3 Retirement Planning EXAMPLES
ฝัง
- เผยแพร่เมื่อ 8 มิ.ย. 2024
- I spend most of my time helping people to make the transition into retirement and get their pension benefit decisions right, so let’s look at some examples which use all of the three main options.
There are chapter markers in the timeline of the video so you can skip ahead if you like.
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🔴 • Retirement - Drawdown ... - Click here to watch part 1: Retirement - Drawdown vs UFPLS vs Annuity
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00:00 Welcome
00:56 Example 1 - Tina
07:09 Example 2 - Tony
13:26 Example 3 - Jane
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🔴 th-cam.com/video/NOIivz8_QuA/w-d-xo.html - Click here to watch part 1: Retirement - Drawdown vs UFPLS vs Annuity
Congrats on your early retirement, Interesting indeed! Currently, I am in dire need of investment advice or tips. Last year, I hesitated and failed to take any action until the year concluded. However, this year, I am determined to try something new, as I am very receptive to various investment ideas.
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@@donaldgaff2271 You are right, I am one of many who has benefited from investing with Regina Louise Collaro. 2020 is an unforgettable year in my life, back then I lost my job due to covid and had no reason to live. Regina made a good life possible for me through passive income and I owe her my life. To be honest, I feel like she is an angel of who was sent to help those who are suffering financially.
Very informative, could do with dialling down the sums to more humble amounts . And some explanation re the typical funds used in drawdown and how the payments are made eg selling units etc
Excellent content. Thanks Pete
Wow. Thank you! Great video. Love the examples.
Thanks Justyn - appreciate the feedback
Thank you for this excellent video! Lots to think about and plan for.
Glad it was helpful, Christine!
Simple explanation, content rich, affable presentation. 10/10
Great video, thank you
Thanks, Pete, that was great!
Glad it was helpful, Dmitry - thanks for watching...
Thank you. Very clear explanations
Thank you Sharon - glad it was useful!
Great video Pete, very informative
Thanks 👍
Great video. I hadn't realised it was all so complicated!! Better wrap my head around this...
It can be, Nicola, but for most of us it's simple enough. The examples were designed to provide options for complexity! Seek advice if you're not sure...
Brilliant many thanks and easy for me to understand
You are welcome!
This was very useful and informative, food for thought for myself.
Glad it was helpful, Ken! Thanks for watching…
Superb and very clearly communicated as always, thank you
Thank you kindly, Nick!
Really excellent, thank you !
You are welcome, Rod!
Great Video Pete, I'm glad that you have dissected this in so much detail. How lucky we are to have this wealth of free information at our fingertips. I wish I had seen this type of content 20 years ago !
Glad it’s helpful now, Stuart!
Another great video, just got to try and mold it to my situation, 67 this year, and just wondering when to stop work and this helps, thanks.
That's the challenge, right?! Seek advice if you're not sure...
Great video and great explanation of the different scenarios. I found this really useful as I’m at the stage where I’m trying to understand and plan for my retirement with an RS6😮
Great video, I've seen many examples around the LTA but they never explained it in such a clear way thank you.
Thanks Roberto - glad it all made sense!
Really really great video.
Cheers Daniel - glad you enjoyed it!
Pete, proper job, thanks.
You're welcome, Robert - thank you for watching!
Brilliant thank you very informative.
Glad it was helpful, Kevin - thanks for watching!
@@MeaningfulMoney spam messages agreed ?
Fantastic video. Excellent examples and great food for thought for myself. Off to run my numbers again on my retirement planner spreadsheet.
Really glad it was helpful, David - thanks for watching!
An amazing video - so much detail. Really well presented - thanks a lot Pete!
Ah, glad it was helpful Simon - thank you!
Whoa! This is exactly the sort of detailed content I’ve been looking for - perfect, thank you!
You’re welcome, Richard. I’m glad it hit the spot!
Pete, another great video thanks! So many variables around risk attitude, LTA and income tax liability, also the piece on IHT. Keep the Videos coming.
Love this geezers videos. I'm only 40 but it's good to be prepared
Good to have you here!
Another excellent video, Pete. The graphics made everything so clear.
