Retirement - Evaluation of Your Plans

Surfer, when you crystalise each of your chunks, what are you doing with the corresponding 75%?  In your post above you seem to be saying you leave it in.

Yes leave it invested (you could disinvest it and leave it as cash but it remains in your sipp so the rules apply). You can only take 25% of what you crystallise so if I need £30k then I would crystallise £120k then withdraw 25% of that tax free. If my pot was, say £1m* then the remaining £880k is untouched and also remains invested. If I want another £30k I have to crystallise another £120k and so on. I can only take 25% of my total £1m pot but doing it this way each year allows the uncrystallised pot to hopefully grow, meaning the 25% is a larger amount of money but still only 25%.

*My pot is not £1m

So if you had a pot of say, 750k, you could take out 25% tax free, so what if you took out 40k per annum, annually, would this be tax free up to the 25% limit ?

IANAFA but that is my understanding and I have followed this process with my SIPP platform. So my understanding is you would crystallise £160k, withdraw £40k and leave the remainder uncrystallised. You then follow the same process in future when you want more tax free cash. I assume you could crystallise £100k the next year and withdraw £25k etc or whatever you wanted up until your whole pot is crystallised and you have withdrawn 25% of your £750k, hopefully your original £750k will have increased in value.

Thanks, I have a meeting with my IFA in a few months so this is good info for the discussion.

Alternatively 25% of everything you take out can be tax free if you don’t remove a lump sum - eg if you want 2000 per month £500 could be tax free, then the remaining £1500 would be taxable. Can continue to do that as infinitum as far as I’m aware - in this situation each time you take money out 75% of it goes into pension drawdown and the remaining 25% is tax free. Not sure exactly how it works technically, but the principle is there…!

Yeah, I had that in mind, as we are mortgage free and no need for a lump sum, thankfully.

Yes leave it invested

Exactly, so that bit continues to grow, which means that the 25% you took out ends up representing <25% of what the crystalised amount ended up as

Chris Bourne explains it here:

Count how many cubes he has on the left.....20

Count how many cubes he has on the right....6

6/26 =0.2307 = 23.1%

Would you agree 23 is less than 25?

[img] [/img]

And to quote from your video

Based on the original pension value therefore, you've received 30% instead of 25%

Which is what I said here:

I have a suspicion that you’re saying it’s >25% of the total pension value at the point you take your first crystal.

That's really helpful, thanks also for the video links.

I'd heard about crystallising pots but the bricks made it make sense. I'd been looking at taking 25% out of the smaller ones, didn't realise you could crystallise parts of a larger one to get the same effect. Crystallising parts bit by bit to get more than the 25% out tax free though - I follow the logic but sounds like a fiddle 😉  No-one tell MCTD!!

Crystallising parts bit by bit to get more than the 25% out tax free though

Your not getting >25% though its just that the 25% may be a larger cash amount. You are simply taking your 25% over a longer period. Perfectly within the rules.

Exactly, so that bit continues to grow, which means that the 25% you took out ends up representing <25% of what the crystalised amount ended up as

I didnt say it didnt. you have taken 25% of the crystalised amount at that point. That may continue to grow and you will benefit from the growth, just not tax free.

As the uncrystallised grows and you then take another 25% of whatever you choose to crystalise next, then that 25% may be a bigger cash sum. The point of it all is by staging your withdrawals you may end up with more tax free cash than if you had withdrawn the whole 25% on day 1.

I have a suspicion that you’re saying it’s >25% of the total pension value at the point you take your first crystal.

Your suspicion was incorrect but I cant be held accountable for that.

I've just booked a Pensionwise appointment for some impartial advice.

I’ve just booked a Pensionwise appointment for some impartial advice.

Very good idea.  My company pension provider pretty much required it when I was taking my money out.

If you are taking money out but still retaining a pension that you are paying into there are a few things to consider.

I’ve just booked a Pensionwise appointment for some impartial advice.

You won't particularly get it from them; it's a useful service and I absolutely recommend but they can only advise in the sense of tell you the rules, and also gave me some advice on how to check fees for my various pots, and whether any have enhanced or special benefits, etc.

But they can't give specific 'helpful' advice, for that you'd need a genuine IFA.

Example as above - they could explain to you how crystallising funds works, and possibly also how that works wrt getting more (or is it less 😉 ) than 25% out tax free, etc. but in my scenario - I need to get my hands on about 10-15k in the next 0-6 months; should I just take the 25% out of the three small pots I've got, or take 25% out of the 50k pot, or crystallise 60k of my 300k pot and take that, or........ I'd expect a (good) IFA to run the numbers and implications on all and then basically tell me what to do that is most efficient, not just tell me the legalities of each.

