6 Reasons Why You SHOULD Take Your Pension TAX- FREE CASH

Last week I did a video called Five Reasons NOT To Take Your Pension Tax-Free Cash. Fair to say, that one went down pretty well, and there were lots of calls for the flip-side to that - reasons why it DOES make sense to take the cash. So, let’s get into it.
👉 MeaningfulAcademy - Retirement Planning: meaningfulacademy.com/retirem...
🏷️ Use PROMO Code "KZbin" to save on any of the three courses.
#taxfreecash #retirementplanning #ukpensions
🔴 • RETIREMENT is POSSIBLE... - RETIREMENT is POSSIBLE (but it takes work)
🔴 • Pension vs ISA - So ma... - Click here to watch Pension vs ISA
🔴 • 3 In 4 People Are NOT ... - Click here to watch The biggest retirement challenge is not financial
🔴 • The ART of Retirement ... - Click here to watch The Art of Retirement
🔴 • 5 Factors For A Succes... - Click here to watch Retirement Success Factors
🔴 • Is this the BIGGEST re... - Click here to watch Is this the biggest retirement mistake?
🔴 • The Ultimate Guide to ... - Click here to watch Ultimate Guide to Paying Off Debt
🔴 • The ULTIMATE GUIDE To ... - Click here to watch Ultimate Guide to Budgeting
🔴 • 5 Reasons NOT To Take ... - Click here to watch 5 Reasons NOT To Take Your Pension TAX-FREE CASH
🔴 • DON'T STOP paying into... - Click here to watch Don’t Stop Paying Into A Pension
🔴 • 3 Retirement Planning ... - Click here to watch Retirement Planning Examples
Chapters:
00:00 Welcome
00:28 Intro
00:35 Reason 1 - You need cash now/debt payoff
01:45 Reason 2 - DB commutation
03:30 Reason 3 - Your split between pension and non-pension is uneven
04:47 Reason 4 - LTA mitigation
06:37 Reason 5 - Income tax mitigation
08:05 Reason 6 - Beneficiary Considerations
09:15 Resolution
📙 The MeaningfulMoney Handbook: petesbook.com
The MeaningfulMoney Community (Facebook):
👉 meaningfulmoney.tv/community
👉 Life Insurance with LifeSearch: meaningfulmoney.tv/lifesearch
👉 Farewill - Discount off your Will: meaningfulmoney.tv/resources/...
FOLLOW ME:
✔ Facebook: / meaningfulmoney
✔ Twitter: / meaningfulmoney
✔ Instagram: / meaningfulmoney.tv
✔ LinkedIn: / petematthew
✔ Website & Podcast: meaningfulmoney.tv
⚠️ IMPORTANT: Please be aware that MeaningfulMoney does NOT endorse or recommend ANY people or businesses claiming to be experts in crypto or other investments. We would never recommend you any investment strategies within the comments section. Please protect yourself against spam and misleading information from fake accounts and please do not share any private or sensitive information.
📫 Leave me a comment below - I read all of them and love hearing from you!

[@MeaningfulMoney]

Hope you've enjoyed this video - let me know in the comments. And if you are wondering why you might NOT want to take your pension tax-free cash, consider my previous video: 🔴 kzbin.info/www/bejne/iKfXd5d7hL9_pMU - 5 Reasons NOT To Take Your Pension TAX-FREE CASH

[@jam99]

Great video exemplifying the complexities. This is one of the most uncertain decisions regarding estate planning in my view.

[@trevorford9432]

Hi Pete, I have a pension that has been frozen for 22 yrs, its up to around 53 thousand I've been advised I can take 25% tax free the other 75% would be taxed does that sound right ??

[@andrewkingdon2000]

Hi Pete, very interesting but now of course the LTA is unlimited so is it worth taking the full amount before the socialists get back in and reverse the LTA change? If you take it now and invest it surely that makes more sense?

[@pipins3616]

Retire time guys spend your money while you have your health, no good having a higher monthly payment if you cannot get out the house

[@LauraSommer]

I'm tempted to take the tax free lump sum in case a future government takes this option away in future

[@dwinpenny]

When we were dealing with an estate we found that the maximum tax free lump sum had been taken, so reducing the pension in payment. However, the survivor benefits/widow's pension were based on the original sum , which was nice surprise. So sometimes taking more cash isn't a bad thing for survivors depending on the scheme.

[@porschecarreras992cabriole8]

Take the money! You may not need all 25% but I believe we will be the last few allowed to get 25% tax free on entire pot. Government will introduce threshold (heard 400k pot) that will allow you just 100k tax free.

[@Autonomous1969]

I've just retired at 55. I took the tax free lump sum for one reason. I'm single and bought and paid off my home. I paid everything myself but in doing so I basically lived month to month and never had any savings at all. I took the lump sum as I finally have something to fall back on.

[@fuzzblightyear145]

I was waiting for the "Bought myself a sports car" ;-)

[@Autonomous1969]

@@fuzzblightyear145 I Have two convertible two seaters.

[@Simon-ry1lw]

The one intangible in all this - how long will you live and how long will you live with good health to enjoy the fruits of your labour ?

