I'm not a financial adviser (so definitely prepared to be told I'm wrong), but moving money from a pension to an ISA if you don't need it sounds like a very bad idea to me.
I'm approaching my birthday and plan to draw down my 25% tax fee lump sum from my Vanguard SIPP.
What are the mechanics of this with regards to reporting via Self Assessment?
I don't need the money but I want to get it out of the pension and into ISAs whilst I have the chance / available allowances.
I don't plan on drawing any other funds from the pot for some years.
Are their any issues I ought to be aware of??
I'm not a financial adviser (so definitely prepared to be told I'm wrong), but moving money from a pension to an ISA if you don't need it sounds like a very bad idea to me.
I’d be leaving it in the pension fund , no point at all moving from a tax efficient pension to a tax efficient ISA , just don’t get the logic behind your decision.
There maybe other advantages leaving in a pension fund in what can be transferred upon death .
Take (pay ) for professional advice rather than ask questions on here.
Take money from just about everywhere else before your pension. Unless you need the TFC it’s not a good move to take it out. Pay for advice so you understand the mechanics and benefits of it remaining in the pension.
https://www.youtube.com/watch?v=p3ux...nel=JustinKing
There are other opinions available
As others have said, leave it where it is. You also don’t have to take it all at once. Some people take it as “income” in addition to taxable pension income thus boosting your “tax free” income.
TFC doesn’t need to be on any self assessment form
The professional advice that I received recently was that your pension fund should be the absolutely last thing you take money out of, and only when absolutely necessary. It sounds like you don't need to do this so my advice to you would be not to do so - or at least get professional advice before you make a decision that you might regret in years to come.
As others have said, unless there is a pressing need for the PCLS to be accessed I'd leave it where it is.
Assuming you aren't close to the LTA there aren't any requirements to declare the monies & as you mention using your ISA I doubt that is an issue as ISA allowances wouldn't absorb that much cash.
Interesting read. I know relatively little about this and am decades from facing the decision myself, so take my thoughts with a large pinch of salt.
I always thought it was relatively normal to draw down on the tax free lump sum. Given you haven't lost any of the advantages of putting into a pension in the first place by doing so (i.e. no taxes to be paid, any matching benefits still maintained etc), I thought it was effectively a pot of money you can draw upon to pay off the mortgage, put towards a second property (for income), help out the kids etc, without losing any tax efficiency.
Advise above indicates I'm wrong, but why? Or is it simply that it's not recommended to take it out of a pension to put it into another form of savings, but the above type examples are more reasonable? Ta
You are not wrong.
You would just need to totalise everything to ensure that, in your circumstance, you would be better off to make the move.
There would be a load of factors you haven’t been made aware of, a young fella like you..
So that which is right for me would be wrong for you😁
Crickey DavidH, after 13 years a member on here, you’re one post away from full SC access!
In ref to this thread, I too am very curious as to why it’s deemed to be such a bad idea to remove the tax free lump and put it into ISAs.
What difference does it make? The tax advantage at this point is the same either way (i.e. No tax on the gains whether it’s in your pension or ISA) so if you took out £40k of the tax free 25% each year and put it into yours and your wife’s ISA, why would that be so bad?
The OP says his pension is with Vanguard which means he’s got limited funds to invest it in, so maybe putting it into an ISA with another broker like HL would open him up to being able to invest it in far more stocks/ETFs and the like.
Interested to hear the reasons behind it being best left in the pension.
Get a grip of it, you could be worm food at anytime 😳
It’s impossible to explain all the benefits of pensions (and keeping it in a pension) in a post, but in short, it’s outside the estate for IHT (something that affects a lot of 55 years old and older), it grows tax free and whilst it grows you are effectively increasing the 25% tax free element for if and when you need it. You take that out and that’s gone. Spend all your money in current accounts, building society accounts, premium bonds and cash ISA’s etc first. Then S&S’s ISA’s. Leave pensions until the end or near it - you can always get it out if you need it. Just make sure your fund is risk rated to what suits you.
I realise that this is a bit of a sweeping statement but in nearly 30 years of finance people generally only take money out of their pensions at 55 because they need to pay off credit card or loan debts or they just really don’t understand how pensions work/ don’t want to pay for the advice. The most switched on successful clients generally utilise pensions in the most tax efficient way possible. I guess though if you have a fund under 100k it probably won’t make much difference what you do. The more over 100k that a fund is the more madness it is not to look into it. The problem is people don’t realise that pensions are an asset (like your house) that can be inherited.
^^^ that’s not meant to insult anyone, that’s just how I see it. Others may disagree.
One pretty good reason would be that SIPPs aren't subject to IHT. And if the ability to invest via Vanguard is an issue, SIPPs can be transferred.
I'd be paying for advice either way, useful as TZ is for expertise on all sorts of things.
EDIT...Devonian beat me to it in, and in a much more erudite way.
Last edited by Bondurant; 4th January 2022 at 22:16.
OP: I’m sure there were long and extensive posts on this topic before. In my case I needed cash to purchase a house (kinda self financed bridging loan).
But if you don’t need the money I’d say leave it in the pension fund to compound grow - but pick funds wisely. You can move your pension pot to another provider if you need more diverse funds. But at least use the free services if not the chargeable ones which fees can be something like >3% of your pension pot - to explain your options (These are typically advertised via your provider.)