Next question is how to find an IFA. I put details into Unbiased and was very disappointed; three responses, two from remote firms that didn't have local offices and one local but tied to a provider which I specifically said I didn't want. So I've put feelers out through the local cycling club for personal recommendations, but any other tips. How am i likely to be fleeced (er, pay for) their services and what sort of cost should I expect (absolutely reflecting if they're good they'll make that back for you by making sure your pensions and investments perform to their best, etc.)

@theotherjonv +1 Helpful but really aimed at making sure you have considered the options and are briefed on the alternatives. It was compulsory before I liquidated some of my SIPP but I had already read up quite a lot and thankfully he told me nothing I didn't already know. I did find my SIPP platform very useful (III) but the main source of my information is and was Youtube. Chris Bourne and Meaningfullmoney very helpful.

I'm with you @surfer, I'm not paying an IFA to borrow my watch and tell me what time it is, but I get why some people aren't that confident and need the comfort blanket of an IFA.

Going back to the original question has anyone started training for another trade/job as they're heading towards retirement.  Something that you can do self-employed on your own terms with a choice of the number of hours a week you work?

Fortunately, I have a decent pension but you can also earn up to £1,000 each year tax free, so I do photography gigs at cycling events which helps me fund my photography hobby.

I'm 58, no dependents, mortgage free, just need a weekly income of over £200 to top up some rental income & a part time job.

I don't need to take any out of the pots (plenty of easily liquidated investments)

I just take the 25% out of the three small pots I’ve got,

Not specific to you @theotherjonv because I think your small pots are larger than "small pots" in the pension rules, but I'm posting this to plug a tiny gap in all the other pension scenarios that have been covered.

There are special rules for cashing out pension pots less than £10,000 (small pots rules).  You can do this 3 times only in your life for personal or stakeholder pensions and any number of times for occupational small pots.  You have to cash them out entirely as a lump sum (as long as you're above pension age (55 now) and it terminates all benefits under that pension arrangement).

In itself, dong this isn't a crystallisation event so it apparently doesn't trigger the money purchase annual allowance.

For uncrystallised small pots, 25% would be tax free; 75% would be taxed at your marginal rate of income tax.  Apparently you need to have available lump sum allowance but the tax free lump sum amount is not in itself decremented from your lump sum allowance (weird rule).  If you're instead cashing out the remnant of a pot that has had some crystallisation, the tax free amount will only be on uncrystallised portions and MPAA will already be applicable.

There is also a separate rule for "trivial commutation" which is if all your pension pots add up to less than £30,000.  This situation might occur where you've been running down your pots with a plan to have ongoing reliance on the state pension only in addition to non-pension sources of funding (ISAs, rentals, part time work etc.)

Because trivial commutation is a separate provision, if you have small pots, you can take them first and trivial commutation can kick in if the remaining amount is below £30000.  This means that in an extreme example it may be possible to take up to £60000 through the combination of these rules (with 25% tax free in this way) if 3x personal or stakeholder pension small pots and more if there are multiple occupational small pots.

These rules are largely in place to assist people whose occupations (moving from job to job) have resulted in a very fragmented set of pension pots building up but they constitute a weird outlier part of the pension rules that might have value in other situations.

Yes, when I say small pots, I mean pots which are smaller than the others rather than the official definition, although FWIW one is well under £10k, one is just under but with current growth will be above in a year or less (unless we let Kwasi have another go) and one is already a bit over.

FWIW; one was my first job basic pension. One is some AVCs that I took out on the advice of a FA rather than pay extra into my job pension. And the third is a nice surprise where the owner of the AVC scheme (bought up and bought up again, and I think they were investigating some oddities) wrote to me and said they thought I'd been missold. I couldn't remember what the rationale for taking AVCs was other than that's what the FA had said, but they sent me scans of loads of handwritten notes that I remember being shown on the 24th floor of Centrepoint, asked me if I remembered them, I said yes (pictures of umbrellas were the main prompt !) and they said that it was hard to tell if I'd known what the pitfalls were but just in case have a pension with about £11k in that they said is their estimate of the amount I'd lost.

scans of loads of handwritten notes that I remember being shown on the 24th floor of Centrepoint, asked me if I remembered them, 

That sounds familiar.  I had an AVC from the Centrepoint dudes as well.

One is some AVCs that I took out on the advice of a FA rather than pay extra into my job pension

Of course he did. All that lovely commission he trousered.

All that lovely commission he trousered.

Probably. I was 21, must have been like stealing sweets. Although - it was my first job, and I remember at least when I started I was on 12.5k per year (1990, with a degree) and I stayed 5 years. So even with pay increases, probably earned maybe £70k total and I'd be surprised if I put more than 5% so even with employer contribs, maybe 10% so £7k paid in.