[@andyphilipson1799]

Another very helpful video - thanks

[@tonykelpie]

Absolutely right that everyone needs to analyse their own situation. One small point you missed is utilising the 7 year period for PET to reduce IHT; for the few who are very well provided for this can help ( as can giving from spare income- an efficient form of IHT reduction for the fortunate )

[@seaddipper]

Just ordered your book The Meaningful Money Handbook Looking forward to reading it.

[@ryanwdavies1]

Good one Pete

[@Isabel-of4wq]

Pete these are so helpful! Thank you! Do you have specific resources for British expats with private uk pensionpots?

[@Jeffybonbon]

Just recived some tax free cash this morning I am effected by S24 and the tax free income dosent make me worse off I am staying fully invested and just takeing what I need per month I also own a company so my company will be paying more cash into my SIPP Pensions are great and you dont really know how good they are untill some cash comes into your account month after month

[@GreenStreetPlayer1]

Thanks. A question on number 2. If you took tax free cash out of your db pension to buy an annuity, at some point does the returns on that annuity qualify or come into paying tax equations?

[@rodbowes5309]

This was really helpful and as clear as this complex subject can be! Something that you didn't mention specifically is life expectancy - if your health is such that you don't expect to live long in retirement then taking the maximum tax free money up front may also make sense.

[@martinarscott3524]

This is exactly why I intend to take the max lump sum at around 57yrs old, both myself and wife have health issues and are on medications that knock at least 10yrs off our lifespans so it seems silly not to, we can still use some in a higher interest account to boost our income a bit....

[@hotlush]

Not going to work for everyone but my plan it to take the tax free when I hit 55. If I don't mess up how I use/invest the money ;) the reasons are 1) Puts me in a position to reduce my mortgage, significantly, and potentially paying it off a lot earlier. 1.1) The money I save from clearing the mortgage is, potentially, more than the return I can expect between 55-67 on the pension so I may actually be slightly better off taking it. 2) Allows us to get ready for retirement (house upgrades, etc.) without leaving them all until I'm retired. 3) Can actually live now, instead of getting by, until retirement. In terms of actual retirement I should still be comfortable from my projected pension, and arguably fall in to "well off".

[@andrewkingdon2000]

I think one really good reason to take all of your tax free amount (your own personal max amount) is because it's done, you can drip feed it into ISAs etc. And once it's done labour can't reduce the amount you can take as you have already taken it. you can still draw down your non tax free cash up to the £12500 tax free income level and use some of the invested cash tax free withdrawal you made and, in effect, pay no tax on either amount.

[@paulwhiteside27]

With a defined benefit pension, when you draw the pension it is treated as normal income. So not taking the tax free lump sum will result in the whole amount being taxed. e.g. Total pension = £20,000 you are taxed on the whole amount, reduced pension £15,000 + £90,000 tax free lump sum. You will only pay tax on the £15,000. Surely this makes it obvious to take the lump sum from a defined benefit pension.

[@MeaningfulMoney]

I’d say that’s a good reason to take the tax-free cash, yes. But there are reasons not to, as well… I’d always be wary of letting the tax tail was the dog, so to speak…

[@nancybashista1390]

Thanks!

[@MeaningfulMoney]

Thank YOU, Nancy! 🙏🏻

[@janethomson795]

I am 61 and wish to take early retirement. I have worked at the same higher education institution all my life, and been paying into the LPF since 1980. Do I have any protection regarding what was Rule 85, which existed until 2006?

[@user-mn3uk2cy8v]

What difference % growth would it make to turn off my life styling on my pension at 60yrs old on an 100k pension?

[@adam8268]

I have to get financial advice in order to get my private pension even though I know I want to take full pot amount. Do you know how much this is am UK. The form that has to be sent back to Royal London has to be filled in by Financial Advisor with their accreditations and numbers on it.

[@MrAlwaysBlue]

Can you take the 25% tax free in several withdrawals over a period of time? For example if I withdrew 5% per year would this always be tax free?

[@stephencole9289]

Sort of related to item #6, assuming you have enough other income to live on (and hopefully being able to minimize any tax payable on that income), would be taking out a big tax free lump sum to give immediately to you children (eg for a house deposit, if they need it NOW) in the hope that you live for another 7+ years so as to avoid IHT tax on it. ie doing it whilst still young enough to hopefully survive 7 more years Side question, if you have a younger wife (likely to live longer) and you make a gift from a JOINT bank account (with it undefined who made the gift), how does the 7 year rule work if one of you dies sooner ?

[@kkaybrunel752]

Can you please tell me if I have to take my pension lump sum at the age of 60 with my post office pension and can differ my pension

[@paulrobinson3528]

One of my pensions is in a PPF scheme. I'm struggling to see why my 25% tax free is more like 20%. Also i can no longer see my total amount in the scheme. I'm 55 this year and really need to get my house in order.

[@andrewdoig5803]

Take it before the torys do!

[@grahamthomas6381]

Or, take it before Labour make your pension valueless. Again!

