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 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.
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!
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.
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!
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.
@@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
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.
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)
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'.
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.
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 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...
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.
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! 🙂
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 ?
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 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).
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.
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.
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 ..........😊
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.
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 ,
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.
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 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.
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!"
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.
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.
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.
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.
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 👍👍👍
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
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!
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.
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?
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.
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?
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.
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...
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
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.
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 ?
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 👍🏻
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.
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!
Do you really think I’m going to let the Prudential lose more money than they already have? Take the cash and reinvest it in stocks and shares ISA. Job done.
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?
Great pay to a pension for 40 odd years and not draw it so when I die there's inheritance tax, I've saved all my pension so I can enjoy myself when I stop working
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.
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 think that generally speaking, take the money and spend it. You’ll still have 75% sitting in your pension. That’s a sizeable proportion. Life is more than worrying about how much you pass on to your kids.
As long as you’ve thought through the implications and been intentional about it - the point of the video - then I don’t disagree. But taking it out of one environment to have it sitting doing nothing in another just so you have it there doesn’t make much sense…
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.
Point 3. Most people don't have £20k to use every ISA allowance, and ISA income (unlike pension income) is tax free. Time it right and your £60k tax free cash from a £240k pot can all go into ISAs in 53 weeks. At 4% that's £2,400 a year tax free. That would be worth £480 a year for a basic rate taxpayer. I'm probably going to do that, straddling one tax year with the £40k and keeping the £20k in a basic investment account, using ETFs with very low spreads to make the switch. (I don't think in specie is possible).
Your 60k is already tax-free. Growth in a pension also grows the tax-free portion. You can flexibly take a bigger tax-free amount, by crystallising a larger amount, but leaving a chunk of the taxable amount in. You can use UFPLS to take chunks for putting in ISAs. Once taken out of the pension, the money, as Pete mentioned, becomes liable for IHT, if you intend to leave an inheritance. Good luck in your retirement.
I'd have thought the people you're addressing in this video already have good financial advisors ......'£500,000 in savings and £500,000 in a pension plan'? Who are these people?
I know it sounds crazy, but you’d be surprised at how many people do get themselves in this position. And they’re not all high earners either, just disciplined savers and investors. In my experience many folks who get themselves into this position have done so without input from an adviser. They’ve read books, blogs, listens to podcasts and watched TH-cam videos.
Some things I find are misleading as why you should not take out the cash component of your pension. The main reason you should consider to take money out of your pension account is when you reinvest it into your stocks and shares ISA account you have the advantage of choosing a wider range of investment funds e.g all country world index, russell 2000 etc of which are not available in your pension fund. This will ensure your investments will grow at a greater return tax free. Also inheritance tax applicable is only a concern to around 1% of people when passing away.
I have to correct you here - modern pensions can hold exactly the same funds as an ISA and will grow tax-free, like an ISA even though there is an element of tax when you take the money out. So to say the ISAs will grow quicker than a pension is incorrect. Also, inheritance tax is payable on about 5% of estates in the UK, so one in 20, not one in 100.
@@MeaningfulMoney This reply will be brief as going into details would take up a large amount of pages. Let me correct you again With Stock and shares ISA you have the opportunity to diversify with more asset classes of your choosing with your financial planner. Most Uk company sponsored pension schemes are limited in choices that you can invest in. As an example a mix stocks and bonds only with no real opportunity of choosing better performing funds that can be available on the open market regarding " YOUR " circumstances. In other words "here is a list and pick according to your attitude of risk and tick the box and hopefully you get a better return when you retire. This is based on the platform the company has chosen from limited financial knowledge. A stocks and shares ISA can and will give you the flexibility to increase your portfolio diversification as your circumstances change through the years. For example you might introduce a 1% only holding of a digital asset ETF. ( which is plenty ) You will be able to percentage rebalance when necessary and importantly redraw when needed with no income tax implications. I leave this to your listeners to think about. Would they prefer a pension controlled with the interest of the company first or would you prefer a retirement scheme base on interest of and benefiting you. Second point Inheritance tax This was taken directly from the HMRC national statistics website I apologise for this. Lets meet in the middle with this one. " In the tax year 2018 to 2019, 3.7% of UK deaths resulted in an Inheritance Tax (IHT) charge, decreasing by 0.2 percentage points since the tax year 2017 to 2018. This continues the fall seen last year and is again likely due to the phased introduction of the Residence Nil-Rate Band (RNRB) tax-free threshold from April 2017. "
I've just subbed you as I need more info on my pensions. One of them was worth around £134K a year ago but is now showing as £100k and has lost money each time I log into my online Aviva scheme and the only person making money is my financial advisor who takes 1%. He's blaming the stock market decline on covid and the Ukraine war but I'm not convinced. Should I be worried and look elsewhere ?
