Should I Take My Tax-Free Cash?

Listener Phil emailed and asked if I thought it was a good idea for him to take his 25% tax-free cash (otherwise called his PCLS) from his pension, and invest it in an ISA. Here are three reasons why I think he shouldn't...

[@richardwall2330]

I've only just found your channel on the tube ! What a breath of fresh air !! Very down to earth and not overpowering with masses of jargon . I will be following you Pete from now on Great to find a "little humour "in whats often a very boring subject 😁😁😁

[@MeaningfulMoney]

Thanks for being here, Richard, and for the kind words 🙏🏻

[@DSmith-ix1xf]

Finances in retirement can seem like digesting an elephant of information but, your helpful videos let us do so bite by bite! Thanks 🐘

[@MeaningfulMoney]

Thank YOU!

[@MrAvant123]

The ONLY reason to not take TFC out of your pension is if you are a person who cant resist buying expensive and pointless crap !

[@maddog167]

Hi Pete - I'm a recent subscriber to your excellent content. I've watched a lot of your recent materials over the last couple of weeks and I really appreciate your clarity and concise explanations. On this particular issue of whether to take the tax-free cash lump sum, the one issue that you didn't touch on is the pension Lifetime Allowance (LTA), which the Chancellor has recently frozen for the next 5 years. So for people in the position of being close to the LTA, then taking the 25% lump sum out of their pension (and reinvesting elsewhere, e.g. ISA) could make sense, couldn't it? The reason being that the 25% amount could (hopefully) grow in an ISA outside the pension, whereas if it were left in the pension then any growth could tip them over into excess of the LTA and the associated tax hit on the excess (25% on drawdown, 55% on cash withdrawal).

[@stephen6262]

Thanks pete great video excellent information

[@chrisgibbs1615]

Life is 2 short take your 25% out and enjoy it , the amount of people I have seen die early without having enjoyed any of there hard earned money, I have seen a lot of people talk about what they are going to do when they are older just to find out when they get there they are to knackered to enjoy them selves it's better to get to the end of your life with no regrets and be a bit poorer than to have money in the bank and not done what you wanted 2

[@markfindlay8636]

Very true , but some people think they will live until they are ninety and still be fit 🤔

[@tomgl6684]

No judgement at all on people who think life is too short, but I'm baffled why someone with your mindset would watch a video explaining the most efficient way to use your tax free allowance and then comment telling people to spend it on what they want anyway? Like, what were you expecting the video to say?

[@stephenbird4554]

Thanks Pete, another easy to understand video 👍

[@MeaningfulMoney]

Thanks Stephen!

[@VincentComet]

Just subscribed, superb content

[@colinbennett8115]

Good info many thanks

[@MrH1905]

Great content

[@maxflight777]

Super observations. Looking forward to more content on “phased retirements” , (oh and I’d like to understand more about the die before/after 75 complexity ! )

[@iainhunneybell]

LTA or lifetime allowance at a guess. LTA is assessed and any possible tax charge seems to occur either when you crystallise more than 100% of the LTA or at aged 75, which comes earlier, so at a guess, if you die before 75 and if there’s an LTA charge, then there will be tax tax on the pension funds you pass on. Or maybe it’s something else 😀

[@duncandonuts9940]

If you die before 75 then the pension pot is passed across to your defendants free of tax. If death occurs after 75 then they pay tax when they access the pension income.

[@iainhunneybell]

But this is about the 'age 75 complexity' @@duncandonuts9940. The point being if you exceed the LTA, this is assessed as you crystalise _or_ at age 75, whichever comes first. Each crystallisation event consumes a percentage of the LTA at the time of the crystallisation, and once you reach 100% of the LTA, the LTA charges come into effect. If you crystalise nothing, the assessment will be done at age 75 whatever. I can only presume that if you die before age 75 the 'enforced LTA assessment' also comes into effect. I can't see the Government allowing you to pass on pension amounts in excess of the LTA without the additional charges just because you passed away before crystalising 100% of the LTA or reaching 75, and so I'd put money on death being another assessment point, hence I must presume... The LTA tax charges come into effect when you: a. Crystalise more that 100% of the accumulated LTA amounts b. Reach age 75 c. Die

[@duncandonuts9940]

@@iainhunneybell correct - death is a benefit crystallisation event

[@arvinderbains3880]

Thank you

[@barry5111]

When I retired I hadn't got the full term in and didn't really need the lump sum so I didn't take it preferring to get the most monthly pension payment. You cannot change your decision on that yet a few years down the line they stop increasing my pension by RPI and change it to CPI. It seems no matter what you do "they" will throw a spanner into your works and of course the interest rates through the floor is the toolbox thrown in as well.