[@michaelhayes9975]

Thanks for the advice and I get all the pros for leaving the tax free lump where it does the most good growth wise but with so much political wavering over pensioners and their pensions I worry that at some point our next government (labour most likely) might withdraw the 25% tax free option. Do you have any views on this prospect?

[@MeaningfulMoney]

I’ve been an adviser for 26 years and this has been mooted before every budget and every change of government. Yes, it might happen, but I’ll always counsel caution in making big decisions based on what *might* happen.

[@levern1966]

What are your thoughts on Bridging Pension from a DB scheme?

[@architectofechoes4]

I am 3 years away from taking the UK state pension with a potential combined pension pot around the national average of 64K. Making the right decision is very tricky & this all sounds very complicated to me.

[@MeaningfulMoney]

It is, but on those figures your decisions are likely to be: - tax-free cash or not? - guaranteed income (annuity) or more flexibility (drawdown)

[@architectofechoes4]

@@MeaningfulMoney Thanks for the reply.

[@gerardjones1411]

Hi Pete,thanks for the video,it helps I think.I’ve been grappling with my pru pension for months,probably two years, we moved to Australia thirteen years ago and about three years ago got a letter saying they were freezing the pension because we had lived outside the country for over x amount of years.I have ten years left and think it would be better to put it in a SMSF , (supa pension fund) and try to grow it as its just sits there in the uk ,any thoughts would be helpful thanks

[@Lillilady888]

I have a West Midlands Pension Fund pension, paid in for 237 years and retired a month ago at 55. Im still deciding on the 2 options they have given me - 15000 lump sum and 8.500 annuity, or 45000 lump sum and 6.500 annuity. I have to have the annuity which at least is guaranteed income. Is the annuity taxed? I have no kids, no mortgage. I look after my dad who is 90 now so wanted to spend time with him. Shall i take the higher lump sum and invest half in a fixed ISA for 5 years, and the other half in a savings account with limited access, and just keeping some back for paying off credit card and other smaller debts. I need to complete the form but still trying to understand all this, but have no spare money so need to sort it out soon.

[@LauraSommer]

What if a future government were to cap or even cancel ISA wrappers

[@dawindervasta8838]

Any advice for self employed?

[@paulkane6645]

6:40 Ref reason #5. It is not logical to advise taking a lump sum simply to mitigate Tax within a DB pension. The DB fund is inexhaustible so why be concerned about how much is taken on tax? Focus should be on getting the most net pay irrespective of taxation. Lets face it, DB pension money is unlike a normal salary. It is not money that has been hard earned through work, it does not diminish, so who cares how much tax is taken?

[@pragati__dhami]

Hi @meaningfulmoney are pension schemes worth it for part time workers as well? I’d really appreciate your advice on this. Thank you!

[@MeaningfulMoney]

Always, yes. The tax benefits are considerable.

[@brianmills7507]

Another consideration is where there is a spouse or partner who has unused allowances that you could make work for you as a pair. For example you could take tax free cash of £7,499 and pay it into the pension of your spouse or partner who perhaps could usefully have a larger pension pot. At this level you would avoid the pension lump sum recycling rules and with better advice and planning perhaps even put in more than £7,500. You might also want to use their unused ISA allowance. I am thinking mainly about circumstances where one partner has a large pension and possibly other taxable income, maybe pushing them into higher rates of tax and the other partner has much less income enabling a transfer of income from one to the other at a lower or even nil rate. When I say income I mean projected future income as well as the here and now.

[@463Richard]

Great advice, thank you! Say I have a DC pension with a pot of £500k and want to pay zero tax going forward at the point of retirement. My current plan is to take £125k tax free and then draw £12,500 pa from the remaining pot of £375k. I will then split the £125k over 10 years to get me to state pension age, giving my an annual income of £25k for those 10 years. Is there a more effective way to take out funds that gives me £25k pa after tax? Can I state that I want to take the £125k tax free amount over the 10 years at £12,500 pa therefore leaving it to continue growing, or does it get converted to cash at the start of withdrawal process?

[@MeaningfulMoney]

You’d need to take the cash, bank it and draw off it for ten years. The only way you can have £125k tax-free is if you crystallise the whole pot in one go. It may make more sense to crystallise in chunks. But what you suggest is probably the only way to have £25k per year tax-free.

[@463Richard]

@@MeaningfulMoney thank you!

[@ib4905]

Excellent video Pete. I have another possible reason but may be missing something. Assuming you could die before 75 and leave about half your remaining pot (still including 25% tax free) to your beneficiaries (which they now access all tax free), would it make sense to take all the tax free amount as soon as possible putting it in isas in the same investments?. The entire amount grows at the same rate as before but you've now accessed all of the tax free portion earlier, increasing your income, whilst leaving only taxable income to your beneficiaries (same amount as before and again free of IHT)? Hope than makes sense.

[@MeaningfulMoney]

It does, but tax free cash isn’t transferred to beneficiaries in the same way as you take the 25% tax free cash yourself. If you die before age 75, the whole pot can be taken tax-free. After age 75, the fund will pass to the beneficiaries, but they won’t be able to take tax free cash from it…

[@ib4905]

@@MeaningfulMoney Thanks Pete. I'll read up on this a bit more.

