The Lemon Fool

From google all I can see that changes is that my two nominated beneficiaries (kids) could take my pension pots tax free if I die before age 75. After that they need to pay tax at the normal income tax rate. Is that it ?

I'm 66 and have just started taking drawdowns, which I intend to do once a year for a very long time!

Thanks in advance for any feedback.

If you are asking about your SIPP, that is it (for now at least) things may change before then. I never saw that as a good reason to depart this life before then though so am still around.

Otherwise you will be a few years older but unlikely to be much wiser.

Dod

CautiousPaul wrote:From google all I can see that changes is that my two nominated beneficiaries (kids) could take my pension pots tax free if I die before age 75. After that they need to pay tax at the normal income tax rate. Is that it ?

I'm 66 and have just started taking drawdowns, which I intend to do once a year for a very long time!

Thanks in advance for any feedback.

Yes but there are at least 2 other points about reaching 75.

There is a Benefit Crystallisation Event - ie your pension benefits are tested against the lifetime allowance and

after 75 you can't make any further contributions to your pension

Also your kids could just keep your fund undrawn and pass it on to their kids, and the funds they receive from you do not count towards their lifetime allowance.

Dod101 wrote:If you are asking about your SIPP, that is it (for now at least) things may change before then. I never saw that as a good reason to depart this life before then though so am still around.

Otherwise you will be a few years older but unlikely to be much wiser.

Dod

Thanks, Dod. In terms of wisdom, I think I've already hit my lifetime allowance!

Dod101 wrote:If you are asking about your SIPP, that is it (for now at least) things may change before then. I never saw that as a good reason to depart this life before then though so am still around.

Otherwise you will be a few years older but unlikely to be much wiser.

Dod

My current plan (in 4.5 years at 66) is to loot mine year on year from age 66 to age 75 once I am no longer a higher rate taxpayer from a salary, taking 25% tax free each year as long as I can re each annual looting, not spend most of it and shovel most of the after tax annual looting into ISAs in name of myself and my spouse whilst we try to live on our two state pensions and her defined benefit pension.

Catch will likely be high risk of political interference over that very extended period.

Charlottesquare wrote:

Dod101 wrote:If you are asking about your SIPP, that is it (for now at least) things may change before then. I never saw that as a good reason to depart this life before then though so am still around.

Otherwise you will be a few years older but unlikely to be much wiser.

Dod

My current plan (in 4.5 years at 66) is to loot mine year on year from age 66 to age 75 once I am no longer a higher rate taxpayer from a salary, taking 25% tax free each year as long as I can re each annual looting, not spend most of it and shovel most of the after tax annual looting into ISAs in name of myself and my spouse whilst we try to live on our two state pensions and her defined benefit pension.

Catch will likely be high risk of political interference over that very extended period.

It's the risk of political interference on the tax free lump sum that worries me with flexible drawdown. The talk has been going on a long time but it's now amplified. I think companies like HL with their annual scaremongering to encourage people to make use of pension freedoms while they last risks normalising the idea.

The intergenerational warfare is idiotic as everyone is a future retiree (or prematurely dead) but I am drifting off onto a rant about the triple which is on the surface unfair and expensive but on the other hand addresses the disparity between our poor state pension and other nations. It is for this latter point that it should stay until we are at a similar level and then go. Sorry, rant over!

In the end we need to guess if we trust the government not to mess our plans up. I don't

Charlottesquare wrote:

Dod101 wrote:If you are asking about your SIPP, that is it (for now at least) things may change before then. I never saw that as a good reason to depart this life before then though so am still around.

Otherwise you will be a few years older but unlikely to be much wiser.

Dod

My current plan (in 4.5 years at 66) is to loot mine year on year from age 66 to age 75 once I am no longer a higher rate taxpayer from a salary, taking 25% tax free each year as long as I can re each annual looting, not spend most of it and shovel most of the after tax annual looting into ISAs in name of myself and my spouse whilst we try to live on our two state pensions and her defined benefit pension.

Catch will likely be high risk of political interference over that very extended period.

Using UFPLS to take drawdown where 25% of what you take is tax free and the other 75% of what you withdraw is taxed at your marginal rate incurs an LTA test for every withdrawal using up more of your LTA. This means that any growth that occurs up until age 75 will be captured by such LTA tests plus the final test at age 75 on what is left uncrystallised in the pot.

If you are in any danger of exceeding the LTA by age 75 it is usually far better to use flexible acess and crystallise the pot taking the full 25% tax free lump sum and then make withdrawals. Those withdrawals will be subject to tax at your marginal rate but won't incur any LTA tests. There will be a further LTA test of the crystallised pot at age 75 but that just looks at any growth since the pot was crystallised which still remains in the pot at age 75 - hence failing this test and having to pay a charge on the LTA excess can be avoided by withdrawing enough of the growth before age 75.

Charlottesquare wrote:

Dod101 wrote:If you are asking about your SIPP, that is it (for now at least) things may change before then. I never saw that as a good reason to depart this life before then though so am still around.

Otherwise you will be a few years older but unlikely to be much wiser.