I’m glad, Martin - thanks for watching!
Smashing stuff Pete. Very well explained and that takes a lot of work.
Cheers Sandy - appreciate the kind words!
Wow Pete, having had my hour with PensionWise and having watched abut 200 YouTubre videos on retirement, SIPPs, ISAs etc and having read "Beyond the 4% rule" I thought I had grasped pretty much everything and then you produce this video...
This is the first time I have heard about a temporary annuity.
Fortunately for us, our income comes from a few rental properties and will be supplemented by our state pensions. We can get tax-free cash by re-mortgaging (and thereby reducing IHT) or we can sell a property pay out a lot of Capital Gains Tax to acquire other lump sums (the less fun way of reducing inheritance tax).
Your video has confirmed to me that our strange plan of continuing to grow the pension without touching it before age 75 seems right for us.
I'm delighted it was helpful, Mike - thanks for commenting and watching!
Hi Mike
I hope you don't mind me asking, but how did your hour with PensionWise go?
I'm in my 50's, and consuming lots of videos like this. I wonder if PW is going to be aimed at people with zero knowledge, or if it will be worthwhile?
How did you find it?
Thanks Pete, I can see why you have job. Like you always say if you only get advice once it makes sense to do it when making plans for retiring. Hats off for putting that deck together!
Cheers bud - I appreciate you!
Fantastic slides and info really breaking it down as simply as possible very interesting, or am I just a bit sad lol
Good show
Thank you!
Pete, you’re a legend. Thanks so much for all your videos!
You’re very welcome, Alister - thank you for saying thank you!
Green job Peter
Thanks Pete - great video as always. The worked examples really help to understand the options and choices available. Don't worry about how long your videos are - I find they fly past due to the quality of the content and your presentation style.
Thanks you Mike - really appreciate that! 🙏🏻👍🏻
Great video. Very clearly explained. Thanks! It takes a while to get your head around this stuff when you've ignored it for the first sixty years of your life!
It really does - it's why I have a job! Thanks for watching, Allsystemsaredown
Well said!
Many of us wishing we could go back in time and manage our finances better… 😄
Amazing slide pack and video, thanks! Brilliantly useful examples (okay some of the numbers were huge but very useful to make points which wouldn’t have been possible otherwise) and appreciated your choice of showcasing a spectrum of relationship set ups :)
Thanks Becky - glad it was useful!
Belting video Pete. At 38 and just getting finances together for retirement this really helps me visualise what I am working towards. Keep up the good work, many thanks for all your content
Thank you so much - glad it was helpful!
I'm 37 and doing exactly the same! Fully agreed - this clear and visual approach really helps make it easier to plan.
Great examples and an episode wouldn't be complete without the mention of a campervan :)
I know, right?! I really should think of something more original...
Hi Pete, recently joined your subscription as I am getting to that age. 60 April. Whilst I know you can’t recommend any advisors I am wondering is there a list of financial planners you know of in the Widnes (Cheshire) area? Like your presentation skills so please keep it up. Feel you are explaining at an acceptable pitch for the audience. 👍🏻
Thanks Tommy. Nearest I can get to you is Altrincham. Check out Smart Financial Planning: smartfinancial.co.uk/
Wonderful video, Pete! Great information and presentation as always.
Great video as ever. Can you do more examples please? Thanks
Thanks Andy. Any specific examples you’d like to see?
Another useful video thank you. Have you done anything on options when a pension fund doesn’t offer flexible drawdown? Thanks.
Hi Julia, sorry, I'm not Pete but just wanted to help. If your current pension provider doesn't offer flexible drawdown then you should be able to transfer it to one that does. At the accumulation stage, think of your pension provider as basically a bank account with benefits - once you have your pension pot, you don't need to stay with them through drawdown. You can take your pot and deposit it with whoever is offering the best deal for you. You can do this at any point before retirement with the more modern pension providers like Fidelity or Hargreaves Lansdown, but if you have an older pension with Zurich or someone like that, you may have to wait until your selected retirement age before you can transfer it penalty free. Either way though, you're not stuck with your current provider.