[@colinmiles1052]

Interesting - thanks!

[@MontyVideo969]

Thanks for taking the time to make this 5 minutes 18 seconds video. You have made the video "slick" in terms of editing etc. So, just one question. If you did a video back in 2011 that's out of date now in terms of death benefits (or whatever) could you not edit that video or remake it to be topical?

[@MeaningfulMoney]

Maybe. Time is always at a premium though...! Thanks for your kind words.

[@geraldmcmullon2465]

In the personal pension plans I had and have I am not able to draw down. The way around this is to move the funds to a Collective Retirement plan first as uncrystallised and then to get the 25% tax free some move it to a fully crystallised account. The process is made as complex as they can with forms from the current pension holders and multiple sets of forms and online processes to get the funds moved with shares being bought and sold and fees collected in the same fund to move it. Most of the dialogue with the pension companies has been unhelpful (not about finance advise - they don't give that at all - but in their procedure for what they need to be done to achieve what you set out to do.

[@stevezodiac491]

I took £80 k out of my pension tax free in 2010. Wouldn't have dreamt of gambling it on shares. Bought a house with it as well as other money to rent out. Worked out well.

[@Carl-uv9bv]

Surely you could have just invested it into the S&P500, £80k invested 2010 would be worth around £330/340k today.

[@stuartburns8657]

@@Carl-uv9bv hindsight is 20/20. This was a couple of years after global financial meltdown

[@shiftydave]

One potential benefit of taking the money out of the pension and putting it into an ISA is that the annual management fees could be considerably lower. From what I've seen the index funds from someone like Vanguard are typically around 0.25% max, compared to pensions at 0.5-1.5%. Over a few decades that difference would really add up.

[@Carl-uv9bv]

Vanguard S&P 500 ETF (VOO) has an expense ratio of 0.03%

[@cheekytyke]

I’m nearly 51 and I feel really overwhelmed with the pensions malarky. Can you recommend a vid of yours that goes through the basics please. I can build up from there. Cheers mate

[@marloweye9188]

You failed to consider a lot of other scenarios and your alternatives places a lot of faith in the government not changing the rules. Therefore, how about the sipp that has already exceeded the LTA and the person still wants to work for another 10 years? Pulling out the 25 percent tax free cash and investing it elsewhere to make use of the £12k capital gains tax allowance each years makes perfect sense. That way you bank all the current sipp rules as they are now rather than risking the government's clawback tax that will happen over the coming years.

[@ajaxharg]

Only problem is the capital gains tax is now being reduced. That was my plan.

[@ogriboy]

I would say there is an advantage in putting it in an IIA that being no charges from the provider, the FA and the government. Also some ISA's are outperforming pensions on %age growth in my case especially when you look at charges and fees levied at your your whole pension pot including that 25% before you take it out..

[@leeholden8658]

I’m only really looking into this pension thing now as I’ve not worked for 20 years but when I was employed I opted out of SERPS. It was handled by Britannia at the time but they went under a few years after I was made redundant. I thought nothing about what happened to my pension until a few weeks ago when a letter saying I had £11k with the option to have £2,750 tax free when I’m 55 (Dec 2022). I still don’t know what to do,what pension I will get at retirement age or anything and was hoping you or someone has any advice

[@simonsackett]

I'm 57 and I've now got four pension pots - one when I opted out of serps, one from a previous employer, one from my current employer that they closed fairly recently, and the current one with them that replaced the old one. Absolutely no idea what's best to do with any of it! Every scenario is different and it all seems very confusing!

[@MeaningfulMoney]

It really can be confusing. Though it might seem sec-serving to say it, getting decent planning advice around it all will pay dividends for you…

[@bikeman123]

Approaching retirement I've made additional pension contributions but am now taking the tax free cash from a defined benefit scheme this year. Are the recycling rules different with DB pensions? Also now the DB pension has started do I need to reduce my SIPP contributions? Thanks

[@patrickdegenaar9495]

It's a different case with defined benefit as this type of pension does not get passed down.

[@Ken_H_]

Interesting video, appreciate it's an old one but how does this work with a defined benefit (final salary) scheme. I would consider taking the 25% to put in an ISA to then draw down from given that my pension is essentially 'fixed' at two thirds of my final salary. Thanks.

[@nearlyretired7005]

I did that! I put my 25% lump sum in a stocks and shares ISA four years ago.My pension is good enough not to have draw money from a any other source,and I live comfortably. I have made a lot of money! Growth has been a steady 7% give or take,but obviously it goes up and down.My pension is index linked so it rises with inflation!