And the three are now worth 30k. As others have said, the 8th wonder of the world.

I’ve just booked a Pensionwise appointment for some impartial advice.

pensionwise offer guidance. IFAs sell advice. Check out the MSE pension specials I suggested earlier in the thread. The first one makes this difference clear and gives a good idea of what to expect of guidance and of advice.

I’ve always intended to take money as slowly as possible, using the 25% tax free amount as part of each withdrawal to minimise my ongoing tax bill and leave as much as possible still invested.<br style="box-sizing: border-box; --tw-border-spacing-x: 0; --tw-border-spacing-y: 0; --tw-translate-x: 0; --tw-translate-y: 0; --tw-rotate: 0; --tw-skew-x: 0; --tw-skew-y: 0; --tw-scale-x: 1; --tw-scale-y: 1; --tw-scroll-snap-strictness: proximity; --tw-ring-offset-width: 0px; --tw-ring-offset-color: #fff; --tw-ring-color: rgb(59 130 246/0.5); --tw-ring-offset-shadow: 0 0 #0000; --tw-ring-shadow: 0 0 #0000; --tw-shadow: 0 0 #0000; --tw-shadow-colored: 0 0 #0000; color: #000000; font-family: Roboto, 'Helvetica Neue', Arial, 'Noto Sans', sans-serif, -apple-system, BlinkMacSystemFont, 'Segoe UI', 'Apple Color Emoji', 'Segoe UI Emoji', 'Segoe UI Symbol', 'Noto Color Emoji'; background-color: #eeeeee;" />I’d think that unless you really need it, doesn’t make much sense to take 25% out straight away, since you then take away a huge chunk of possible future growth.

Once I hit 67 and my State Pension comes in, if I'd have already taken all my tax-free cash then between the SP and all my other pensions I'd be paying higher rate income tax - I guess some of you will be the same.

Therefore seems better to retain the tax-free element and use it to reduce the future tax bill - or someone tell me I'm wrong?

No right or wrong answer and it depends on a number of factors.  The great thing is you have the flexibility to make it work in whichever way suits your needs best.

Therefore seems better to retain the tax-free element and use it to reduce the future tax bill – or someone tell me I’m wrong?

That's my view.

Pensions are tax deferred not avoided. Pay in with tax relief now and, depending on your pension, pay out and pay tax later. Of course if you are lucky these may be at different rates. If you are very lucky, they may be at the same rate. If the rules change to 30% relief flat rate, as the treasury would like, you’ll be losing if you’re a higher rate pensioner. At that point it’s time to look at different investments.

The two biggest advantages of pension savings for me were always; compound interest and inaccessibility. So I paid in extra from as early as I could because once in, I could not touch it and it would be growing. The tax relief is also nice.

I think it's one of labour governments big targets.
The better paid minority benefits more than the lower paid workers in many ways . Tax breaks on pension contributions being one of those.
If you're canny you can save 40% taxation , and then pay yourself back at 20% taxation in later years.
The lifting of the lifetime allowance helps a really small percentage of the population even more.
Although I do understand the reasons, it's not hard nowadays with compound growth in unit linked investment to get to 7 figures if your funds performance is consistently good.

Every time I have a bad day at work, which seems to be 3 or 4 days a week atm I re-evaluate my retirement plans.

I'm 43, I need another 18 months to 2 years of my high stress, long hours, but well paid pointless corporate job before my pension is at a number I would be happy to leave untouched to grow naturally to 58. Then I could in theory switch and do something (no idea what) and earn maybe 20% of what I do now from 45 - 50, before doing a tactical downsize and move away from london at 50 to free up equity and live off the surplus for 8 years til the pension kicks in at 58.

There would be a lot of beans on toast and not a lot of 5 star hotels in that future but I'm hoping that once I get to that point at 45 when I have a safety net level as a baseline then maybe mentally things get easier.

Am very envious of those of you with contribtory pensions. Through most of my working life (56 now) I haven't had this benefit. I recently located a pension from a previous job that offered this. I only worked there for 5 years 25 years ago. And at 30 pension planning was a long way down my list of priorities. Probably put in the bare minimum. I wound up with 65k in there which I recently transferred. Better than a kick in the balls, but really hit home how life would be looking rather different now had I had a lifetime of employer contributions.

I'm only 31 but pretty conscious now about trying to make the most of a pension. My current employer sadly only contributes the bare minimum they legally have to which is one of the main reasons I'm considering jumping ship.

My current employer sadly only contributes the bare minimum they legally have to which is one of the main reasons I’m considering jumping ship.

Not unusual for the private sector and TBH if you were a shareholder this is probably what you'd want them to do 🙂

But even in well-paid jobs companies aren't paying big-time, unless you're very, very senior.  Where I work they'll match to 7.5% of salary at the senior grades, and this folk on circa £100k.