Great answer, Richard - thanks for jumping in. Nothing I'd add there, Julia - pensions freedoms are a great thing; the pensions world is your oyster!
I need to watch this great video a few more times to get it fully.
In the meantime, I am confused by the £40,000 vs £32,000. Am I right in thinking that Tony wants £32,000 after tax as income for spending? So does he receive £40,000 from the drawdown and he pays £8,000 income tax OR does he receive £32,000 from drawdown and the drawdown pays the income tax of £8,000? I suspect the former, but want to get this straight in my head!
Thanks in advance for helping!
Extremely helpful and answers the question that I had on whether investment growth affects the LTA. I found it easy to understand your examples and found them of great benefit.
I’m glad, Phil - thank you 🙏🏻👍🏻
Pete that was brilliant. I retire soon with significant transfered pension pot which should be a simple draw down for me. But your show has been great for demonstrating options. Thanks.
Glad it was helpful John! Thanks for watching...
Hi Pete, thanks for all your great information. I'm still trawling through your 9 years plus of videos and finding the gems.😁My question is - From your examples today it seems like even a single person is looking at around a half a million pound pension pot to retire around age 60. I've been crunching our numbers for a few months now and assuming a few things, I don't think we need much more than half of that as a couple. Am I being really naive or am I missing something ?
The assumptions are
1. That thinking about the slow go years and the no go years , by the time we are both at retirement age our state pension and lgps/ teacher pension will suffice.
2. As we are already saving about 500 a month of our joint income (and we are happily holiday and doing what we want to do currently ) then we won't need anymore than our current income and can even reduce by a couple of thousand.
3. As we are happy to "die with zero" ( fab book btw and worth a read) then we don't need our pot to keep growing and just need it to cover the period from retirement to state pension age. Obviously this is taking into account all the ways we are going to be taxed on everything 🙄. I hope this makes sense and I'd love your thoughts on this. I'd also love you to do some examples from us "poorer"😂 individuals who still dream of retiring in the sunshine 😂.
Hi Keely - all sounds like you've thought things through very well. Investments and pension pots are there to bridge the gap between income and outgoings, and how much you need is entirely dependent on the size of that gap, and the other factors you mention. Well done, keep going and good luck!
Very good video and some good examples chosen - a combination of which is not too dissimilar to the position I am in. Thanks.
Glad it was useful, Andrew - thanks for watching and commenting!
Thanks very good video. My situation is similar to the last example with DB scheme, but I have a range of options which use up different amounts of LA. Are you available for financial advice?
Potentially, though it would be my firm rather than me personally as I’m am now coaching and supervising my advisers rather than being too hands-on.
meaningfulmoney.tv/work-with-pete
Thanks, I learn something every time I catch one of your Presentations.
I believe I have an old DB Final Salary Pension, paid in for 16 years, since 1989. Have no idea of value or process, I learnt a bit today though.
Time to trace it now..... As Salary was lower in 2005, I don't expect it is worth much.
They are normally index linked, though sometimes have an annual cap once deferred (e.g. 2.5%, 5%). It might not be too bad as that will have missed most of the high inflation years, until this year...
I reckon you might be surprised, Sue - as John says, the indexing will have added quite a bit over that time...
You will probably be pleasantly surprised. I have a dB pension I only paid into for 8 years in the 90s and it is forecast to pay me 12k a year when I'm 67 if I don't take tax free cash
Really good examples Pete. I think it's so important to have this information to hand as it gives us all options to consider when it gets to our turn!!
Glad it was helpful, Matt!
Please consider a show on how ifas are paid, it's y bit of a black box and I am hesitant to engage ifa
Hadn’t heard of temporary annuities before. This has earned my subscription. Look forward to further examples.
Can be useful in the right hands, Richard - glad to have you with us!
As with the previous example on FAD and UFPLS explainations this was FABULOUS with a capital F !!! ...well done better than my own financial advisors explaination which was no where near as good as yours
Thanks Tim. All I can say is that there’s 25 years of experience and practice going into these explanations!
For the effort producing the slides 😊
Could you update these example now that LTA is abolished,Pls?
Imagine paying over £100k LTA charge, only for the government to remove the LTA altogether soon afterwards. Being risk adverse often introduces more risk.