[@broadleyboy2]

Good video on a complicated subject . What about taking the tax free cash to give away before age 75 ? To avoid it being taxed as income in the hands of beneficiaries on death after age 75 .

[@RockLobster223]

I don't believe that will work. Any cash gifts over £350(ish) which are made within 7 years of your death date are still classified as your estate, therefore subject to IHT rules.

[@bloodwine1965]

My company closed their pension scheme and it’s obviously frozen now and we got put into the NEST scheme, I was thinking about taking the 25% and maybe transferring the rest into the nest one

[@jeffyates7455]

Great clear video thanks! One thing I've completely confused by in my head perhaps you could clarify. I take out £20k tax free and put into ISA. You say I should leave it in my pension as the benefits are the same but are they? When I take the money out of the ISA it will be tax free, when I eventually took the same out of the pension I would pay tax. Clearly I'm wrong from your video just not sure why! Any pointers?

[@tomgl6684]

Literally had the exact same thought.

[@tangoterrier]

Worth remembering that there is talk of changing the rules on tax free cash (e.g. by the Resolution Foundation) perhaps restricting it to 25%of £400,000 so be ready to change tack on this! On the question of shifting money into an ISA I do not agree that there is no difference to the tax situation. Let's say Phil takes £20,000 of tax free cash and puts it in an ISA for 5 years and it grows at 4% compound ending up increasing to £24,333. In an ISA there will be no tax on that increase of £4,333K and this also applies to his pension but only while the cash remains in the pension fund. My point is that the eventual objective is to take that £24,333 and use it as retirement income. Withdrawing from the ISA will be tax free but in the case of the pension there will very likely be tax of £4,333 x 75% x 20% = £650 assuming basic rate tax only and no future change in tax rates. In other words, leaving the cash in the pension will result in a tax of 75% of Phil's marginal rate on any gain that accrues. It is more accurate to think of the growth in a pension fund being taxable but the tax is deferred until you withdraw it whereas in an ISA there is no tax.

[@markhosbrough9180]

What about if you not lived in the uk for over ten years and your old company pension policies are stuck over there doing nothing

[@michaelsharman7176]

Excellent content Sir, Could I pick your brain a little Sir? You could get 12 to 14% growth in an ISA ETF where a final salary scheme would not pay out any additional cash/value other than that when you retire normally at 60..... or putting it another way.... Don't I have more possibilities of growth taking the cash and investing it wisely using an ISA wrapper

[@rickyboy591]

Thanks for your reply to my question’ I forgot to ask you at the time . If I take 25% of my tax free pension will it affect my tax on my small wage from my part time job as I don’t pay any tax on it as I’m just topping up my wages with my savings. Rick

[@MeaningfulMoney]

That's right...

[@Sebastian-ql9vi]

You are cool....And knowledgeable!

[@timhancock6626]

More difficult is whether to take protected benefits cash from a modestly performing Section 26 buy out pension thats not very big, say..less than £10k or transfer it to another modern low charges personal pensions to consolidate and by so doing lose the protected benefits. Assume you don't need/want the cash for all the reasons given in the video. You want it to be used as pension.

[@twoblue7329]

Yes...

[@neilcole3406]

Would you please explain about the. Opting out of the government pension that was big in the 80s and what became of it, thanks

[@MeaningfulMoney]

Opting out of SERPS meant that part of your NI contributions were redirected into a private or company pension rather than the government scheme. Can’t remember exactly when it all ended but it’s a while ago now.

[@connormcleod9595]

Of course

[@winstonsmith3690]

What about putting it into buy to let?

[@SurreyAlan]

Take it, they keep making noises about changing the rules.

[@marketbeans]

The Uk government website says that only 25% of any money taken out is tax free the rest is taxed. Is the lump sum a different category.

[@MeaningfulMoney]

Nope, it's the same thing.

[@mrsmith906]

Taking out the tax free amount (up to £20,000) and putting it into a Stocks & Shares ISA can be an excellent way to invest if you have access to an inteslesting share tip.

[@DavidJackson-zc4eq]

I spunked mine up on an 11 year old Porsche, lot more fun and appreciating rapidly, this is all based on the fact that by the time I'm 83 my needs will be incontinence pads and slippers 🤣

[@stevezodiac491]

Shares are just a different form of gambling, you are retired and can't replace losses any more, don't do it.