Old adage, "save half your age as a percentage of your earnings" - example; if you're 36, need to be saving 18%.

Old adage, “save half your age as a percentage of your earnings” – example; if you’re 36, need to be saving 18%.

I feel like that old adage is based on wealthy folk from the 1960s and 70s. The middle-aged, full-sus riding IT managers of their day!

I just can't see it being achievable for the average 36 year old on the average wage, with house prices and nursery fees and student loans being what they are these days.

Old adage, “save half your age as a percentage of your earnings” – example; if you’re 36, need to be saving 18%.

Remind me again, is that the adage that banks who want you to give them money for the next 50 years keep pedalling?

It is just not realistic for most folk I know.

is that the adage that banks who want you to give them money for the next 50 years keep pedalling?

Heh.  Perhaps it was the banks who pushed it, just like it was DeBeers who said you should spend X months salary on an engagement ring otherwise your other half won't love you, and that somehow got adopted into common parlance....

It makes sense for it to work in reverse to me, you want to contribute as much as you can when you're young so it compounds, then once you get older then interest it makes will be worth more than the actual contributions so you can dial them back down.

Remind me again, is that the adage that banks who want you to give them money for the next 50 years keep pedalling?

I think the fees on my pension fund are 0.05% per annum (50p per £1000 saved). I'd hope growth in any reasonable tracker could achieve that. Seriously, it's not the fees here. That half your age includes employer contribution. Take it out right from the beginning when you start work and you don't miss it and can't access it. That's the advice I've given to Son2 who has just started earning. And drive an older car 😉 If you can manage more at the beginning, the eighth wonder of the world means you will need to contribute less should you need the money for kids.

It is just not realistic for most folk I know.

And neither is a comfortable retirement...

I and my OH have paid into pensions for nearly 40 years, with half of them DB pensions.  I estimate (once the State Pension kicks in) we'll be on just over half our working earnings, which as high earners shouldn't be an issue for us, but IME this is a best case scenario and likely to put us into the minority.

This is for me an elephant in the room that's been ignored by the majority, and the Govt - but a key reason of why taxes will continue to rise; growing numbers of pensioners on benefits (think +£1000-1500 PCM on rent etc).

But for me, the key is to live as frugally as is comfortable. To consider all those things you can easily live without, and then living without them. So, expensive TV/media subscriptions, choosing expensive over cheap holidays, cars, loads of new clothes all the time, eating out a lot, etc.  Read a book, stay in cheaper hotels, cook and eat at home, buy second hand stuff and don’t own a car (easy in London or other big cities). My shabby old commuter bike saves me thousands a year in travel costs. An €80 a night hotel does the same job as a much more expensive one.

The opposite of the YOLO approach then.  To others living frugally just in case you live a long time is wasting the years until you get very old, assuming you do get very old and by that time most people seem to turn into complete tight arses anyway.

It’s all about balance for me. I could do nothing and retire a few years earlier if I wanted. No fun in that though if I’m sat in my house and not going out.

The interesting thing for me is that the government want us not to retire early but instead be productive and add to the economy.   For that to happen it's got to be a attractive.  I can't see tax breaks for  older workers coming so the alternative is punitive changes so we can't afford to stop working...... depressing.

The interesting thing for me is that the government want us not to retire early but instead be productive and add to the economy.   For that to happen it’s got to be a attractive. 

Could do a few things to help with that - a right to lower hours/flexible hours, a right to WFH etc,. basically make it easier to semi retire so not as much time spent working but still doing some work.

basically make it easier to semi retire so not as much time spent working but still doing some work.

So I do think the early auto enrollment is a brilliant thing.

I was late to start my pension, so am now paying in as much as I can and hoping for the best.

I appreciate the answer will be "it depends" but in general terms, how much do you need in your pension pot for a reasonable standard of living? Ive no idea?! Are there any easy ways to guesstimate?

Although I do understand the reasons, it’s not hard nowadays with compound growth in unit linked investment to get to 7 figures if your funds performance is consistently good.

i wonder what percentage achieve this though, especially private sector workers.  I count myself lucky, however will be a long way short of 7 figures if/when i retire in 3 or so years, with a fair wind maybe I'll be 60 - 70% of the way there.

I have worked in the private sector all my life, and started paying into company pension schemes in my mid 20's, I am now late 50's.  I  have moved around employers a few times, and transferred pensions into a central managed fund,  and currently pay in close to 30% of my income (between employer and my contributions).  As a high rate tax payer I put in as much as i can, whilst still funding 2 grown up children who are just getting going on their careers.

Thankfully we paid the mortgage off with inheritance a year or 2 back, and will continue to up the pension contributions in these last few years wherever I can.