Thanks Pete, really interesting. I was one of the people who requested more info after your earlier You Tube video. I know you can’t answer everyone’s questions, but I agree with some of the other comments that the LTA won’t affect a lot of people (inc me!). I am still trying to work out if FAD or UFPLS works better, especially if you can set up regular UFPLS withdrawals 🤔
Also, in the graphics, when you move from the uncrystallised to the crystallised pots, and these both remain invested, are they two separate pots? Or are they treated as one investment by the platform provider?
Thanks as always Pete
Hi Celia - Obviously I can only put in so many examples. but maybe I'll add a video with pots for more ordinary folks!
To your second question, most platforms will separate out pre- and post-crystallised pensions into separate accounts.
So if you want a regular withdrawal for income, is Flexi Access the better option?
That is a really helpful video. I just have two questions of a very practical nature. When you have a SIPP with on online platform and you crystallise, do you get given a separate account on the online platform with those funds inside? And do you have to contact your other pension providers to tell them you have crystallised your SIPP or is it completely separate from those other pots?
Good questions, Mark. Yes, you'll generally have a separate drawdown account on a platform to keep things tidy. It can get more complex if you have a full SIPP with third-party investments, but for most of us mortals with simple platform pensions, it's straightforward enough.
No you don't need to let the other pension providers know if you have crystallised elsewhere. You will normally have to fill in a questionnaire before your crystallise though, so that's where you tell them what percentage of the LTA you've used elsewhere
@@MeaningfulMoney Hi Pete, I am looking at this very issue myself as I’d like to juggle my SIPP content to keep the bulk of the cash and lower growth funds in the uncrystallised (I’m already over the LTA) and the higher growth funds in the crystallised and take their growth as income, to minimise LTA pain).
Hargreaves Lansdown have separate pots for drawdown and uncrystallised, but Interactive Investor do not and neither do AJ Bell. Problem is that HL fees are really high and they charge separately on both pots so their fees get really high, more than offsetting the LTA advantages made possible by the account separation. II & AJB just use simple averaging to work out your LTA penalty at 75 with a part crystallised SIPP.
Very good video. I watch it as if the rules are going to be the same in 45 years time 🙃
Probably not, but maybe I'll still be shooting TH-cam videos then...!
How many times can I press thumbs up?! Thank you Pete. Really appreciate you and what you do for us. I'll definately be giving Jacksons a call in around 18 months to get onto your waiting list :-)
You're a star, Richard - so glad it was helpful!
I’m leaning towards UFPLS. I’ve a good DB pension which I started receiving at 42 which is due to increase in a few years time .
Hope the examples were helpful, Alan...
@@MeaningfulMoney thanks Pete I never knew about temporary Annuity’s or UFPLS till i watched your very informative channel.
Great video. I have a couple of questions. What are the typical costs of managing pensions once you hit retirement and are there more fee efficient ways to manage drawdowns? I assume the pension companies moving money into drawdown and paying tax on your behalf are not doing it free of charge. In the last example, is there no additional tax rate to pay on the funds over the lifetime allowance? I thought it worked out to 55%, or did buying the annuity alleviate the additional tax charge. Thanks!
Costs for running a drawdown plan are much the same as running a pre-crystallisation pension, except s9me providers charge an annual fee of (say) £120 a year or something similar. If the scheme pays the LTA charge and you take the excess as income, not a lump sum, the LTA charge is 25%, but then you pay income tax on the income, which roughly evens it up if you’re a higher rate taxpayer.
@@MeaningfulMoney Ah right, understood, thanks!
Pete, thank you for the brilliant video with patient explanations. Please could you do some more examples, especially around the age 75-evaluation and inheritance tax liability?
Also, I’m nowhere near the LTA but I thought the tax on anything above was 55% not 25%?
More videos around the pension theme please 🙏
If you draw it out as a lump sum its 55%. If you leave it in and take it as drawdown its 25% and then your income tax rate. Which works out at 40% total at basic rate and 55% total at higher rate income tax.