[@mrsmith906]

@@stevezodiac491 Able to take a private pension from 55 years (which has been invested in the stock market for 30 years) but perhaps not needing the cash right away, anyone with a good selection of stock tips could do much worse than re-investing the money in a completely TAX-FREE Stocks & Shares ISA rather than sticking it in a depreciating bank account or - wait for it - taking 25% tax free then paying ONE-THIRD OF THE REMAINING BALANCE FOR A BLOODY ANNUITY PURCHASE FEE. Check your pension provider's fees before buying an annuity! Mine will be going towards a poplular electric car manufacturer's shares to increase my holding.

[@LiamR90]

Does the tax free cash recycling also count for withdrawing from a LISA and paying into a Pension? LISA bonuses stop from age 50, so it would be a good way to get some extra money from age 60?

[@MeaningfulMoney]

That would be fine.

[@stephensmith799]

In my Pension Scheme my wife gets half my USS pension if and when I die. However, due to my 'health condition' (ie to my illnesses!) I do not anticipate living more than a few years more. I retire this month (July '20). Does it make sense to take the maximum tax free lump sum now, for her sake? This would lower my pension by about £4,000 pa, but I would have to live almost forty years longer for that £4,000 drop to equal 25% of my pension pot. Unfortunately that just isn't going to happen!

[@MeaningfulMoney]

Lump sums work differently with Defined Benefit pensions schemes such as yours, Stephen. The video is talking primarily about Defined Contribution schemes. If you take the maximum tax-free cash, your pension will be lower and consequently your wife's widow's pension will be lower too. You need to balance your need for cash now with taking a lower income for the rest of both your lives. Seek advice if in any doubt.

[@stephensmith799]

@@MeaningfulMoney Thanks for your reply... we need to make a decision...

[@robertmarsh3588]

Surely if a person is close to the life time allowance, say with a pot of £1M, and who has just retired at 60, it may make sense to take some cash or an income either through drawdown or UFPLS and move to a similarly tax efficient vehicle to avoid bigger than necessary LTA charges some time in the future?

[@MeaningfulMoney]

Yep - did two videos on this: kzbin.info/www/bejne/o5OqmHujl92HZrs and kzbin.info/www/bejne/b6K5p6iagrdgb6c

[@Dunk1970]

Hmmmm, not sure I agree with this. Let's say you have a pot over £400k and when you start to draw down you decide to take £100k tax free (note I'm not saying that this is necessarily the whole 25%). If you are married and aim your retirement to be shortly before the new tax year, you can put £80k into tax free investment ISAs and use the remaining £20k to reduce your first year's tax burden by withdrawing £20k less than you otherwise would from your pension. Assuming your ISA and the pension are in similar type (risk level) funds this is patently better than leaving it in the pension as you've transfered £100k from a taxible income source to a non-taxed income source: 1) Instantly gaining £4k (20% of the £20k that you used to supplement your first year's pension drawdown) 2) Subsequently saving £960 every year (20% of the £4800 that your additional £80k ISA funds are earning assuming a 6% growth rate) That's £33k extra spending money over the first 30 years of retirement available to spend with the combined retirement pot + ISA pots retaining the same overall amount in them as if I'd left it all in the pension. Now the inheritance taxes are something to consider, but in this chap's videos he mentions that the tax rules change after 75 but doesn't say how. Up to 75, the pension fund can be passed on totally tax free. If you die after 75 however, the lump sum or drawdown income is then taxed as income. If your pension pot + estate is under the Inheritance Tax Threshold then it doesn't matter either way. However, the actual best tactic after creating the £80k ISA fund on your retirement date would be to drawdown just the tax free allowance supplement (currently £12.5k) from your pension and draw the rest of each year's 'salary' that you are giving yourself from your newly created ISA pot and pay zero tax until the ISA runs out. This means you will save over £20k in tax payments (a raw £20k + tax relief on any fund growth before it is used up. And at the end of this process, you are back to having just a pension pot and therefore gain all the inheritance tax benefits that this provides your beneficiries.

[@IverKnackerov]

What about the lifetime limit on pension contributions, and the government decreasing the limit ?

[@MeaningfulMoney]

I have another video on this called Don’t stop paying into a pension which might answer this question

[@jonathanwarne3480]

What about if it avoids you exceeding your lifetime allowance and getting clobbered? Also presumably any government could get rid of this tax free element any time in the future which would also cost a lot if you hadn't done it? So many questions!

[@MeaningfulMoney]

Yeah, nothing is straightforward! Taking TFC may be part of a strategy for minimising the Lifetime Allowance charge, but won’t avoid it in and of itself. But yes, governments can change what they like, though I think there would be huge political fallout if they changed this. It has been rumoured in the past but never come about…

[@johndoyle4723]

Yes, I took it all out as soon as possible, I do not trust the Gov. Remember G Brown, he changed the rules after we had entered into a long term pension committment, breach of contract if you ask me.

