How UK Pensions Work At Retirement

Today I'm going to talk about how pensions work in retirement in the UK. Specially, we will cover how to get money out of a pension and the different options for doing that.
It's a question I get asked all the time, so I hope it will help a lot of you.
Link to Retirement Planning that I mention in the video: meaningfulacademy.com/peteish...
Is this a great link, or what?
Please SUBSCRIBE to the channel - it helps me massively :) Thank you!
Extra points if you LIKE the video too ...
•
FREE resources:
Millennial Finance: meaningfulmoney.tv/season-13-...
Three Steps to Financial Freedom: meaningfulmoney.tv/wp-content...
Getting Current Workbook: meaningfulmoney.tv/2020/02/19...
The Ultimate Guide to BUDGETING: meaningfulmoney.tv/UG1​
The Ultimate Guide to PAYING OFF DEBT: meaningfulmoney.tv/UG2​
The Ultimate Guide to WEALTH PROTECTION: meaningfulmoney.tv/UG3​
The Ultimate Guide To INVESTING: meaningfulmoney.tv/2020/11/11...
The Ultimate Guide to PLATFORMS, PENSIONS & ISAs: meaningfulmoney.tv/UG6​
The Ultimate Guide to RISK: meaningfulmoney.tv/UG7​
The Ultimate Guide to INVESTING IN RETIREMENT: meaningfulmoney.tv/UG8​
The Ultimate Guide to PENSION RETIREMENT OPTIONS: meaningfulmoney.tv/UG9​
•
MeaningfulAcademy - Premium Financial Courses
Whether you're just starting out and need to clear debt or set things up, or perhaps you are already looking to invest and start building wealth... or even if you are retired and are looking forward to get the most out of your hard-earned money, MeaningfulAcademy has you covered.
I have built MeaningfulAcademy so that you don't have to guess how it all works. Regardless of your level, you will find clear step-by-step systematised information inside and will immediately know what actions to take.
So the only question left to ask is... Are you ready?
meaningfulacademy.com​
•
The MeaningfulMoney Community
The MeMo Hub is a closed Facebook group where thousands of like-minded people ask and answer questions and learn more about how to manage their money.
It's FREE to join: meaningfulmoney.tv/community​
•
The MeaningfulMoney Handbook: petesbook.com​
Life Insurance with LifeSearch: meaningfulmoney.tv/lifesearch​
Farewill - Discounts off Wills and Powers of Attorney: meaningfulmoney.tv/resources/...
By the way, I read and reply to your comments, so leave a comment below - I'd be interested to hear your thoughts!

[@ibnn7089]

Thank you so much for this video, I’m in my third year in Banking & Finance and my assignment is based on financial planning. One of the briefs is to produce a cash flow until the “clients” are 100… This video helped a lot!

[@srdjant0]

Hi, just discovered your channel and watching your videos. Great work! A small friendly suggestion if I may: are you able to turn down the volume of the intro music slightly? It's quite a bit louder than the rest of your videos and I'm always rushing to turn down the volume just for the intro. Keep up the great content, subscribed and looking forward to your next video.

[@MayureshKadu]

Interesting video. A missing piece in your explainer is the difference between pre-post crystallisation? That would help clarify when and why one can consider keeping funds in either of those columns. Thanks

[@outdoorsman1140]

Looking forward to the launch of the retirement planning course. I'm itching to pull the trigger after semi-retiring eighteen months ago!

[@vaibhavaggarwal5300]

Hey Pete! Another of your awesome videos. Could you also do one on breach of Lifetime Allowance, please.

[@bigjolly1000]

Excellent video Pete. It was very helpful.

[@MeaningfulMoney]

Glad it helped!

[@Praveen-rz1jd]

Thanks so much for explaining it all so beautifully, Pete. I worked as a UX professional for a pensions product a few years ago and struggled very hard to understand all these concepts. So much so that all my previous learnings almost evaporated. I'm taking up another pensions project soon and wanted a refresher on pensions basics and that's how I came across your videos. I realized how beautiful these are. Being a person who understands visuals much better than words, I found learning these concepts this time a breeze. I'm confident that I'll remember the content this time for a lifetime 😀 As a bonus, I started appreciating the subject of Pensions which otherwise until now has been a very dry one for me. Brilliant stuff. Keep it up!! 🙌

[@MeaningfulMoney]

Thank you so much, Praveen! I really appreciate the support and encouragement!