If taken out as a lump sum it's 55%, but if it stays in the pension fund subsequently to be drawn as income, it's a 25% LTA charge, then income tax when you draw
@@johnkennet3036 @meaningfulmoney Thank you, John and Pete
These examples have ridiculously high incomes, savings and pensions....do more of these but with realistic finances!
I understand, but in order to illustrate the flexibility of the various options, and particularly the Lifetime Allowance issues, I need to use larger figures. The principles apply universally though, so you can just plug your own figures in...
What I was just thinking...how many people have this much pension / savings? Not many I think.
We would never be able to retire !
Dont think they do im 51 with a 700k pot only in the last year have i had to worry about 40% tax
@@mwscuba Good effort! You must have been stuffing money away for a few years. I have around £500k and I’m 53 and been a higher rate tax payer for last 10 years. Guess I should have saved harder.
No better way to prepare for retirement than buying, holding and buying more dividend stocks. You will thank yourself you did!
Fact. It's interesting to see dividends like SAFT, PSX, NKSH and PM doing well after all the doomsday analyses from naysayers
Great article - thank you Pete. The clearest explanation I've ever seen of this. This was the video that convinced me to subscribe!
I’m grateful, Simon - glad it was helpful!
Any real world examples at all?
£16760 a year from pension completelly tax free. That is just amazing. Imagine how powerfull this is if combined with ISA withdrawals.
Properly powerful stuff - tax breaks are powerful and should be maximised!
Oh no! When did Joy leave Tony? I always thought Tina and Joy were more than just friends, but Tony couldn't see it. 😉
Otherwise a great video. Thanks.
Hahhahahaha! The complex lives of my examples.
Hi Pete, can the lifetime allowance charge always be paid by the scheme and the balance transferred or would this ever need to come of the tax free amount? Likewise if taken as cash and 55% tax applies?
Are you talking about DB pensions, Gus? If so, then you’d need to check with the specific scheme you have in mind. Also, some older less flexible DC plans may not have the facility to pay the LTA charge.
@@MeaningfulMoney I was thinking about this if I was to transfer out of a DB scheme.
would the funds in pre-retirement and drawdown, be invested differently? I mean, would the pre-retirement fund earn more interest that the drawdown fund?
I talked to a fund management company last week, they said they'd never heard of UFPLS.
A fund management company wouldn’t necessarily have heard of it, even though UFPLS has been a thing since 2015! It’s not their area at all.
Yes, I think you should invest differently when drawing down versus when you’re accumulating. Here’s the ultimate guide: th-cam.com/video/wL87j34VCEk/w-d-xo.html
ok can you as a uk resident use QROPS to help with the LTA ? and guessing anytime you take taxable income from your pension the " only allowed to pay in 4K rule " kicks in
Transferring to a QROPS is a benefit crystallisation event, and would trigger an LTA test at that point. After that, I get a little hazy - offshore pensions are really not my thing!
To your other question - yes, once you take any taxable income from a pension (even income that falls within your personal allowance and hence is taxed at 0%) you are subject to the £4K Money Purchase Annual Allowance
12:53 I didn't think one could still invest money in the drawdown pot. I'm having trouble understanding the difference between UFPLS and moving into drawdown.
Hi Jon - yes, drawdown plans are invested just like an uncrystallised pension (one where you haven’t taken benefits). Have you watched this video: th-cam.com/video/NOIivz8_QuA/w-d-xo.html
@@MeaningfulMoney I have thanks, I'll watch it again to make sure I didn't miss anything.
Another super helpful video. Your explanation and examples make sense of what could be considered a minefield especially if you make the wrong choices. 👍 keep it going please and thank you!!
I will, Aki- thank you! Glad it was useful…
Why is the value to crystallise £600k please? Where does that value come from?
If you have a local gov DB scheme, can you use UFPLS?
No, sorry. UFPLS is only for DC schemes
@@MeaningfulMoney thanks, just wondered if I could take from 55 using that method! And top up from Investment ISA until 67.
Hi Pete, thanks for this, very informative as always. Couple of questions if I may - is it more tax efficient to use pension money ahead of any invested in ISA's, or perhaps one could do a mixture of both? Also would you recommend continuing to save into ISA's through retirement with un-taxed pension withdrawals, assuming there's some cash left over each month? So many ways of approaching this it makes my head spin!