[@BlackGriffin195]

You are old when you retire. Time is not on your side. Take the cash and enjoy yourself. Sitting in the old armchair watching the TV with a fat pension is no way to spend your last years. If you have a pension, taking you over the tax threshold. the tax man will still be feeding off it!

[@paulcoverdale8312]

Absolutely or the gov will

[@TheSilvercue]

Tax benefits are not better in the pension than an ISA, they 25% is tax free when you take it out but ISAs are tax free too. Surely it is better to take 25% out and into an ISA and then draw out an amount that is lower than income tax threshold every year to avoid more tax.

[@auntagatha2509]

Any advice on a small amount pension pot e.g. 13k?

[@Retromander]

DB or DC? You don't say which, although financial advisers are not interested in DB anymore.

[@johndoe-sl6pd]

Hi Pete- As i understand it:-- if I take UFPLUS I wont trigger MPAA (Hurrah!) but- I lose the rights to benefit from my pension provider (I have a very good pension provider who put a lot in monthly) so will a small tax free lump sum end my benefits from my current pension? thank you John

[@MeaningfulMoney]

Sorry to break it to you, John, but taking an UFPLS payment DOES trigger the MPAA because part of the payment is taxable. But if you just take tax-free cash and leave the rest in Drawdown, the MPAA is not triggered. As to whether your scheme will change if you take benefits, you’d need to ask the scheme itself…

[@leesteggles6367]

I was forced to take mine . When I got bullied out of my low paid care job. However the pay out got me through covid. But the pension ain't worth the paper it was written on. All depends on your earnings and situations. Most of us on low incomes who don't get benefits needs that 5% just to get by..

[@doublehaven]

Surely this advice would be different for a DB pension. The only disadvantage would be a reduction in the value of DB income in exchange for the lump sum. In my case I would have been better off taking the cash and pension a year ago despite contributing to it for longer due to a reduction in the commutation factor.This has resulted in both my DB pension and tax free lump sum being lower than a couple of years ago. I am not sure if people are generally aware of this. It hadn't really occurred to me as they have been quite stable but since the Truss mini budget things have changed.

[@MeaningfulMoney]

Yes, different potentially for DB schemes. The message is don’t take it just because you can, but be intentional about it…

[@doublehaven]

@@MeaningfulMoney Thanks, that makes sense, no real sense in taking cash without a use for it. I have a deferred DB scheme the rules of which are if you take cash it must be 25 percent in one go.

[@johncaygill878]

Tax on money I’ve already paid tax on.

[@jackbear5564]

How about if you have a company final salary pension. Taking the 20% tax free and putting it into an ISA would reduce the tax bill on income and have a lump sum cash available to do as you wish. Any thoughts?

[@nigelwyn]

Isn’t that the same as leaving it in your pension?

[@jackbear5564]

@@nigelwyn Nope, final salary company pension increase in line with CPI but when you die the pension effectively dies too. Your spouse will receive 50% per month until they die then that’s it. So I’m of the opinion that a tax free lump sum invested in an ISA gives flexibility for the unexpected and reduces your tax liability on pension income. ISA drawdown would be tax free.

[@rickyboy591]

I love to know if I take my tax free lump from my pension do I have to start drawing the rest or can I leave it there till a later date?

[@nickbeedham3017]

Hi Rick , you can leave it for a later date

[@Peakwanderer]

I wonder if you can answer this question for me please? I start to draw my private pension below the level I would pay tax on, so I do not want any of it tax free because it won't be taxed anyway, I know it will be taxed initially and I claim it back. I then at a later point decide to take my 25% tax free lump some perhaps 5 or 10 years down the line if want, can I do that? thanks

[@MeaningfulMoney]

Hi Peakwanderer. This is a big question, but the short answer is no. It depends on how you access your pension, but any money you ‘crystallise’ you have a one-time opportunity to take your tax-free cash. You can’t draw the taxable part and defer your tax-free cash down the line. Tread carefully, and seek advice if you’re unsure.

[@Peakwanderer]

@@MeaningfulMoney Oh that's a shame, at least I know not to make any mistakes now, thank you for the reply :)

[@u10722u]

If when selling a house I have a chunk Of money to invest, if I was to invest it into my pension, staying within the allowance would that be deemed cash free cash recycling?

[@MeaningfulMoney]

No. Only if tax feee cash is taken *from a pension* and repaid IN to a pension, could TFC recycling occur

[@tonydevlin1365]

would putting a deposit on a buy to let be a good option to provide extra income ?