[@Praveen-rz1jd]

You're very welcome, Pete. It's my pleasure :)

[@Dazzy1107]

Great video uncle Pete.....

[@garywilkinson4381]

Fantastic and informative as always. Will you or have you done a similar video for watchers with a DB pension like myself.

[@dorisbrown7347]

Great content

[@paulkettlewell2078]

Hi Pete, great videos. I would like to see a working example of crystallising various amounts over several years where the LTA is changing from one year to the next to see what the available LTA is left at a certain point in time. I've seen two ways to calculate it either by percentage or revaluing previous crystallised amounts based on the current LTA (the latter I believe is HMRC approved and accurate) along with the BCE's (1 & 6?) this would trigger.

[@MeaningfulMoney]

Oof, might be hard to make that video fun, Paul! But maybe I'll give it a go. Or you could make it yourself?! Thanks for commenting...

[@NandishPatelV]

Thanks 😊 🌺 KeepSmiling

[@nbc911]

Thank you

[@blhlow4904]

Thanks very much for your videos. Much appreciated. I'm thinking of withdrawing from my company's pension and/or my SIPP this year and am considering between drawdown and UFPLS. I definitely do not want an annuity because of the low interest rates. Could you comment on the difference or do a video on this?

[@joewilson1295]

Thank you for a very easy to follow video. One question please if I can. I have 3 pots all on a DC basis with a very well known Edinburgh based pension provider. If I take some tax free cash from this; assuming its the maximum 25% and move it all over the line to post crystallisation - is it correct for me to assume that the remaining 75% is still invested and benefiting from investing performance?

[@nunchukninja3212]

Love your channel by the way! Some really good stuff on there and also your podcast. On this one though, I was under the impression you don't have to take your TFC when you crystallise your pension and you set up a SIPP or FAD. Your illustration seems to suggest you have a one-off opportunity to take it. I thought you can just leave the whole pot invested and potentially take a much larger TFC lump sum down the line once the fund has grown. Has this now changed? Thanks.

[@MeaningfulMoney]

Hi there, NJ. Thanks for the kind words. When you crystallise, you get a one-off opportunity to take TFC. I'm going to do a video on this shortly, but for now... To crystallise essentially means to take benefits from a pension. At that point you get to choose whether or not to take tax-free cash. if you don't, you lose that option down the line. But you don't have to crystallise your whole pot in one go. Let's say you have a £1m pension (would be nice, right?!). You crystallise £100k of it and you choose whether or not to take the £25,000 TFC. If not, the £100k goes into a drawdown pot, is invested to grow, and you can draw off it whenever you want. But whatever you draw will always be taxable as income. The remaining £900k remains uncrystallised and you can choose to take TFC from that pot whenever you crystallise all or part of it in the future. Does that help?

[@nunchukninja3212]

@@MeaningfulMoney thanks for clarifying this for me. Yes that makes sense now. 👍

[@guyr7351]

@@MeaningfulMoney Hi Pete, if in the case your saying here you took £100K into the crystallised portion but no TFC, would the 25% TFC be based on the original £1m value or the £900K? If on the £900 K then you would have to ask what benefit is there is crystallising and not taking TFC

[@stevetaylor3901]

Hi Pete, due to circumstances, I stopped paying in to a personal pension in 1997 with Allied Dunbar who are now Zurich. Naturally it has accrued value in the years since, and It will mature in 2 years time when I’m 55. I don’t earn a salary as I do charity work full time and have done for the last 10 years. Would there be much benefit in paying in to the pension once more for the last two years before it matures? Really helpful information in your videos! Thanks, Steve

[@shanefarrell9241]

Great videos. I have a decent dc scheme pension pot and when I retire next year I want to initially use both the 25% tax free cash and my tax allowance to fund income over the first 5 years or so in a tax efficient way. Can you effectively fix the tax free element on day one? Eg if my fund is £300k and I need £25k income I'd want to draw £12k (tax allowance) and £13k from tax free lump sum of £75k. The next year the same figures reducing remaining tax free pot to £49k an so on. Thanks for any guidance.

[@jackpilkington6770]

Hi Pete, nice video. I thought it was no longer possible to apply for a Capped Drawdown arrangement?