Hi Carl. By ‘use’ I presume you mean draw down. In which case, ISAs are likely to be more tax-efficient unless you have unused personal allowance.
Not sure why you’d continue to save in retirement when there’s fun to be had with that unused income! But each to their own. Everyone’s situation is unique, which is why I have a job trying to apply these rules to individual circumstances!
@@MeaningfulMoney Great thank you, really enjoy watching your content. I was figuring if I took a fixed salary with pension drawdown then I'd want to keep invested whatever is leftover...but I guess I could just keep it in the bank and take less from my pension the following year...must remember to keep things simple
Great info. It would be also worth to mention that in case of UFPLS first taxable pension withdrawal, one might have to pay emergency tax.
Yep, that’s true…
Great video I'm 26 and I understand how to plan my retirement better for the future. Definitely make a mission to utilise ISA and savings accounts
Good luck! Starting at 26, the future is very bright! 👊🏻👍🏻
Does it mean that once you crystallise some of your pension it doesn’t grow interest anymore? If so, then you should crystallise the smallest possible amount each year right? And repeat the process each year
Doesn’t mean that at all. If you crystallise a pension fund into drawdown, it remains invested and you get all the investment options available to you as before the crystallisation
@@MeaningfulMoney thanks a lot for all your answers to my questions, appreciate it
Hi Pete,
Just been catching up on some of your videos, and they've grrrreat!
One of them motivated me to ask this question.
How do I know that paying for advice will be worthwhile?
I am a skilled manual worker in manufacturing, and whilst my future retirement finances are healthy, in comparison with most of my peers, I am constantly made aware of how little I actually know. Thanks to you and other content providers, I am regularly learning new things, and can truly see the sense in having experts like yourself, maximising income and investment strategies, but,
Can I afford it?
Some charges I have seen are eye-watering. Some also seem endless.
Keeping costs to a minimum is important, especially when the sums & opportunities relatively small.
Some fees could wipe out profits in bad market conditions.
How do I know what is worthwhile, and when?
I have a deferred DB with a CETV of 400k and a pot I hope will be around 200k at 60, when I wish to retire, but like everyone, I have individual nuances that seldom fit the case studies in these videos.
Hi SlayerRocks2
I understand your points about fees. You could look for an adviser who charges in a way which works for you. some charge hourly rates, some percentages, some fixed fees.
Any adviser *should* add more value than they charge, but some elements, such as performance, can't be guaranteed of course.
I wish you well - good luck!
I'm lucky enough to be on a Final Salary scheme (Direct Benefit)..projections show it'll give me around £32k a year. I have no idea if this is considered enough these days! are there ways of maximising a Final Salary option?...thank you!
Some DB schemes allow you to buy extra DB income, though not many. Look up if you have that option and if the cost is worth it. Otherwise SIPP it. Only you can decide what is enough. £32K is around the UK median full time employment earnings so that's a pretty good baseline. Remember that DB and state pension are taxable income so you will be paying 20% tax above the personal allowance (though no National Insurance).
@PompeyMatt17 - ultimate, whether £32k per year is 'enough' comes down to your lifestyle and spending patterns, but as @John Kennet says, it's certainly a tidy outcome. You may be able to add AVCs on the side, but these are DC, not DB , though they could be subsidised by the company to the tune of very low fees. Also, in some cases AVCs can be linked to the main scheme and provide a pot from which to draw the tax-free cash. You'll need to speak to the pensions department, I reckon
Can you give advice on what to do if you want to return to the EU to retire and you have a fair amount of money coming from the sale of a UK home?
Sorry, @kyaume21 - not really my forté
@@MeaningfulMoney Fair enough. Any hint on where to go for advice?
Suppose I have £100k in my pension pot.
I am allowed to withdraw 25% of it tax free (drawdown)= £25k
My pension pot then becomes £75,000
If I want to take per year the level of the personal allowance only (currently 12750), can I take the £25k in portions every month to top up the 12750?
My question phrased differently,
Suppose I take 12750 per year, with my example, I can therefore more or less take it in 6 years time and dry out the pot.