[@MeaningfulMoney]

It's doable. As to whether it's a good option or not, there are many variables, so I can't comment here. I'm not allowed to advise under these circumstances, so I' can't possibly say whether or not it's a good thing for you to do, only that it's a possibility.... One thing to mention is that if you take your tax free cash and buying a house with it, you're immediately converting that money from a tax-efficient form into a taxable form (stamp duty, income tax, capital gains tax down the line)

[@maxflight777]

Tony, have you seen what’s changed recently wrt taxes and regulations for landlords ?

[@jimtalltheislandbrothers6639]

Ok. Lets assume at 55 I am still employed and say earning £30k/year. Now lets asy my pension pot is worth £200K. So if at 55 whilst still employed, I can take out 25% of the £200k = £50K Tax free? Or would the £50K be added to my £30K salary and then taxed? Pension has always confused me.

[@MeaningfulMoney]

You’re exactly right, Jim. Doesn’t make any difference what your earnings are - you can take out 25% of the value of your pension fund with zero tax to pay.

[@jimtalltheislandbrothers6639]

@@MeaningfulMoney so no tax on the 25%? I tried a lot of calculators online and all come up with huge tax bills.

[@MeaningfulMoney]

@@jimtalltheislandbrothers6639 Absolutely right - I promise! Be careful with online calculators. There are a couple of different ways to take money out of a pension fund. So let's use your example of £200,000 fund. You could take the £50,000 tax-free cash and drop it into your bank account. ZERO tax implications. The remaining £150,000 goes into a drawdown pot - exactly the same as your pre-retirement pension pot, just with the facility to pay you an income. Anything you take from that pot will be taxed as income. So if you entered £200,000 into the calculator as a withdrawal, it would work out that £50k was tax-free, and the other £150k was paid out to you in a single year - hence the massive tax bill. It would be like you earning £150k in a year. Seek advice on this, Jim - it's too big a decisions to get wrong, so you need to be totally happy you know what you're doing, or seek advice from a competent professional.

[@jimtalltheislandbrothers6639]

@@MeaningfulMoney OK. Will get some advice. I have a few years yet but will do when the time comes. Thanks for your help on this.

[@slayerrocks2]

Any income you take from your pension, outside of the tax-free amount, will restrict your ability to continued pension savings. Currently you can get tax relief on annual contributions, upto £40,000. That would reduce to £4,000. Look up MPAA.

[@insertnamehere5146]

Thanks for the video which i have only just found thanks to youtubes wacky algorithm!. i assume you are talking about Defined contribution pensions and not defined benefit pensions (final salary)when talking about death benefits. As far as i can see, if i retire at 60 and die at 61, the pension fund gives my wife half my pension until her death. if she dies shortly after me then the fund keeps the lot which in my case is a half a million pot!

[@MeaningfulMoney]

Yep, this video relates to DC pensions

[@normangt]

I thought all the profit on the USA from shares can be taken out tax free. You can’t do that with a pension

[@sheraziqbal9556]

How to you pay more than 40k a year into your pension if you havent maxed out the previous 3 years tax relief. So for 3 years you've paid 10k in your pension. So can you pay an additional 90k + 40k in one year an get tax relief on all?

[@MeaningfulMoney]

Yes, as long as you have relevant earnings in the year of (in this case) £130k. The amount of personal contribution you can pay into a pension is limited to 100% of your relevant earnings in the year of contribution, even if you have carry forward allowances you could use. It’s different for employer contributions, which is why pensions are such useful vehicles for business owners…

[@martynparfect8571]

Perhaps if income is required you could put £20,000 tax free cash into an income fund in an ISA. The income is tax free.

[@robjohnferguson]

Can you use the ISA to mitigate higher tax bracket implications of pension?

[@MeaningfulMoney]

Not 100% sure what you mean here

[@robjohnferguson]

@@MeaningfulMoney well, you can trickle money from your ISA to keep your pension income in a lower tax bracket (UK)

[@AnthonyWilliams-ew3wp]

I’ve got my eye on a second hand Ferrari 458. Oh, the temptation. Unfortunately, I’m married. And she’s from Yorkshire.

[@seancurran8108]

For me one of factors is I don't trust them not to change the rules. All these pension freedoms are only recent and they can change them at any time. I would take the tax free money and invest it somewhere they can't touch it.

[@MeaningfulMoney]

Fair enough. Legislative change is always a risk…

[@andyonions7864]

If you're thinking you might hit the LTA in a SIPP then you'd surely have to think about pulling it out tax free to put it in an ISA. Obviously that's 20k per year limit on a £1.07 million problem, but every little helps. Equally, leaving it in a SIPP isn't fully tax free at death, especially if you hit the LTA. As far as I can see, at the LTA you get screwed, hard.