[@MeaningfulMoney]

You may be right, Jack, good point. I’ll need to check

[@davidcharles2180]

Great videos that actually make sense, thanks Pete. I have now got my head around the 3 elements (i) Post and (ii) pre Crystallisation (iii) Bank account. However in your useful little drawing/matrix I'm not sure how the 4th element i.e LTA charges then get applied when your pension is at the limit, i.e does your 25% contribute to the LTA and when you take the 25% would you get hit with the LTA charge before age 75 ? Now I realise that Crystallisation is nothing to do with an Alien film, then raring to learn more.

[@MeaningfulMoney]

Firstly, the LTA charge is paid on crystallisations over the limit. You only get the option to take 25% tax-free cash when you crystallise. So if you crystallise £100k and take £25k TFC, it’s the £100k that is tested against the LTA. Also, there is no tax-free cash above the LTA, so anything you crystallise above the LTA is subject to the charge at the rate of either 25% or 55% depending on the form you take out the excess. Really glad you’re enjoying the videos - thanks for the kind words!

[@davidcharles2180]

@@MeaningfulMoney Thank you very much, especially replying on your Sunday.

[@PeteMulv]

I have my state pension and my army pension. The army pension is taxed at source and the state pension as normal. When I do retire and I start taking money from my pension fund to top up the other two, how is the tax taken, is it taken at source or do I have to pay it?

[@paulie2298]

Hi Pete, as I understand it if you take flexible draw downs in retirement the remaining pre and post (those which remain in your draw down account) funds are still invested funds. My question is typically do both funds grow at similar rates or does the draw down pot by its nature need to be more risk averse?

[@MeaningfulMoney]

HI Paulie. Entirely depends on what the underlying funds are. Whether or not you invest your drawdown pot differently depends on your cashflow needs, i.e. when you're likely to spend the money

[@craftypam9992]

I don't work, but contribute £2880 to my SIPP each year (from savings), and get the IR to top it up with £720. I'm about to get my state pension, am I allowed to continue these contributions, until I start withdrawing from the SIPP, or even after I start withdrawing? Or will the Revenue refuse to contribute the £720 once they are giving me a pension?

[@FrancisBurnsWorldwide]

Hi Pete. Great video, thanks. I have a few questions. If I crystallise my pension pot and take out the 25% tax-free portion, what options do you typically have to be able to direct exactly where the remaining 75% is invested? Am I right in assuming that that would depend on the options offered by the original pension provider? And can you move the 75% to another pension provider after crystallisation?

[@MeaningfulMoney]

Hi Francis. Yes, you can move your crystallised pot to another provider - many people do that. Depending on the provider you choose, your investment options will be either narrow or broad. An insured pension will offer fairly limited options, a platform pension more options, and a full SIPP the full range of investment options, at a cost. No sense in paying for functionality you won’t use, so determine what level of investment interest you have, and choose accordingly

[@boombustinvest]

I can't see what the difference between UFPLS and lump sum flexi access DD payments... they both have 25% tax-free and then the remainder is taxed at the standard rate on income tax.

[@Bracebarian]

Love the channel. Is it possible to crystallise your pot to take the 25% tax free cash but over a number of years along with some taxable income upto the personal allowance in order to keep the money out of the estate and therefore not subject to IHT?

[@MeaningfulMoney]

Money in a pension isn’t subject to IHT anyway, but if you’re talking about spending the money you drawdown then yes, you can use tax-free cash in bits over time.

[@Bracebarian]

@@MeaningfulMoney : Thanks, yes a badly worded question. I think the real question is can I crystalize 200k in order to take 50k tax free and leave the 200k in the crystalized pot so still invested. and then later in retirement do the same again assuming i have 400k in the original pot so basically taking 100k out but each time leaving the taxable element (300k) still invested until its needed so it continues to grow.

[@janineboucher9971]

Hi Pete I don't suppose you could do a video on the NHS pension. I've not got a clue how it works... but I've been paying in for 14 years because I was told it is "good". I've tried to read the content available from them and watched a few if their KZbin videos but it is still as clear a mud to me. It doesn't help that they have changed the policy 3 times in 15-20years.

[@maltesetony9030]

It's a good pension scheme - higher contributions than the civil service pension, but still good. Keep paying into it & never, ever opt out of it!

