Part Crystallisation

[AsleepInYorkshire]

I'm just trying to remind myself about crystallisation.

If I have a pension pot of (for example) £100K and I remove 25% then that's complete crystallisation.

If I remove 12.5% can I later remove the other 12.5% and would that be £12.5% on the original pot at the time of the first crystallisation or the the revised pot?

Thank you

AiY

[Urbandreamer]

Most of the explanations that I have seen make this really confusing.

IF you have no need to worry about the Life Time Allowance (LTA) then you can ignore any complexity or maths.
If however you are likely to exceed the LTA, then each crystalisation event consumes a fraction of the LTA.

NOTE, it's not the size of the pot, it's your consumption of the pot that the Allowance checks before applying a charge.

I think the Youtuber MeaningfullMoney has given a good explanation.

[ursaminortaur]

I'm just trying to remind myself about crystallisation.

If I have a pension pot of (for example) £100K and I remove 25% then that's complete crystallisation.

If I remove 12.5% can I later remove the other 12.5% and would that be £12.5% on the original pot at the time of the first crystallisation or the the revised pot?

Thank you

AiY

The broker needs to support partial crystallisation - not all do. The way it would work is that you would tell the broker to crystallise £50,000 of your £100,000 pot (or equivalently 50% of your pot) and give you 25% of that as a tax free lump sum.
Thus in effect giving you 12.5% of the £100,000 pot as a tax free lump sum. This crystallisation would cause an LTA test to take place at that time and use up a percentage of your LTA limit. You could then crystallise the rest either all at once or in little bits later and take 25% of each subsequent crystallisation as a tax free lump sum (each of which actions would use up further percentages of your LTA limit).

If you just tell your broker that you want to crystallise your pot but only take 12.5% as a tax free lump sum then they may well do just that ie they will crystallise the whole £100,000 and just give you a tax free lump sum of 12.5% of that (it's possible though that they would double check that you really mean to do that as it would be unusual with a DC pot).

The 25% tax free lump sum is the maximum you are allowed but you can decide if you wish to take less !!!! If you were to do that then you would NOT be able to take anymore as a tax free lump sum later since you would have crystallised the whole pot. For a DC pot it is difficult to see why you would ever decide to take less than the maximum 25% tax free lump sum but it can be advantageous to do so with a DB pension because of poor commutation rates.