[@MeaningfulMoney]

There's a lot of nuance to what you *could* do as the LTA approaches. Everyone's situation is different, and the actions one should take will be different to the next person. I am, however, fairly sanguine about the LTA as most people pass it due to investment growth and employer contributions and there are still significant benefits in terms of flexibility and IHT to having a big pension fund...

[@SteveInskip]

For me you only take out a lump sum to pay off high interest debts like mortgages, car loans or credit cards, so as to be as free as possible of unnecessary outgoings at retirement………or to buy a new motorbike! 😉😉

[@steviejd5803]

I love the motorbike option. What would you go for? I’m looking at the new Yamaha GT9..plenty of room and enough for two up trips with my girl.

[@SteveInskip]

@@steviejd5803 actually I wouldn’t as I’ve already got the 2 that I most wanted, Morini Corsaro Veloce and Honda CRF450L. As you can guess, I don’t, by choice, take anyone on the back, although if the Swedish Ladies Beach Volleyball team car had broken down and they needed a lift to the sauna I’d find room somehow for both of them 😂😂. The GT9 looks superb and Yamaha know how to build a bike! The motorbike option is based on the fact that you do need to be reasonably sensible with money, but you also need live your life. Cheers bud!

[@steviejd5803]

@@SteveInskip Hey, let me know if the Swedish Ladies need a fellow biker to help!! You’ve got two great bikes: I agree about riding solo, it’s much better and you’re simply in tune with the bike. My pillion loves a ride but she won’t sit still. Cheers.

[@nearlyretired7005]

A mortgage is a very LOW interest debt.If you take out a lump sum to pay off all those debts then you would have made some bad financial decisions. Pay all these of BEFORE you retire. Always live within your means,if you can.

[@SteveInskip]

@@nearlyretired7005 it is at the moment, don’t bank on it staying there. I reckon I paid about 30% total interest over the years and it was one thing I was glad to get rid of before I was 60 as the Endowment was a few grand short. I don’t have any other debts. My first pension kicked in at 60, (that was Maggies opt-out scheme), French State will kick in at 62, 3rd and 4th British workplace pensions kick in at 65, and British State at 66. Oh and I did a bit of property development in the 90’s so ended up with about a million euros worth of property.

[@jamesfagan7823]

Money has the world fucked up

[@Colin623]

I am already retired but still have an ongoing pension which I don't contribute to, but can I take out the 25% portion and still be tax free ? Cheers.

[@MeaningfulMoney]

Yes, but seek advice if unsure. You can have a conversation with your pension provider about what you can and can't do.

[@Colin623]

@@MeaningfulMoney Thank you, will do.

[@alisonnorcross951]

The trustees had a management buyout so it is with another company. I can take 25% cash free lump sum now and only, with reduced pension or take slightly more pension. Then the man said I could transfer all of it in total to get at the money. What would you do. ?

[@PeteMatthew]

Can't answer that here, Alison. I suggest you take advice - this is too important to get wrong. Look for a Certified or Chartered financial planner; someone who isn't just interested in what they can sell you, but planning how to optimise your choices at retirement.

[@alisonnorcross951]

@@PeteMatthew I think as I don't want to start thinking about stocks and shares and I need the money so think I ll keep the pension. I was always a basic tax payer and if I add the amount to the basic state pension I will be over the personal allowance. I d probably think I LL take the tax free lump sum to reduce the tax on the income. I worked out I would get £22.00 pounds a week and I m thinking of buying a BTL with the cash as s deposit. As I already bought a couple . Only with deposits though.

[@craigross341]

The key question is whether you're *ever* going to want to spend the money, or whether you intend to pass it on to someone other than your spouse AND you've otherwise got an inheritance tax problem AND you've over £12,500 a year total income. i) Leaving to someone else not your spouse and you've an inheritance tax problem? Leave it in the pension. ii) Taking an income, but total income is below £12,500? It makes no difference, but probably leave it in the pension. iii) But if you want to take an income AND your income is otherwise over £12,500 then taking the tax free cash and filing it into an ISA makes perfect sense. If you'd £400k in your SIPP and took £100k and stuck it into ISAs (with the same £4,000 annual dividends), a basic rate taxpayer is up £800 a year.

[@brianmills7507]

You would have to take a more gradual route with the ISA due to the £20,000 limit but I agree that in (iii) above the ISA route is better. If you can use the ISA allowance of a spouse or partner you could invest £40,000 between the two now and on 6th April invest another £40,000 so you could get close in a short period of time given the right circumstances.