Depending on the underlying investment funds, then yes, it’s quite likely that the Ukraine situation and general market volatility is hurting your pension values right now. But they WILL recover - markets always do. I did a video on what investors should do in response to the current situation a few weeks ago (spoiler alert: they should do nothing). Remember this money is invested for the long haul, which makes the short-term irrelevant. Resist the temptation to make changes right now. Try to hold your nerve and ride it out. And if you think your adviser isn’t giving you value, then look for another one. Keep watching the videos, and you can always join our free Facebook community at meaningfulmoney.tv/community where you’ll get great answers to any questions.
Pete. Very clear. Thanks as always. I know impossible to predict but any view on whether the tax free 25% might disappear? Perhaps ‘a bird in the hand?’ Cheers
For as long as I’ve been practising, there have been rumours of this. None more so than when they renamed it Pension Commencement Lump Sum. Yes, maybe it’s worth having the bird in the hand, but I’m not sure I’d let that be the prime driver of the decision or not to take the cash.
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
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.
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 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!
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.
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!
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.
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
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.
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
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'.
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!
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.
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 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! 👍🏻
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!
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.
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! 🙂
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 ?
New to your channel. I'm a pensioner this year. Thanks for your advice.
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
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
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!!
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.
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 ..........😊
Good advice relevant to me. More of this please.
Thanks Andy - glad it was helpful!
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.
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!
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!
Reason #1 to take the full 25% asap.. Labour will abolish this very soon, saying it benefits the "wealthy" most.
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.
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!
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.
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.
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 😄👌
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.
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 👍🏽
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!
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!
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
Yes to the follow up video on Why you should take the tax free cash.
OK Liza - watch this space!
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!
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!
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! 👍🏻
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…
Another great price of advice - I didn’t see all of these myself some but not all
Glad it was helpful, Nick
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!
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...
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
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!!!
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
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...
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!
500K in a pension and similar amounts else where? Are you kidding? Jesus Christ.
Average is about 60- 70k so he’s way off.
Don’t think his average customer is a average pensioner?
Agree mate 500 thousand 😂 must be London bankers etc he's on another planet.
What you doing watching a financial planner if you've got no finances 😂
That's because most financial advisers won't touch you unless you have lots of money. RDR broke the financial system
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
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.
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?
Very informative!
Thank you 🙏🏻
Quality show dude thanks for your efforts ☺️
Cheers Jock - I appreciate it! 🙏🏻👊🏻
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!
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!
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!
Good, clear advice.
Glad it was helpful!
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...
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
Great video. Yes please for the reasons to take the sum tax free
Thanks Andy, and noted!
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!
Pete, great video as usual.
Cheers, Vernon!
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!
You need to make it clear it’s PRIVATE pensions only
Good Informative and valuable video. Thank you Sir
Thank you Jayavel - appreciate the kind words
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 👍🏻
Yes please because my wife is determined to take all her 25% lump sum. I don’t want to take mine and it might help making the decision.
Noted Mick - thank you.
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.
Yes please make the next video ! 👍🏻
OK Nick - will do!
This is brilliant.
Hi Pete
Yes please to why shouldn’t take cash.
Watch this space, Ian!
yep, lets see the reasons why you should plz. love the content!
Coming on Monday!
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!
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.
Do you really think I’m going to let the Prudential lose more money than they already have? Take the cash and reinvest it in stocks and shares ISA. Job done.
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 ?
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?
Great pay to a pension for 40 odd years and not draw it so when I die there's inheritance tax, I've saved all my pension so I can enjoy myself when I stop working
No inheritance tax on pensions, under current rules. But absolutely - spend it. You’ve earned it!
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.
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
I think that generally speaking, take the money and spend it.
You’ll still have 75% sitting in your pension. That’s a sizeable proportion.
Life is more than worrying about how much you pass on to your kids.
As long as you’ve thought through the implications and been intentional about it - the point of the video - then I don’t disagree. But taking it out of one environment to have it sitting doing nothing in another just so you have it there doesn’t make much sense…
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 please as well to reasons why you should take your tax free cash
Noted - thank you!
Point 3. Most people don't have £20k to use every ISA allowance, and ISA income (unlike pension income) is tax free. Time it right and your £60k tax free cash from a £240k pot can all go into ISAs in 53 weeks. At 4% that's £2,400 a year tax free. That would be worth £480 a year for a basic rate taxpayer. I'm probably going to do that, straddling one tax year with the £40k and keeping the £20k in a basic investment account, using ETFs with very low spreads to make the switch. (I don't think in specie is possible).
