish this very soon, saying it benefits the "wealthy" most.
If your pension far exceeded the LTA, would you encourage taking all tax free option of the LTA even if you do not need to use the cash at the time. Invest it in ISA’s or other investment options?
It can be worth doing if you're at or exceeding the LTA, but a great deal depends on the individuals' circumstances
What about compounding?
What about it?!
Yes - reason to take out video would be very useful
I am retiring early at the end of this year
I have savings and a DB to get me to State Pension age (5 years time)
I also have three DC pensions that I can combine and take as a Drawdown or UFPLS when I get to retirement age.
To give me a 3 year buffer to draw from if the value of my pot falls, I was planning to take 1/3 of my tax free sum from it and put it to work elsewhere not affected (or as much) by the market place.
Would this be a good compromise to leaving it in the DC?
I can't offer advice to your specific situation here, Peter, sorry. But your'e thinking in the right way - mapping out your income and expenditure over the early years of retirement and making sure it all adds up...
Cheers for this. I'm going through this consideration for next years DB pension. The quote I have for the additional income that I'd get if I took a 12.5% PCLS rather than 25% meant my extra DB income would only pass my lower DB income plus lump sum after age 84. Does this seem a sensible way to think about it?
Yes, definitiely. have you factored indexation into the income so it rises each year? But yes., you're definitely thinking on the right lines. Watch this space for more on this subject
Very helpful, but suppose I have a Defined Benefit pension, where the 'pot' is lost on death and I could invest the cash lump sum to generate a greater income that I will lose by taking the lump sum?
Yep, that could be a reason to take it. That income would not be guaranteed though
People usually take 25%to pay there mortgage of surly that makes sense
Most people don’t, actually. Some, but definitely not most, in my experience. Most people have paid off their mortgage by the time they get to retirement.