[@mattc6897]

So… It’s not a good idea to pay off a mortgage using tax free cash? I thought it would be a good thing to do - an investment in property.

[@londonman8688]

you should be able to use all unused isa years

[@ianlewis2813]

The problem with taking cash is in a few years it's gone and forgotten. But leaving it in your pension in 10 or 20 years you will still be getting that extra pension and the yearly increase is more .

[@Eightball69]

I'm 55 in May, have a fair bit in credit card/loan/overdraft debt. I wondered whether I should draw down from my pension, pay off those debts and with the increase in available funds, increase my pension contributions and pay more into my pension fund? Is that a dumb idea?

[@MeaningfulMoney]

It’s not a bad idea, but I can’t advise you here, unfortunately. Seek help if you’re unsure…

[@martingibbs1869]

If you had the choice of cashing in income paying ISAs or taking the 25‰ tax free pension cash, given its the same amount, which one makes more sense?

[@MeaningfulMoney]

Not sure I can answer that. Why would you cash in an income-paying investment?

[@martingibbs1869]

Hi, thanks for responding. I guess I'm asking if you want a sum of cash for a retirement treat say: Is it better to release the cash from the isas or from the pension free cash. or Is there a nuanced benefit from hanging on to the isas rather than the tax free cash? I can't make up my mind. Msybe theres no difference either way.

[@umitkumecal]

Can you keep your DC pension pot as is after drawdown of 1/4 of the pot?

[@MeaningfulMoney]

Yes. It’ll become a drawdown pot, but it can stay invested and you don’t have to draw from it…

[@Simon-Misiewicz-US-UK-Taxes]

Great tips and useful concepts

[@chrisdaviesguitar]

Why do you think pensions are so great? I just checked my work pension and for the period Dec 2021 to May 2022, the fund actually lost MORE money than was paid in my myself and my employer - we both pay in 6%. The fund is actually worth over £500 less now, than it was in Dec 2021 ergo, everything paid in for that period has gone too.

[@edwardkenworthy7013]

So what you're saying is that it is now cheaper for you to invest in your pension: stocks and shares are on sale. This is a good thing whilst you are still saving. Everything you pay into your pension is tax free: so that £500 only cost you about £250. The only downside to a pension is that you can't touch it until you are 55 (currently, the law might change). A semi-downside is that once you draw even a penny from your pension the amount you can pay in collapses from £40K a year to a miserly £4K a year.

[@MeaningfulMoney]

Here’s the reply I added to your similar comment on the other video, Chris: People don’t trust pensions because they don’t understand them. Every time money has gone in since December, you’ve been buying shares or whatever at lower and lower prices, meaning you’re buying more of them. When markets come around - and they ALWAYS do - you’ll see a marked increase in the value of your holding. What you’re doing is exactly the right strategy - keep buying regularly, and some of it with money that isn’t even yours! Depending on how old you are, this may be your first serious market correction. There will be many more in future - keep investing and your future self will thank you.

[@TheOmniscientOne]

My Scottish Widows work pension is worth £65k less than what I and my employer have paid in since 2011. I think I should definitely take my 25% and stop my avcs before they waste any more of my money. A building society would have done better.

[@chrisdaviesguitar]

@@MeaningfulMoney now that made sense. thank you.

[@marka87]

@@TheOmniscientOne you seriously need to check what funds you are invested in if your pension has lost since 2011. Many funds have at least doubled in value since then.

[@Anonymous-qw]

If you move abroad can you get your DB scheme salary paid into a foreign bank account? I know there is a problem with doing this with the state pension. This may make up my mind in whether to take the tax free lump sum from my dB pension.

[@MeaningfulMoney]

Would probably depend on the scheme but I always suggest that expats keep a UK bank account anyway. Not easy to open one when you’re overseas so very useful to keep. These days it’s so easy to move money around the world and into different currencies that you really can live anywhere.

[@Anonymous-qw]

@@MeaningfulMoney Thank you. I'll contact the scheme. I'm still pondering whether to take the full dB pension or the tax free lump sum and the reduced pension. I'll have to do more calculations.

[@sirmikemurray]

is it easy to take it?

[@andrewkingdon2000]

Hi Pete, im going to be 55 soon and i have a total of 7 pensions from various employments. I have one DC I moved to a private SIPP as it was only a money purchase scheme anyway. Its now worth £45k and i was wondering if i could take the 25% tax free out of that (not triggering any tax liabilities) and would I still be allowed to continue paying onto my current employer's DC scheme? Or would i have triggered the rule where I can only pay up to £10k into pensions? At the moment my and my employers combined monthly contribution to my DC is £1850 so I don't want to take some cash out of an old SIPP and scupper my current contributions. NOTE I'm aware things get complicated if I take more that 25% as that's a taxable withdrawal, so I do NOT intend to do that. Any advice greatly appreciated 👍

[@MeaningfulMoney]

Hi Andrew. If you only take tax-free cash, then you will not trigger the Money Purchase Annual Allowance (max £10k contribution) so you should be fine

[@andrewkingdon2000]

@@MeaningfulMoney brilliant, thanks Pete!

