Planning for maximum pension tax free cash

[the0ni0nking]

As someone 13 years away from being able to take whatever situation is in place regarding a TFLS, I'd broadly echo this - it's too much of a political football to be guaranteed a known outcome.

I have a BTL portfolio (owned in my own name) and as I'm still in reasonably well paid employment, I've seen my tax bill balloon over the last few years due to the restrictions. I've managed that by materially increasing my contributions into my pension to take be back down a tax bracket.

But my plan on retirement which is hopefully around 2-3 years away is to have nil O/S debt - and therefore I can relax knowing that I don't need the lump sum which can/will be tinkered with over the intervening period before I can draw it to pay off any particular debt.

What is your plan if it isn't tinkered with?

I am in a rather unique situation to you as my TFLS will be captured by the tax of the country I will be resident in as they don't recognise it in the same way as the UK and there is no ISA equivalent either.

So if they tinker/reduce it, it's all a bit irrelevant to me.

[paulnumbers]

Cross post to a similar discussion here. viewtopic.php?p=681966#p681966

A lot depends on what you intend to do with the cash ? eg. paying down a mortgage, moving house etc. It could take you a decade to tax-shelter £240k and of course it is immediately exposed to IHT, all of which might be counterproductive in the long run.

Here's a "no" argument: anyone hitting the tax free lump sump limit has a pot north of £1m which should be able to generate a natural yield income of £50,270 p/a or more. Remember with a SIPP you retain control of how much income you draw (and therefore how much tax you pay) and in this scenario the only tax Ms Reeves can clobber you with is basic rate income tax. So just retire early, travel and live well.

Thanks this was useful to read

[Laughton]

What's an RTI?

Ah, sorry. "Real Time Information". Employers have to make an online submission to HMRC every time they make a payment to an employee including details of any tax and N.I. deducted. And they treat pension schemes in the same way as they do employers.

[Snakey]

So your choice is basically does the investment growth on the £268k stay within the pension (eventually taxable at marginal income tax rates or passing gross outside your estate, with the risk of Labour applying NI to the former and/or removing the IHT exemption on the latter) or sit outside it (feed it into your ISA with the risk of Labour cutting the £20k limit and/or restricting the tax-free status and/or applying income tax rates/NI to investment income... where do we stop?!).

I was intending to use mine to pay off my mortgage, but the hike in interest rates changed my plans and I had to repay it from savings! Nice problem to have, and all that, but it has exacerbated the timing issue that I already had (too much tied up until 55 vs available now, which - along with inflation, cost of living etc - is playing havoc with my existing psychological problems in moving from a saving to a spending mindset now I've early-retired).

I suppose the underlying question for both of us is similar, really: if we genuinely aren't "spenders" then, leaving aside the joys of shuffling numbers around to get one over on HMRC/the Treasury, what's our ultimate plan for this additional cash? (If there isn't really one - if it's just going to pile up and never be withdrawn - why are we getting so hung up on tax efficiency? What does it matter?) And, if we are planning to magically change our attitudes at some unspecified future point in time, why not "as soon as we get our hands on it"? Holidays surely more fun/building work more manageable when younger, and future taxation won't then be an issue as money already spent generates no further income! This is certainly an area I need to work on.


A separate question for the floor, if I may: although I lost my 2016 Fixed Protection by making further contributions, I have not made any since mid-2021 which is before they announced the abolition of the LTA. Does anybody have a view on whether it might be a good idea to stick a quick additional £1 into my SIPP before the Budget, so that I have made contributions since the LTA was abolished? (This involves mind-reading not only in relation to them reinstating an LTA charge and at what level, but also what sort of grandfathering/anti-forestalling that might accompany the legislation, so get your crystals out!) Current pension fund: £1.35m approx with nearly three years before I can access it. Current income: below the personal tax allowance, with no employer with whom to arrange salary sacrifice or to make matched contributions.