[@MeaningfulMoney]

You’re not the first person to ask that, Janine - hold that thought…

[@vaibhavaggarwal5300]

My wife is also part of NHS pension scheme... 2015 variant of it. In my understanding, it is a great option given the certainty of the pay after retirement. You can post your question on FB group "Meaningful Money Community " and we as a community can try answering them.

[@iqbalbawa8875]

Thank you for really making clear the mechanics. Could you also explain how some people are able to get pension of £160,000 a year ( you may have seen recent recent headline in the news a well known figure who quit her job will be able to draw that sort of pension) when 20 x that figure gives a pension pot of £3.2m but then the excess over the lifetime allowance is £2127000 which would attract 55% charge taking her pot down to £2.03m instead of £3.2m thus reducing the annual pension figure. Just using her salary for example but you can use any figures to illustrate. Thank you.

[@MeaningfulMoney]

Hi Iqbal. If you're talking about Cressida Dick, then her pension will be a defined benefit pension, so there's no 'pot' at all, just the guaranteed income. But you're right, that would be multiplied by 20 to work out the excess over the LTA. The LTA charge on that amount can (and likely will) be paid by the scheme. She will then have her income actuarially reduced by the scheme. All very complex, but the thing to remember is that there isn't a pot here.

[@iqbalbawa8875]

@@MeaningfulMoney Hi thank you for responding to my query. Yes I was talking about her but only as an example to someone earning so much on pension. That's very interesting and the scheme is funded by the taxpayers. Still don't understand how she is able to fund her pension to such an extent when we heard on the news last year a lot of consultants at hospitals were cutting down there hours because they were being penalised with a tax charge. Grateful if you could explain that or perhaps do a video to explain. Thank you.

[@davidmartin305]

Is Self invested Pension a form of UFPLS? why would you do any other option if you want to drawdown? Continue to contribute, defer lifetime allowance, greatest flexibility

[@maltesetony9030]

DB pensions forever!

[@richardmcgreary6368]

Hi Pete. New subscriber, just wanted to ask - You say that my pension income will be subject to income tax. Is this like my employed income where the first (what is it now, £11,500..?) is tax free? Or will ALL of my pension income be subject to income tax. Oh, by the way - I have a very small private pension, a rental property, and of course the State Pension waiting for me when I do finally retire 😉👌

[@MeaningfulMoney]

Hi Richard. Pension income is very much like employed income, you’ll even get a P60 each year! But your personal allowance - currently £12,570 does apply, so if your pension income falls within that, then you’ll pay no tax. This video might help: kzbin.info/www/bejne/pnavcpqPp8lmZs0 It’s a few years old, so the allowances might be different, but the principles are the same…

[@seanmcshane1988]

Hi! With UFPLS if you only move 10% of 100k to drawdown, then 25% of that is tax free as a lump sum. Now you have 90% remaining and gaining from capital appreciation. In fact the uncrystalised pot is now bigger and is 100k again! We now withdraw another 10% and we benefit from the 25% tax free lump sum. Assuming this growth cycle repeats, do we get to essentially keep taking the tax free lump sum on both the principle and the growth?

[@MeaningfulMoney]

Basically yes. That’s the idea behind the crystallisation point. At each crystallisation event you get the chance to take tax-free cash and as you say, the uncrystallised part can keep on growing.

[@grahamcompton9400]

Hi Pete, great video. If you moved funds into the crystallised pot is it still free of inheritance tax? And if so, if you are going to go over the annual allowance, does it make sense to crystallise it all before you break the limit (i.e. Does that become the last crystallisation event?)?

[@jamesday426]

If it started free of inheritance tax that status won't change because you crystallised. The word if is there because there is the potential for pension schemes opened within the two years before death to be part of an estate. That is a fiddly question based on the exact circumstances but broadly, if it was done in expectation of death and that was the primary reason, it is likely to be part of the estate and in this case directing the pension to pay a spouse or legal partner instead of using their discretion can reduce the potential inheritance tax charge. It is not necessarily so, and people have won cases where a transfer before death was done and the purpose wasn't keeping the money out of the estate for IHT purposes.