[@abracadabra1394]

Hi Pete. For mid 5 figure pot. Your thoughts on moving all to a pension app? I stopped contributing as it was an old pension. I'm still actively working nearing 55...tia

[@MeaningfulMoney]

The pension apps like PensionBee and others are a solid choice for anyone who doesn’t want to get involved with choosing investments. You can save money by choosing a platform and a decent multi-asset tracker fund, but if you don’t want to do that, the (smallish) extra cost of a done-for-you solution may be worth paying

[@abracadabra1394]

@@MeaningfulMoney thanks mate. Now just deciding which one lol. Moneybox or pensionbee...great informative videos subscribed!

[@robkewley]

Assuming the sums add up, can I take my DB pension at 55 and invest the tax free lump sum in my DC scheme with a view to retiring later?

[@Anonymous-qw]

Doesn't that count as recycling?

[@paulkane6645]

I don't think the sums would add up. Keeping the money invested in the DB scheme will generally outperform a DC scheme.

[@Anonymous-qw]

@@paulkane6645 You can't do it anyway. When you take the tax free money from the dB scheme you have to sign saying it won't be reinvested in another pension scheme. Recycling.

[@andrewkingdon2000]

​@@paulkane6645why? Usually DB schemes are capped at 5% max inflation. If you look at the stock marked over 120 years it (on average) always rises 3 to 5% above inflation. Yes there are ups and downs but you can segregate the investments to mitigate you having to draw down from a depleted fund. In short I'd rather earn a stock market average as opposed to a max (capped) 5% or less depending on inflation.

[@wharpblast264]

How about UFPLS ? If you don't need an immediate lump sum, you can spread your 25% tax free allowance over a number of years, boosting your income and retaining the option of taking a larger tax free lump sum at a later date, as your pension is not crystallised only the withdrawal.

[@MeaningfulMoney]

Agreed. Done lots of other videos on that subject, not least this one: kzbin.info/www/bejne/hICsmqmwbcSEq6M

[@chrisdaviesguitar]

So I just talked to a company who told me there is only annuity or drawdown and they've never heard of UFPLS

[@MeaningfulMoney]

Terrifying. Presume it was UK? Was it an advice firm or a pension company?

[@TwoWheelsGood-ym3st]

Get your currency out of the ponzy scheme asap

[@eldrinod]

What about using some of your tax free lump sum to invest in precious metals?

[@MeaningfulMoney]

Risky strategy, depending on how much you’re talking

[@danielcedolin2034]

If you have a pension and isa savings could you just before you retire put £20000 from an isa in to a pension and get 20 percent from the government . Then take your tax free amount from your pension and put it back in an isa in the next tax year . Or double that if 2 of you 🤔

[@MeaningfulMoney]

Yep, definitely!

[@user-mo5so2yx4r]

I have a Railway pension, but the current pension provider has changed & a large chunk of my pension (£12,000), seems to have disappeared, what’s going on??

[@deltaechomusicnh555]

Pensions are invested. Whatever your pension is invested in clearly went down in value.

[@nosleeppete5146]

Buying an annuity with a transfer from a a DB scheme may be beneficial for single people. Even if people marry later, DB pensions will only pay a widow(er) pension if married at the time of retirement. (Which is fair enough as it stops an old git (me?) marrying a 21 year ill on my death bed).

[@rmcl4112]

U sure ….. u can marry at anytime and it’s part of your estate and legal

[@user-tb4ff4xg6e]

Hello how do I get a final salary pension please Thank you Jack

[@MeaningfulMoney]

You need to work for the public sector. Teaching, Police, Firefighters, nursing, doctors, civil servants - all these get a Defined Benefit pension, though these days it’s not final salary in the strict sense of the word. Rather they are Career Average schemes.

[@user-tb4ff4xg6e]

@@MeaningfulMoney Thank you i would like to email direct I don’t know if u can give ur email address on here. Thank you for taking the time to answer Best wishes Jack

[@clivewilkinson6076]

Reason 7. - one word - Porsche. and yes that is a serious answer.

[@MeaningfulMoney]

I am with you there!

[@ZeldaFitz]

A fool and their money are soon parted

[@rinakaur7245]

If you have 3 personal pensions, do you get 25% tax free from each pension? Or only from 1 pension?

[@MeaningfulMoney]

Across all your pensions. So if they stay as three separate pots, you’ll get 25% from each one.

[@MrDuncl]

Something else to consider now we have double digit inflation. Both my DB pensions state "Your pension earned on or after 6 April 2006 will be increased annually by the rise in the RPI subject to a maximum increase of 2.5% a year." They cut and pasted that from Government legislation. For some time that seemed like a good deal as the pensioners were getting bigger increases than us workers pay rises. Would the money be better off elsewhere these days ?

[@WilliMar36]

Main reason to take the cash straight away don’t trust politicians. These rules can and probably will change. Before Covid lots of options were being considered. Now the government is even more strapped for cash. Don’t assume that IHT rules, seen as the main attraction of leaving a pension untouched, are set in stone either.