But can I divide the £25k drawdown by 6 and take £4166 per year as well?
It means per year I could get tax free £16916. Is it possible?
PS : I assume I have no other income from elsewhere and I am over 55 yrs old. And yes I believe you would not recommend this because I would have dried out the pot, which might not be desirable, but my questions above are only to understand if technically I would be allowed to take the personal allowance out of the main pot and top it up with the 25% tax-free drawdown?
Yes, you could take all your 25% tax free cash out in one go, then keep your withdrawals to below £12,570 each year and pay no tax on the withdrawals (assuming no other income, as you say).
Alternatively, you could draw £16,760 each year, made up of £4,190 tax free cash and £12,570 taxable and pay no tax as the ‘taxable’ part would fall within the personal allowance.
Your understanding is correct 👍🏻
In the Tony example, is there any merit in refusing to take his state pension? This would free up about £6,500 each year of his personal tax free allowance that could be used to pay less tax on his private/corporate pension income. Furthermore, when he does claim his state pension, it would at a higher rate. Admittedly, he needs to live another 17 years for the state pension income foregone to be overtaken by the extra amounts received.
Another great video Pete....I've just hit 60 and even though I worked in financial markets (not pensions!) all my life, you manage to clarify and simplify a pretty complex subject that is a real boon to folks of all ages. Indeed I had watched dozens of your videos and decided that I needed some professional advice. It was mainly to clarify my own thoughts and critically to make sure I wasn't making any undoable mistakes as I received/constructed my pensions and savings. To that end you ended up with me as a client despite some serious competition :-) (though you (and Mark) may be regretting it now of course !!)
It's a privilege to serve, Nigel. Ask mark to let me know when you're on a call with him next and I'll put my head in the call!. you're in great hands with him - he's a superb adviser!
Pete can you cover the way that it is possible to take £20K tax free please. where you crystalise £30K take £7.5K tax free and then your personal allowance of £12.5K.
You’d need to do this via Drawdown. Crystallise £30k. Take £7.5k tax-free cash. Put the £22.5k in a drawdown account and take £12,570 out of it, leaving £9,930 invested the drawdown account.
Interesting video, could we have more realistic examples, only the lucky few will have huge pension pots.
Lookup Karen Marie Emma, she's a certified fiduciary.
Why is UFPLS only recommended for ad hoc withdrawals and not ongoing withdrawals?
It can do both, but generally UFPLS is easier to organise for ad hoc lump sums. There are providers that can arrange regular UFPLSs, though, so whatever works for you. Note that nothing in the examples constitute recommendations - they’re just examples.
If you set up regular UFPLS withdrawals, isn’t this basically the same as FAD? Other than taking the tax free amount as chunks rather than a one off amount??
Please do one on tax returns once retired 😔
They're not much different from when you're working. Harold. If you have a specific questions, send it to hello@meaningfulmoney.tv and I'll do my best to answer...
Great videos, do you have any examples for NHS workers as antidotally I have heard that this is complicated. I have two 1995 and 2015. I also have a couple of smaller pensions, BT and contract out of SERPs 😊
Pete, as always a highly informative video. De-mistified, a tough topic. One quick question. Is your LTA tested again after 75? Or can you ignore it, and let your drawdown pot grow beyond the LTA limit? Thanks Peter
Don’t worry Peter - the age 75 test is the last one. After that, you’re home and dry!
Where one is in excess of the LTA by some margin, I struggle to think why you wouldn’t move it across the first LTA line ASAP & pay the 25% charge? - The only reason to keep it on the left is in the hope that the government becomes more generous with the LTA rules at some point in the future (the track record suggests not)?
Once over the line, choices are higher marginal tax if taken out or more LTA on assumption investment returns exceed increases on the LTA - i.e. tax on successful investment only. What am I missing?
Possibly the inheritance tax angle, depending on your priorities. Note also you are still assessed for the LTA charge on the growth of the drawdown fund at age 75 - ie if the drawdown fund is bigger than when it started you pay another LTA charge on the excess. And drawing out average growth from such a large pot is probably more than the basic rate tax limit. Also the £268K / 25% tax free lump sum will need managing as a taxable account until you can move it into ISAs over many years. But yes taking the max tax free lump sum and crystallising at least up to the LTA is optimal for LTA excess reduction.