[@jamesday426]

I assume you meant lifetime allowance rather than annual allowance in the question. Yes, it's likely to be best to crystallise as soon as you can if you think you might go over the LTA. Assuming you take a tax free lump sum to crystallise the part outside the pension can grow without further potential LTA charge and the part in a flexi-access drawdown account can have growth withdrawn so that there is no increase at age 75 and hence no lifetime allowance to pay on growth at that birthday. While as soon as you can is good, if there's a fair chance of not going over it can be worth spreading it over a few years to help you get the money invested in ISAs or VCTs or whatever and maybe reduce your overall tax cost vs using unwrapped (no tax wrapper) investments.

[@paulcroz7043]

Is there a video explaining accessing a DB pension 👍

[@MeaningfulMoney]

Not really, Paul, because there are so few options. When you get to retirement age you’ll be given your options by the scheme. For the most part, it’ll be about deciding how much tax-free cash to take, but other than that, your options are limited.

[@paulcroz7043]

@@MeaningfulMoney cheers agreed but the option to take what the scheme offers or transfer to sipp then drawdown is a big one, especially when in my case they are offering a third more cash. So I suppose a video explaining the benefits/pitfalls is what I am looking for 👍

[@ib4905]

Great video. When you crystallize a portion of your SIPP to take 25℅ tax free do you have to sell funds to crystallize 100% cash then reinvest 75% of it again or can you crystallize invested funds and enough cash to provide the 25℅ tax free cash?

[@MeaningfulMoney]

You can usually just sell down 25% of the fund, but it may depend on your provider…

[@ib4905]

@@MeaningfulMoney Thanks Pete, that makes more sense.

[@inzamanuk]

With regards to the crystallised pot does this attract investment growth? If so is the growth or return on this taxable? Or is it non taxable like an ISA?

[@MeaningfulMoney]

Yes, the crystallised pot can be invested to grow. All growth and income it revived is tax-free while it stays in the pot. You are taxed on any income you take OUT.

[@johnh5982]

So if you're not working do you get 15k untaxed allowance

[@fleece3867]

After you have had the 25% tax free lump sum and then start to drawdown any taxable crystallised funds, is it taxed at source ? ie do we receive money from the pension pot net of tax ?

[@MeaningfulMoney]

Yes. The drawdown company will pay you through the PAYE system, so you get payslips and a P60 and tax is paid at source

[@StupidIsTheNorm]

Once you’ve moved your money across the line into the drawdown side, does it continue to grow/remain invested?

[@MeaningfulMoney]

Yes, absolutely. Or it can be used to buy an annuity…

[@paulie2298]

Great video. I have a follow up question to this. Typically can you expect similar growth rates on funds than remain in draw down to funds that you keep as un-crystallised?

[@sheraziqbal9556]

What do you do when you have several workplace pensions? Take from each at same time, or combine funds into one pension

[@MeaningfulMoney]

I’d probably look to consolidate at retirement, putting all plans together. You also do this as you go along. Keep your workplace pension but put all the others together somewhere you have control over the underlying investment.

[@sheraziqbal9556]

@@MeaningfulMoney Do you offer personal financial services. How do we get in touch with you.

[@samanthahardy9903]

I was thinking that with the 25% tax free lump sum, I could reinvested half( into a cash ISA to get tax free interest) and reinvest the other half in something else. At this point I'm not too sure about what else I can invest the other half in. Ideas would be helpful at this point!

[@MeaningfulMoney]

Keep watching the videos and learning, Samantha. The first £1000 of interest you get every year is tax-free anyway (if you're a basic rate taxpayer) so there's not a lot of point using a Cash ISA really. A lot depends on what you might use the money for and when. The Meaningful money community on Facebook is a brilliant, non-judgemental place to get questions like this answered: meaningfulmoney.tv/community

[@weewesty]

Quick question, if your sipp is invested in the s&p 500 pre and you move 20 grand to post and take the 5 grand tax free, does the remaining 15 grand in the post stay invested in the s&p 500 ??

[@Mindsi]

You need cleared cash, so yes🎉🎉🎉🎉🎉🎉

[@tobybarker6808]

so, at retirement I might crystallize say 40K, 10 of which are tax free. Couple of years later can I do precisely the same again (so having had 20K tax free in total? Its not 25% of the original pot?

[@MeaningfulMoney]

It’s 25% of whatever you crystallise, until your entire pot is crystallised.

[@kevanmccaughan2314]

With regards to tax. If I retire and this is my only income and its below the UK tax levels at the time, do I still pay tax? In short if its below £12570, it is tax free?