[@iainmackinnon86]

How do I take cash free cash living in Australia?

[@bigslim5847]

By moving to the uk 🇬🇧

[@garyferrari1366]

Wow, I did not realise pensions were so complicated

[@MeaningfulMoney]

It’s why I have a job, Gary!

[@garyferrari1366]

@@MeaningfulMoney thanks for the reply, I am 65 and still working so I don’t need to cash in, but if I was to take the lump sum whilst continuing to work it would put my earnings up for that year, does that mean I would pay 40% tax on the higher income, am I way off piste here, I think I need to get some financial advice on what to do

[@ianbarnes961]

I think the lump sum remains tax-free, and isn't taxable income. Although, as you said, you'd should get proper advice.

[@nixonw7950]

at what point is a pension tax free? In the US a pension distribution is taxed as income.

[@MeaningfulMoney]

This is a UK channel, Nixon. 25% of your accumulated pension fund can be drawn tax-free here.

[@nixonw7950]

@@MeaningfulMoney Lucky. Maybe I should consider moving to the UK.

[@FM-ll9vh]

Do you think in the near future that government will stop the 25% tax free allowance?

[@MeaningfulMoney]

It’s been rumoured for as long as I’ve been working, over 20 years. They’ve already called it with the LTA, but I don’t see them abolishing it, no.

[@topfuelteddy]

@@MeaningfulMoney I do , there's going to be a massive black hole in funds for pensions in future and the government will want to claw back as much as possible .

[@Diana-007]

Take the tax free lump sum as soon as it’s viable for your finances, you never know what tomorrow brings, particularly if the lump sum dies with you and goes to the state! 😁

[@MeaningfulMoney]

It doesn’t go to the state at all. See here: kzbin.info/www/bejne/oHbFip6ZZqqqkMUsi=M8t-AZMUnreJqELB

[@Diana-007]

@@MeaningfulMoney Yes of course not the state, ( tongue in cheek remark!) - smiley face was a step for a hint your audience aren’t daft. 😊

[@petraalma29]

Very useful thank you! I have just today put my retirement form in for my DB pension and I am taking the maximum tax free lump sum. I am 60 and would have to live to 101 before losing out on that decision. Yes there is the slight worry that the return I can make on the lump sum will not keep pace with inflation. But the monthly pension is enough to live on regardless and the reduction in income tax by taking the lower pension is quite significant on a relatively low income. One thing you didn’t mention I think is that if you were unfortunate enough to be diagnosed with a life limiting illness you can blow the lump sum on having fun (or on care), whereas you could not get hold of it anymore if you have left it in the fund. I have no beneficiaries (other than charities) I should add, so no worries about leaving enough for someone else.

[@jam99]

Thank you for your example.

[@MrIANMCCREADIE]

I did exactly the same Petra as I thought that was the best option.

[@Anonymous-qw]

I am 60 in July and have a DB pension from a previous employer I worked for for 23 years that pays out at 60 and have this decision to make. Given that I will have to pay income tax and NI until 67 on my pension I'm not sure.

[@Rod-bp8ow]

Taxation is protection, protected from counterfeit, laundering, and exercise of scrupulous schemes. Protection from abusers. SMEs... 2022 onwards.

[@MeaningfulMoney]

Profound

[@BlueShadow777]

Missed a lot of that because I haven’t a clue what “DB” and “DC” mean 🤷🏻‍♂️

[@stevegeek]

DB is defined benefits…not so common these days, where you get a guaranteed income on retirement based on salary & length of service. DC is defined contributions…more common, where you / your employer contribute money to the pension. Some people (myself included) have both.

[@michaelcassel2353]

Pete, I have a decent DB projected pension, and also have a SIPP that I may let grow as long as possible … my lump sum will include an automatic sum, plus an AVC lump option, and optional additional 12:1 commutation to make up remaining 25% lump sum. Question: any advantage in taking max 25% to top up ISAs (mine and wife) and put remaining amount in SIPP? My thinking is that SIPP fund could transfer tax free to wife/children upon death. I guess there is no more tax free withdrawal from SIPP.

[@jam99]

Pension planning like this is something I would seriously consider paying a pension financial advisor to talk about. The details can be important.

[@FirstDruid]

Remember your max contribution to a SIPP is the lower of £40K or 100% relevant earnings so you’ll need to be working or have worked in the tax year and have earned what you intend to put into your SIPP. Watch out for the lump sum recycling rules too.

[@craiglawrance5342]

Very helpful. Great summary Pete and for illustrating why fortunately I have 0 reasons to take the tax-free lump sum. Each individual’s need is indeed unique.

[@MeaningfulMoney]

It’s true, Craig. I’m delighted the video was helpful - thanks for watching!

[@chrisdaviesguitar]

you forgot to mention the difference between a DB and DC pension.

[@MeaningfulMoney]

Yes, I imagine you’re right. I’ve mentioned it lots in other videos, but I do try to make sure it’s covered off every time. Just missed it this time…

[@christines5430]

I really appreciate your videos. Thank you.