Dod

My current plan (in 4.5 years at 66) is to loot mine year on year from age 66 to age 75 once I am no longer a higher rate taxpayer from a salary, taking 25% tax free each year as long as I can re each annual looting, not spend most of it and shovel most of the after tax annual looting into ISAs in name of myself and my spouse whilst we try to live on our two state pensions and her defined benefit pension.

Catch will likely be high risk of political interference over that very extended period.

As I am sure you know, there is usually no IHT payable on the balance in a SIPP on death. I used to do more or less what you are proposing but now just leave it alone, or sometimes take the accumulated dividends. My children can do what they like with it.

Dod

ursaminortaur wrote:Using UFPLS to take drawdown where 25% of what you take is tax free and the other 75% of what you withdraw is taxed at your marginal rate incurs an LTA test for every withdrawal using up more of your LTA. This means that any growth that occurs up until age 75 will be captured by such LTA tests plus the final test at age 75 on what is left uncrystallised in the pot.

If you are in any danger of exceeding the LTA by age 75 it is usually far better to use flexible acess and crystallise the pot taking the full 25% tax free lump sum and then make withdrawals. Those withdrawals will be subject to tax at your marginal rate but won't incur any LTA tests. There will be a further LTA test of the crystallised pot at age 75 but that just looks at any growth since the pot was crystallised which still remains in the pot at age 75 - hence failing this test and having to pay a charge on the LTA excess can be avoided by withdrawing enough of the growth before age 75.

What are the consequences of at first using UFPLS, and then later in the event of a near breach of the LTA, taking the full 25%/flexible access?

bluedonkey wrote:What are the consequences of at first using UFPLS, and then later in the event of a near breach of the LTA, taking the full 25%/flexible access?

I guess not much, as long as you don't actually breach it. Though if the government decides to suddenly reduce the LTA you might regret not having done it sooner. As to how likely that is, I have no idea.

Scott.

bluedonkey wrote:

ursaminortaur wrote:Using UFPLS to take drawdown where 25% of what you take is tax free and the other 75% of what you withdraw is taxed at your marginal rate incurs an LTA test for every withdrawal using up more of your LTA. This means that any growth that occurs up until age 75 will be captured by such LTA tests plus the final test at age 75 on what is left uncrystallised in the pot.

If you are in any danger of exceeding the LTA by age 75 it is usually far better to use flexible acess and crystallise the pot taking the full 25% tax free lump sum and then make withdrawals. Those withdrawals will be subject to tax at your marginal rate but won't incur any LTA tests. There will be a further LTA test of the crystallised pot at age 75 but that just looks at any growth since the pot was crystallised which still remains in the pot at age 75 - hence failing this test and having to pay a charge on the LTA excess can be avoided by withdrawing enough of the growth before age 75.

What are the consequences of at first using UFPLS, and then later in the event of a near breach of the LTA, taking the full 25%/flexible access?

Just that you used up a percentage of the LTA everytime that you used UFPLS.

If you crystallised immediately at age P then you will have used up x% of your LTA.

If instead you use UFPLS from age P and withdraw money for say 5 years each year using y% of your LTA and then crystallise at age P + 5 using up z% then assuming that there has been positive growth in your pot over those 5 years z+5y > x. So you will have used up more of your LTA which also means that you may have to take larger drawdowns in future to keep the growth in the now crystallised pot from exceeding the LTA limit at the age 75 test which in turn might mean that some of those drawdowns will be taxed at a higher rate.

Oh I see. So there's a LTA test or utilisation at each event:

a) UFLPS withdrawals each time
b) Crystallisation before 75
c) At 75

swill453 wrote:

bluedonkey wrote:What are the consequences of at first using UFPLS, and then later in the event of a near breach of the LTA, taking the full 25%/flexible access?

I guess not much, as long as you don't actually breach it. Though if the government decides to suddenly reduce the LTA you might regret not having done it sooner. As to how likely that is, I have no idea.

Scott.

There has been recent speculatuon about the government reducing the LTA limit to £900,000 or even £800,000. Since the current frozen LTA is already causing lots of Doctors to think about retiring early I doubt that will happen but you can't be certain of anything with this government. Hopefully though if they do decide to cut the LTA limit they will follow the precedents set when they have cut it in the past and provide protection schemes so that those who already have pots which exceed the new LTA limit or those prepared to stop contributing and just rely on growth to boost the size of their pension pot are protected.

bluedonkey wrote:Oh I see. So there's a LTA test or utilisation at each event:

a) UFLPS withdrawals each time
b) Crystallisation before 75
c) At 75

Yes - but, unlike with UFPLS, there is no LTA test on withdrawals from an already crystallised pot so you can withdraw enough subject to your marginal tax rate to avoid falling foul of the age 75 test on already crystallised pots.

You can think of repeated use of UFPLS as repeated crystallisations of parts of your pension pot followed by immediate withdrawal of that crystallised part. As in all crystallisations you get 25% tax free with the other 75% of what you withdraw taxed at your marginal rate. As in all crystallisations an LTA test is carried out on what you have crystallised ie the amount you are withdrawing using UFPLS.