The Lemon Fool

Hello everyone,

I am getting close to my pension LTA and am wondering in what order to access my assets. IHT is not really a consideration as I have no dependants and anything left will mainly go to charity. In an ideal world I would spend everything before I die, although this is looking like a very unlikely scenario.

Financial advisers usually recommend using other assets (e.g. cash, ISA's etc) first and accessing the pension last. Apart from IHT (which, as I say, is not a problem for me) I can't understand why this is the recommendation. Can anyone shed any light on this?

My thoughts are to crystallise the pension, take the tax free cash and spend it, then use the rest for income minimising income and LTA tax

Appreciate any comments.

You are right, probably, that by far the biggest incentive for leaving pensions until last is avoiding IHT (though you might like the idea that a pension company is likely to get cash into the hands of your nominees faster than a bequest is likely to reach an inheritor).

Others might include (or so I understand)

(i) your pension is protected in bankruptcy, your ISA isn't

(ii) if you go into a care home "they", the Council I suppose, can pillage your ISA but for your pension the most they can do is deem that you draw an income from it and pillage that.

If you anyway assume that you will pay for all your own care I doubt that (ii) will much matter to you.

The case for crystallising a pension is (a) you get the tax-free lump sum before the laws change - might it be capped in future? - and you get to use the current generous annual ISA subscription limit, (b) you presumably lock in the current value of LTA.

There are a few investments you can hold in, for example, SIPPs but not in ISAs. Some investors might hope to take advantage of that.

You want to minimise tax, so you want to take full allowance of personal, dividend and capital gains allowances, which requires some money to be unsheltered and some coming from pensions at all times. Beyond that it makes little difference until your required income exceeds the higher rate tax threshold, and then you don't want to drawing down a pension that fast. This is often a problem when you require home care or go into a home and your expenditure rockets. Best to have some ISA left for that than suck £80k a year our of a pension and have it taxed at 40%

The recommendation is common because DB pension schemes often have reductions that are made if the pension is taken before the normal retirement age for the scheme, or, as in the case of the State Retirement Age, are boosted if you defer taking them.

It is less relevant to DC pension schemes where taking a mix on income from the pension and from ISAs can be a better overall strategy.

Many thanks for your comments. They were very helpful and have helped considerably in clarifying the decisions I need to make.