[@MeaningfulMoney]

And I appreciate you, Christine - thanks for being here!

[@samgoodwin6733]

Great video. If you DON’T take the 25% lump sum tax free cash at the beginning, is 25% of each future drawdown tax-free? So, for example, if each year you took out £17,000 drawdown from your pension, then is the first 25% of that (£4,250) tax free. And as the remaining amount would be £12,570, then you wouldn’t pay tax on that amount either as that is your personal tax allowance amount (assuming you have no other income sources, and assuming for now that personal allowance amount would be the same in the future).

[@MeaningfulMoney]

Basically yes - what you’re talking about here is UFPLS. Whenever you crystallise part or all of your fund - that’s when you get the choice to take cash. What you can’t do is crystallise the whole lot and then in future take tax-free cash. This video may help: kzbin.info/www/bejne/hICsmqmwbcSEq6M

[@samgoodwin6733]

@@MeaningfulMoney Great, thank you!

[@FirstDruid]

Yes for a DC pension but for DB you would have to check the scheme rules. For my DB pension I can take anything between 0% to 25% tax free lump sum but only at the start. If I don’t take it, there is no further flexibility and so no further option of tax free cash. In that respect, DC is a lot more flexible.

[@deanmartin9358]

very helpful except my pension provider told me only 25% of the 25%was tax free so had to take more out to allow for tax cost me a lot of money

[@andrewhead6267]

I think the key point is everyone’s circumstances are different enough to think through the options. For example a recently divorced individual with children over 25, who traded marital assets such as property to retain pension, might need tax free cash to buy a property at retirement. When monthly income reduction might make renting unattractive. It is important to take an interest in your personal financial assets and to make plans based on what you need first. Then see what options you have to finance things you would like.

[@MeaningfulMoney]

Couldn’t agree more, Andrew!

[@Simon-Misiewicz-US-UK-Taxes]

Good points raised in your comments

[@jazzey69]

I took out some cash from my pension pot,. I was taxed on it and had to pay vat on it as well...Be careful..be well always..:-)

[@sniltub]

How would you be expected to pay the tax if you get to 75 and you're over the lifetime allowance? Would they take it out of your pension pot or would you have to pay it directly?

[@MeaningfulMoney]

The ‘Scheme pays’ option allows you to pay the tax from your pension fund IF the pension itself allows it. Otherwise you can pay it from your own resources, which might be painful!

[@ivoreathorne5568]

Thanks for the quick 2nd video. Always like to hear both sides of the argument.

[@MeaningfulMoney]

Me too, Ivor - thanks for watching!

[@PennyBluebottle]

This is brilliant! Thank you.

[@MeaningfulMoney]

Glad it was helpful, thanks for watching!

[@whizzer1967]

I have an AVC under £8000 would it effect my what I can put into my future pension contributions as I am still working and a tax payer if I cash it in now as I turn 55 soon. Thank you

[@MeaningfulMoney]

If you cash it all in, then yes it would, as to do so would trigger a taxable payment and then you’d be subject to the Money Purchase Annual Allowance so could only pay in £4000 per year

[@royturner10]

Another reason worth a mention is if the individual plans to relocate outside the UK. To use a popular example, once you become a fiscal resident in Spain (over 183 days) you are taxed on your worldwide income and there is no such thing as a pension tax free amount in their calculations. Better to take you 25% in advance.

[@seanbyrne2220]

Awesome stuff

[@MeaningfulMoney]

Cheers, Sean 👍🏻🙏🏻

[@maltesetony9030]

Another excellent video. As a DB pensioner since last October, I looked at the commutation rate & took the "recommended" lump sum, some of which was put by for a "rainy-day" fund, the rest invested. I also had a widows' contribution refund - an unexpected and welcome few grand.

[@MeaningfulMoney]

Nice, Tony - I didn't even know a widows' contribution refund was a thing!

[@maltesetony9030]

@@MeaningfulMoney It's only if you're single, Pete!

[@chetnasazash]

Excellent video. Point 5 was really helpful. I took my DB pension and now paying into a DC pension. Always worried I am going to end up paying too much tax. Point 5 helped me understand my position a lot better. Thanks Pete.

[@MeaningfulMoney]

Cheers Mo - glad it was helpful!

[@jacacc12]

Hi Pete, thanks you once more for covering this topic from a different perspective, your figures were very close to what I have and I found the video very helpful and informative. As you said there is no one fix for all as everybody has different types of pensions and different needs when they do retire, it is such a complex subject with life defining consequences. But thanks to your video's, insight & knowledge you make things a little easier to understand.

[@MeaningfulMoney]

I’m delighted it was helpful, Jackie - thanks for watching and for the encouragement 🙏🏻

[@chrisemblen7812]

Another excellent vid cheers. Has helped reinforce that I'm making the right choices re reducing tax liabilities.

[@MeaningfulMoney]

I’m glad it was helpful, Chris 👊🏻👍🏻

[@barrysayers6833]

Very glad you started with the most straightforward reason of all: I need the money!!