[ursaminortaur]

So your choice is basically does the investment growth on the £268k stay within the pension (eventually taxable at marginal income tax rates or passing gross outside your estate, with the risk of Labour applying NI to the former and/or removing the IHT exemption on the latter) or sit outside it (feed it into your ISA with the risk of Labour cutting the £20k limit and/or restricting the tax-free status and/or applying income tax rates/NI to investment income... where do we stop?!).

I was intending to use mine to pay off my mortgage, but the hike in interest rates changed my plans and I had to repay it from savings! Nice problem to have, and all that, but it has exacerbated the timing issue that I already had (too much tied up until 55 vs available now, which - along with inflation, cost of living etc - is playing havoc with my existing psychological problems in moving from a saving to a spending mindset now I've early-retired).

I suppose the underlying question for both of us is similar, really: if we genuinely aren't "spenders" then, leaving aside the joys of shuffling numbers around to get one over on HMRC/the Treasury, what's our ultimate plan for this additional cash? (If there isn't really one - if it's just going to pile up and never be withdrawn - why are we getting so hung up on tax efficiency? What does it matter?) And, if we are planning to magically change our attitudes at some unspecified future point in time, why not "as soon as we get our hands on it"? Holidays surely more fun/building work more manageable when younger, and future taxation won't then be an issue as money already spent generates no further income! This is certainly an area I need to work on.


A separate question for the floor, if I may: although I lost my 2016 Fixed Protection by making further contributions, I have not made any since mid-2021 which is before they announced the abolition of the LTA. Does anybody have a view on whether it might be a good idea to stick a quick additional £1 into my SIPP before the Budget, so that I have made contributions since the LTA was abolished? (This involves mind-reading not only in relation to them reinstating an LTA charge and at what level, but also what sort of grandfathering/anti-forestalling that might accompany the legislation, so get your crystals out!) Current pension fund: £1.35m approx with nearly three years before I can access it. Current income: below the personal tax allowance, with no employer with whom to arrange salary sacrifice or to make matched contributions.

Labour dropped any plans to re-introduce the LTA before the General Election because they concluded it would be too complicated to re-introduce it. Hence that is probably the least likely change they will make to pensions.

https://www.moneymarketing.co.uk/news/labour-u-turns-on-lta-reinstatement-plans-reports/

Labour has dropped plans to reintroduce the pension lifetime allowance (LTA) if it gets into power because doing so would be “too complex”.

The Financial Times reported that shadow chancellor Rachel Reeves has abandoned the proposal from Labour’s election manifesto as it would add “uncertainty for savers”.

Quilter NHS pensions expert Graham Crossley said the decision was sensible and shows that the party has listened to the “serious concerns” being raised not only by its plans but also simply the lack of clarity about how a reintroduction would work.

[vand]

If you are unsure of what the best course of action is, then you are in good company, as the current rules invite much confusion and crystal-ball gazing.

Like the OP, good health and returns willing, I'm about a decade out from pension access age, by which time I should have amassed a pot in excess of the £1.073m, so will potentially certainly be restricted on the tax-free cash I can get out.

My own view is that it's probably better to withdraw the tax-free element sooner rather than later, as in real terms it will continue to be eroded by fiscal drag for as long as the can get away with. However, pulling out the 258k in one go also leaves you with a headache where to rebed it.

So for me I'll probably fully crystalize my pot and pull out the tax free element over the first 3-5 years after access. With the money I'll:

Use it to live on (obvious!)
Pay down my remaining mortgage
Make larger contributions to my daughter's JISA
Re-bed into ISA

[ukmtk]

I am fortunate to have DB (private company) pension that started paying out at 60 (2 years ago).
I have a SIPP that I hope to start using in 18 months time to top up my DB pension.
I'm hoping the SIPP will be worth £320K then.
My plan was to extract the full 25% and shovel it into ISAs in mine + wife's names.
This could be possible around end of tax year - £80K.
My plan was to use tax free income from the ISAs to increase our income tax free.
We would spend some of the money on a new kitchen + triple glazing.