[@MeaningfulMoney]

Yep, exactly right

[@ryanwdavies1]

How might one arrange a planning call with yourself please?

[@MeaningfulMoney]

Hi Ryan. meaningfulmoney.tv/work-with-pete

[@selmaline23]

If you choose to crystallise only part on you sum ( min 4:40 ), what happens to the uncrystallised sum?

[@MeaningfulMoney]

It stays where it is, uncrystallised and still invested, until you choose to do something with it!

[@davewhite9620]

@@MeaningfulMoney I was wondering about that too - thanks for answering. What is the difference with uncrystallised funds? ie. Why would you only crystalise part of the fund? Actually, now I write it out I think I might be able to answer my own question, at least party... Is it so that you can take 25% tax free but do so in chunks rather than all at once when you first start drawing?

[@jatindersingh74]

My dad worked in UK for 7 years. He left UK in 1996.how can I find out that how much money is there in his account.

[@MeaningfulMoney]

You’ll need to find out what company he saved with and approach them

[@chrisdaviesguitar]

can you still pay into a pension that is partially crystallised?

[@MeaningfulMoney]

Yes, usually. You essentially pay into the uncrystallised part. Need to check with your provider though…

[@shaun2381]

Hi Pete - once I move my pension into drawdown flexi and take 25% TF, can I continue to contribute to the left over balance, and get 20% tax relief, as a continuing full time employee?

[@MeaningfulMoney]

Yep. Essentially you’re adding to the pre-crystallisation pot by doing so. Be careful though, if you take a penny of taxable income out of the crystallised pot (that is if you take anything out on top of the tax-free cash), you are then bound by the Money Purchase Annual Allowance which means you can only contribute £4000 per year gross into a pension.

[@vickanden7816]

Does crystallization become an option only when you reach 55 in age?

[@MeaningfulMoney]

Currently, yes. That’s changing from 2028 - going up

[@malcopopolo44]

Hello Pete. Once u take your 25% lump sum tax free, can I confirm that tax is only payable on further withdrawals when your you have exceeded your personal allowance?

[@MeaningfulMoney]

Yup, that’s right. Pension withdrawals are earned income

[@sheraziqbal9556]

If you've completely retired can you avoid income tax on draw down by taking no more than your tax free allowance

[@sheraziqbal9556]

We pay tax after the 25% tax free amount. But we do not pay national insurance on pension withdrawals

[@frankdevine7199]

HI TELL The PUBLIC ABOUT THE D,W, P, RET AT 66, BUT NO PENSION PAYMENT FOR A FURTHER TO YEARS SO NO PAYMENT TILL?? , 67,/ 68, BEFORE YOU GET ANY PAYMENT THAT'S NOW, ???

[@aaronag7876]

Question. If you'er over 55 and have 2 pensions, private one and work one. You want to take 25% out of your private pension, because it is the large amount. Now the HMRC says you can only make £4k per year into your pension. Does that apply to both pensions or just the one you withdraw the funds from ? If it applies to both, then the work pension will need to be reduced, as contributions are more than £4k per year. Where should the amounts Id normally pay into these funds, go ? into ISA's, stocks, shares ? Thanks in advance.

[@MeaningfulMoney]

If you just take the 25% tax-free cash, then the lower Money Purchase Annual Allowance is NOT triggered. Only when you take some taxable income does that happen. If it IS triggered, then it applies to any DC pension you have.

[@j.e.7028]

stuff it in the mattress...tax free...hahahaha

[@MeaningfulMoney]

That’s true…

[@carlduffin]

Why would anyone want to retire? Surely if you enjoy what you do, you would be happy to continue for as long as you are able and if you don't like what you are doing then you are stupid for staying in a job you dont enjoy.

[@MeaningfulMoney]

Oh, I’m with you. I can’t ever see myself doing nothing!

[@Mindsi]

WTF Came up with the word ‘ crystallization’?? With an American zee.

[@MeaningfulMoney]

Well, I would spell it with an S. did I use a zee in the video?!

[@selfrighteous88]

I cannot help but feel like anybody contributing to a pension is a moron. It feels like you are never in control of your money.

[@MeaningfulMoney]

I know plenty of wealthy morons with big pension funds that enjoy spending theirs!