1 tax free drawdown - you don’t need to draw all 25% TF in one go.
2 income drawdown - 25% of the amount payed tax free the rest at nominal tax rate
+ other options including annuity.
If you draw an income from any pension the max you can pay in in £4K per year but you CAN draw TFA without incurring this limit. All depends on your circumstances.
to answer your question. To draw it out is quite easy - speak to a Vanguard and they will explain. No need to declare as it’s a tax free amount (I stand to be corrected - but I haven’t filed a UK tax return for many years as my income tax has been PAYE and savings interest pitiful).
Last edited by MartynJC (UK); 4th January 2022 at 22:40.
“ Ford... you're turning into a penguin. Stop it.” HHGTTG
Agree with this completely.Sent from my SM-T510 using TZ-UK mobile app
Some interesting comments. Thanks.
I don’t really want to disclose details for obvious reasons but I guess my situation is a bit unconventional.
We have no kids so are more bothered by our own wealth more than IHT.
My main reason for thinking of doing this is I fear as the chancellor looks to balance the books the 25% tax free benefit could disappear so I’m thinking get it out whilst I still can.
My plan is to do the same as Montello TBH
Its very hard to 2nd guess and plan for what any of the government of the day might do next….so i get your thought process…
I guess if you wanted to take the 25% out you could open “stocks & shares ISA’s” one each for 20k so 40k in this tax year year then open 2 more in April another 40k effectively giving you 80k tax efficient vehicle where any gains made in those S&S ISA’s are tax free ?? But you have to pick your investments wisely….
But stress i agree with everyone else get professional advice…
Last edited by TKH; 5th January 2022 at 10:44.
How about a hypothetical example.
Say the SIPP is £320k in the LifeStrategy® 80% Equity Fund.
25% drawdown on 31 March is £80k
£40k in to ISAs in LifeStrategy® 80% Equity Fund straight away … then the remaining £40k into the same ISAs 10 days later in the new tax year.
So same underlying investment just moved from one tax wrapped to the next.
The only disadvantage I see is IHT exposure or is there something more?
Last edited by TKH; 5th January 2022 at 10:04.
Interesting thread. I’m planning on best way to use my retirement funds but am a few years off of being 55.
I plan to take 25% at 55 and use it as tax-free income for a few years then ‘draw down’ a smaller amount each year than it could give me so I don’t get taxed too much and top up my annual income with other tax efficient savings.
Whilst there are IHT advantages to leaving money in a pension, I’m also a cynic and that the larger the pot and the longer it remains, the more the IFA earns out of it- does this skew their advice? I also don’t want to drain all other savings and just leave pension pot at the end. I like the idea of flexibility in my financial planning.
I’d not heard about chancellor stopping 25% tax free lump sum allowance so hope that doesn’t change in the next 5 years.
Get more than one advisors opinion and ask them directly about your plans, you may get a couple of different options.
Good luck
Last edited by craig1912; 5th January 2022 at 12:26.
Is it true to say that the size of a pension pot is not considered in any financial assessment for social care costs, whereas the value held in other savings (including ISA's) is part of the equation?
I realise that pension income is counted in the calculation but I think the size of the pot is excluded...
If true, leaving money in pension rather than transferring to ISA's may be a way of shielding some assets should you be unfortunate enough to suddenly find yourself in need of very expensive long-term care.
Perhaps someone can confirm or refute that for me?
I imagine if the Chancellor was going to make a big change to the pension tax reliefs, it would not be instant, it would be announced for a set date some weeks or months into the future, giving everybody time to make this kind of move prior to the change taking effect.
Robbing people of their tax free allowance without any warning, would almost certainly be voted down in parliament and would never make it through the house to take effect, so I wouldn't worry about it and would leave the money where it is until you need it.
Another question, if you were likely to hit your Lifetime Allowance in your SIPP some 10 years before you plan to retire would you still keep paying in (particularly if your employer was paying the most?).
Yes - rules can change between now and then, and presently its one of the best ways to save tax free especially if your employer is putting a big chunk into it.
To take a basic example. £300 pcm goes into your pension, you put £100 and your employer doubles it i.e. £200. Your employer is putting 66%. If you get taxed at 55% for anything over the Lifetime allowance your are still quids in.
Would you turn down a promotion because it put you in the higher rate tax band?
This is worth a read - https://www.ft.com/content/a59e5427-...4-44b3b4c33bbf
On similar lines, I have a SIPP and a NHS Superannuation pension. I’m 59 next month & will take the NHS pension from age 60. The NHS pension can be about 100k tax free &, say, 20k per year. I believe that this equates to 100k plus 20x20k on my lifetime allowance, i.e. 500k. It’s a bit less if I take less tax free in exchange for more on the annual figure.
So that only leaves me 570k for my SIPP before I exceed the lifetime allowance. I’m pretty close to that figure. I haven’t contributed anything to my SIPP for the last few years for this reason.
Q1. Is it still worth me doing so?
Q2. What happens when I go over the lifetime allowance?
No, the tax charge comes in when I crystallise more than the LTA (Currently 1073100) and I am unlikely to do that, but at age 75 further tests apply.
I find the adviser pages on Royal Londons site useful
https://adviser.royallondon.com/tech...need-to-know2/