@@johnkennet3036 Thanks John, I guess in my head the 25% is unavoidable on crossing that first line, so on basis of history, the earlier that "pill" is taken the better. Once in the second column, it remains outside the estate I believe so no change there? The income can then be drawn with a medium term aspiration to have the fund at the same level as when the original LTA line was crossed. At that point you have calculatable decisions about marginal rates of income tax & only if the fund exceeds expectations does one have to pay more tax..... Great returns create tax liability which is better than no returns... Anything there that you would correct my thinking about? Always good to kick thinking & options about but I think in my mind me default plan would be to cross that first line quickly.... Thanks for your critique!
@@thearab7177 Yup. I don't think it makes much difference when you crystallise amounts _above_ the LTA. Growth first and LTA charge second or the other way round is the same. Barring any pension law changes.
Its not worth paying higher rate tax to draw out the growth unless its for your income needs.
I guess death before age 75 is a factor (which is also optimal for inheritance tax...). Dying between pension age of 57 and the LTA second test at age of 75 is about 15-20% odds according to ONS). I guess do the early crystallisation and if you die in that period and growth was above the basic rate tax band you have paid less LTA charge. I guess its sort of a "win" ;-)
I did the maths on this a couple of months ago, so I hope I can answer. It's a bit long but stay with me! The first reason is that if you die before 75 you'll never have to pay the tax at all, so don't pay until you have to! The second is that you might pay more tax but you'll end up with more money. Let's say you're 60 and you've crystallised up to the lifetime allowance but you have £400000 left (lucky you!) As I understand it, your question is "why not crystallise that too to minimise the tax?" Here we go: first option, don't pay the LTA, let it grow at, say, 5% for 15 years and £400000 becomes £846750. Now, at 75, pay the LTA (£211680) and you have £635070 net. Second option: pay the LTA immediately (£100000) and let your remaining £300000 grow at 5% for 15 years and you'll have £635070! Look familiar? But the catch is you now have to pay LTA again on the growth. So without any more maths, it's going to be less than the first option (about £83000 less). By paying the tax early, you lose out on its compound growth. Furthermore, you're only ever going to lose 25% of that growth to LTA; you get to keep the rest. I'm no expert and I'm willing to be corrected if I'm wrong, but that's my 'man-maths' layman's answer.
@@MartinHopkinson Thanks Martin - you have framed the question correctly! - I know at some point I will need to build that spreadsheet too - My only reservation about your comment is that the piece over the LTA (£400k in your example) always gets tested as I understand it, even if you die before 75.
The age 75 test is not done on pot already in drawdown that has previously been tested. I think it boils down to which you think is going to grow faster - A) the LTA B) Your pre tested pot.
I assume B given almost every change made since “A Day”.
Jane's additional £10k a year pension would also be taxed on top of losing her original £119k from her pension pot, seem's to me to be a poor outcome for someone who has saved all their life. Might have been better to have channeled funds into cash/s&s isa's instead.
Good information and insight but feel examples are sided to people with around 1 million would of been better with a bigger difference in pots/overall available money
Noted, Kevin. Obviously when considering the impact of the LTA, the pots need to be large. But the principles of Drawdown, UFPLS and Annuities apply no matter the size of the pot
I love your videos but agree with the comments that the figures you use are not the norm. Why not aim for people who have been on minimum wage most of their life .
Hi Mohamed. I understand, but the video is designed specifically to help people understand the interplay between crystallisation methods and the lifetime allowance. Folks who have been on minimum wage all their lives are not, with the best will in the world, going to have an issue with the lifetime allowance.
Maybe I’ll do a version addressing smaller pension funds. Watch this space…
Do you think that a person who could still earn income should live on pensions and savings without falling victim to inflation and life expectancy? It seems counterintuitive
There’s no such thing as ‘should’! Work if you want or need to, but if you can live on pensions only and don’t want to work, then do that.
Everyone needs to take stock of their own situation and make a decision for themselves.