[@MeaningfulMoney]

It's obvious, right?! Glad the video was helpful...

[@superman110206]

Enjoyed this video! Would it be possible to do a video on preparing your retirement finances from early(ish) in your career? I'm in my early 30s and would find that very useful to know what I should be thinking about. Thanks!

[@MeaningfulMoney]

Noted, Matt. But try not to over think this stuff. In your early 30s, and subject to your other priorities, you should just be socking away as much as possible into pensions and ISAs, and investing aggressively

[@Simon-Misiewicz-US-UK-Taxes]

Great to see someone at your age taking your finances seriously, well done

[@superman110206]

@@Simon-Misiewicz-US-UK-Taxes Thanks, appreciate that!

[@jonathankeeley9550]

Many thanks for both videos.

[@MeaningfulMoney]

You’re welcome, Jonathan!

[@paulgregory7359]

Hi Pete what is a DB PENSION ?

[@MeaningfulMoney]

Defined Benefit, sometimes called Final Salary. Where you get the promise of a future income, rather than build up a fund of money.

[@grother100]

Thank you. I am in this position now and very tempted to commute the maximum with a very good commutation rate of 23 (old police scheme). I note what you say about not regretting the decision. If I take the max and then live to 95 I can imagine me being very bitter🙄

[@MeaningfulMoney]

But you'll have had a good time with the cash, right?! Try not to overthink it, Steve - own that decision and live in the moment...

[@jam99]

At 95, you may barely remember what you did yesterday! :)

[@garycroft8213]

Great video again Phil... A couple of additional thoughts... 1. Trust in Government policy - 25% TFC has been the UK pension rule for a long time but they have changed the rules so many times, particularly last 15 years that I don't know if I trust them not to change them again! 2. Retiring abroad - the 25% TFC as I understand it is whilst tax resident in the UK so taking this before departing Blighty might be prudent. Post Brexit Brits have alot less flexibility to come and go in the EU due to Schengen and settled status or VISA's that require residency will come into this. Having looked into this myself some of the foreign taxes on UK pension aren't that great so have the benefit of TFC as a head start might be helpful. 3. In relation to point 2, taking TFC and then QROPS the remainder into an overseas pension might get around the LTA issue, I think you can transfer the remaining 75%?

[@MeaningfulMoney]

All good points, Gary thanks for commenting. (It’s Pete, not Phil, but I’ll let you off!)

[@garycroft8213]

@@MeaningfulMoney sorry I'm terrible with names, at least I got the first letter 😀

[@georgebaker2164]

Great content Pete. I fit into the Reason 6 category; DB pension, no spouse, no mortgage and three adult kids. I'm almost 61, still working part time and paying AVCs and buying Company SIP shares monthly, and already drawing two index linked small pensions which help to subsidize my reduced hours income. So when I retire (hopefully next year) I will not need the TF cash to support my retirement lifestyle, but I will want it in my estate to pass on. What would be the best way to manage a 6 figure lump sum in order to maximize my kids inheritance? Thanks in advance if you reply!!

[@MeaningfulMoney]

Hi George. I can’t answer the how best to invest question here. But if you really want to retain access to the money while growing it for your kids, there are investments that enable that, though they usually come at high risk. Seek advice or keep consuming content to further your learning.

[@davidyeo8530]

Yes using a isa pension fund to pay the mortgage off in 8-9 years funds making 5-10% per year mortgage is 2%

[@MeaningfulMoney]

Depends on your point of view, David. I did a video on why this decision is not all about the numbers here: kzbin.info/www/bejne/mqunqXuaqbp0mac

[@peterbern7369]

Very helpful information. One important point for DB schemes is to double check is the impact of commutation on pension for surviving spouse. In my case the spouse pension is the same whether I take the 25% or not. I don't know if this is common place for all DB schemes.

[@MeaningfulMoney]

Yeah, that’s true and is fairly common actually. One of my colleagues and I were talking about this with a client just today. In this case he was quite a bit older than her, so there’s was an argument for taking the cash

[@samjennings701]

I'm 19 and working full time ( I started an apprenticeship at 16) what would be good advice for building my pension? Just keep working and foget about it for a few years? I invest monthly into the sp500 and I think I can beat my pension annual growth, would it be a good idea to pay less into my pension and more into my stocks and shares isa?

[@MeaningfulMoney]

Hi Sam. It isn't the pension that might be lagging, but the fund inside it, most likely. You should find out what fund optinos are available to you inside the pension and choose one or two that invest very aggressively. You can't touch that money for decades, and so it should be pushed as hard as possible for as long as possible. As for whether you should favour ISAs for now, I would tilt the balance that way, yes. Don't neglect your pension - the tax relief is too good - but at 19 you want to keep plenty of money accessible for future house purchase maybe, or whatever. I tend to say that you should favour ISAs while you're younger and then gradually shift the balance towards pensions once you hit your thirties. But your priorities will likely change as you go through life - what suits now might not five years form now. Keep learning and watching, and good luck to you!

[@markhankin467]

Great insight as always

[@MeaningfulMoney]

Thank you Mark!