I'd agree with all this, Craig. And no, in-specie transfer from GIA to ISA isn't possible that I'm aware of. Thanks for watching
Your 60k is already tax-free. Growth in a pension also grows the tax-free portion.
You can flexibly take a bigger tax-free amount, by crystallising a larger amount, but leaving a chunk of the taxable amount in.
You can use UFPLS to take chunks for putting in ISAs.
Once taken out of the pension, the money, as Pete mentioned, becomes liable for IHT, if you intend to leave an inheritance.
Good luck in your retirement.
Some of us had to take out our lump sums. I had no choice over covid. Lost my job. Can't get support from the country I've paid into.
Yes reasons why please
No worries, Jonathan!
I'd have thought the people you're addressing in this video already have good financial advisors ......'£500,000 in savings and £500,000 in a pension plan'? Who are these people?
I know it sounds crazy, but you’d be surprised at how many people do get themselves in this position. And they’re not all high earners either, just disciplined savers and investors.
In my experience many folks who get themselves into this position have done so without input from an adviser. They’ve read books, blogs, listens to podcasts and watched TH-cam videos.
Some things I find are misleading as why you should not take out the cash component of your pension.
The main reason you should consider to take money out of your pension account is when you reinvest it into your stocks and shares ISA account you have the advantage of choosing a wider range of investment funds e.g all country world index, russell 2000 etc of which are not available in your pension fund. This will ensure your investments will grow at a greater return tax free.
Also inheritance tax applicable is only a concern to around 1% of people when passing away.
I have to correct you here - modern pensions can hold exactly the same funds as an ISA and will grow tax-free, like an ISA even though there is an element of tax when you take the money out.
So to say the ISAs will grow quicker than a pension is incorrect.
Also, inheritance tax is payable on about 5% of estates in the UK, so one in 20, not one in 100.
@@MeaningfulMoney
This reply will be brief as going into details would take up a large amount of pages.
Let me correct you again
With Stock and shares ISA you have the opportunity to diversify with more asset classes of your choosing with your financial planner.
Most Uk company sponsored pension schemes are limited in choices that you can invest in.
As an example a mix stocks and bonds only with no real opportunity of choosing better performing funds that can be available on the open market regarding " YOUR " circumstances.
In other words "here is a list and pick according to your attitude of risk and tick the box and hopefully you get a better return when you retire. This is based on the platform the company has chosen from limited financial knowledge.
A stocks and shares ISA can and will give you the flexibility to increase your portfolio diversification as your circumstances change through the years. For example you might introduce a 1% only holding of a digital asset ETF. ( which is plenty )
You will be able to percentage rebalance when necessary and importantly redraw when needed with no income tax implications.
I leave this to your listeners to think about.
Would they prefer a pension controlled with the interest of the company first or would you prefer a retirement scheme base on interest of and benefiting you.
Second point Inheritance tax
This was taken directly from the HMRC national statistics website I apologise for this. Lets meet in the middle with this one.
" In the tax year 2018 to 2019, 3.7% of UK deaths resulted in an Inheritance Tax (IHT) charge, decreasing by 0.2 percentage points since the tax year 2017 to 2018. This continues the fall seen last year and is again likely due to the phased introduction of the Residence Nil-Rate Band (RNRB) tax-free threshold from April 2017. "
I've just subbed you as I need more info on my pensions. One of them was worth around £134K a year ago but is now showing as £100k and has lost money each time I log into my online Aviva scheme and the only person making money is my financial advisor who takes 1%. He's blaming the stock market decline on covid and the Ukraine war but I'm not convinced. Should I be worried and look elsewhere ?
Depending on the underlying investment funds, then yes, it’s quite likely that the Ukraine situation and general market volatility is hurting your pension values right now. But they WILL recover - markets always do. I did a video on what investors should do in response to the current situation a few weeks ago (spoiler alert: they should do nothing). Remember this money is invested for the long haul, which makes the short-term irrelevant. Resist the temptation to make changes right now. Try to hold your nerve and ride it out. And if you think your adviser isn’t giving you value, then look for another one.
Keep watching the videos, and you can always join our free Facebook community at meaningfulmoney.tv/community where you’ll get great answers to any questions.
@@MeaningfulMoney Thanks for your reply Phil, I'll watch that video and also look into an alternative FA.
Pete. Very clear. Thanks as always. I know impossible to predict but any view on whether the tax free 25% might disappear? Perhaps ‘a bird in the hand?’ Cheers
For as long as I’ve been practising, there have been rumours of this. None more so than when they renamed it Pension Commencement Lump Sum. Yes, maybe it’s worth having the bird in the hand, but I’m not sure I’d let that be the prime driver of the decision or not to take the cash.
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