[@skf957]

Take the 25% tax-free cash, invest it in a stocks and shares ISA, take the dividends (around 4%-5% pa) tax free. The capital, over the long haul, should appreciate and will not be subject to CGT. So no, I do not agree with your analysis.

[@marka87]

Can you spread the 25% of the fund out over a number of years or must it all be taken in one go?

[@stevebrown7281]

You can take the 25% out how ever you like over years if that suites go carefully though a Labour government would probably stop it who knows a skint Tory government might I will be taking my 25% out in exactly 16 months just in case👍

[@davidpearson243]

Steve Brown why would you say A Labour government would change this When we have the most useless tosser in charge give me Labour any day than this lot You obviously a Daily Mail reader

[@jeffzuess9149]

@@davidpearson243 every party seems to show more incompetence than they should. It becomes a dilemma of voting for the least worse of a bad bunch.

[@flappingarms9335]

@@davidpearson243 look what Gordon Brown did to pension savers. The biggest shafting ever!

[@davidpearson243]

Flapping Arms all he did was stop tax relief on dividends !!!this billionaire Sunak is going to remove the charge cap (0.5%)on pensions so his mates and Tory backers can make even more money off working people it’s absolutely disgusting what this rotten lying government is doing to ordinary people

[@paulacollins8327]

Would the same apply re db pension?

[@MeaningfulMoney]

Different animal entirely. Lots of DB schemes don’t give you the choice - you HAVE to take the lump sum, other give you more flexibility. The premise is the same though - don’t take the lump sum just because it’s there, consider what’s best for your circumstances.

[@IsThisAvailable550]

Great video, thank you. Is the 25% available for EACH pension? I have a main pension but also have two smaller pensions that haven't been worth or possible to merge into the main one. With that being said, if it's for each pension, could I draw 25% from one of the pensions this year & then 25% from another next year?

[@stevebrown7281]

No it’s across all of your pensions so total all up and you can withdrawal 25% tax free👍

[@adamsaunders9876]

I disagree with the other answer but don't for sure but logically the 25 percent tax free runs out to pretty much the same amount if you take 25 percent from each individually or add them up and then take 25 percent

[@davidplanet3919]

Hmmm two words that might change the answer: Lifetime Allowance.

[@andyonions7864]

I just posted a comment that boils down to this.

[@kickstartedwards6916]

Can you legally pay any part of your tax free lump sum into your partner's pension ?

[@MeaningfulMoney]

Yes. As long as your partner has the relevant earnings to justify the contribution.

[@bigshort9296]

Great video, thanks. The point about the tax free sum is if it is removed in future, there is a political risk that may make people exercise the option now in case it disappears in future. Pensions are high risk at being used as a pawn for the politicians. Seems to me stability in pensions is important and they are constantly being raided o fund the government’s current spending. There is surely an argument to take such a substantial benefit while it is still available.

[@MeaningfulMoney]

All good points, Stuart. I just think that making any decision because of something that may or may not happen is a skewed priority. You know this, I know, but it’s vital to consider one’s own needs first before trying to outsmart the system, future legislation changes and the Fates.

[@LookatBowen]

But... what if the money is in a pension that is managed by a pension provider, and you want to take the 25% and dump it into an ISA to invest yourself?

[@broadleyboy2]

I think you need to listen to the video again . If you have no likelihood of inheritance tax on your estate you could do that.. Are you sure you would make more ?

[@Jeffybonbon]

I am 3 years away from state pension at 66 it is my intention to take my tax free cash to fund retirement ie if I have 100k in my penison i take 5K tax free for five years my reason is simple I want to carry on funding my pension after i start takeing Tax free money I am takeing my sipp money at age 65 and then I will get my state pension SIPP is so good for me I can strip my company of profits and I can build up a large sum as I go sheilded from tax and then when i pass on I can pass down my SIPP avoiding IHT so no one size fits all you need to plan what you want to achive I just hope I last past 75 to make the most of pension funds and after 75 I can switch on the full pension around 4% draw down will work well and stay invested

[@anthonygebala1198]

Take it take it take it 😁

[@unclegeorge7845]

What country?

[@MeaningfulMoney]

UK

[@unclegeorge7845]

@@MeaningfulMoney Yeah; The pounds kind of gave it away. Something up front would be nice. Thanks

[@malcolmlane-ley2044]

Let's hope Phil is a fictitious person to make a story about; this year I made a 20% growth on my SIPP vs. I could have had less than 2% with an ISA

[@MeaningfulMoney]

The returns are not dependent on the wrapper, that is SIPP or ISA, but on your chosen underlying fund. If you choose the same fund in both wrappers, and if the charges are the same, you would get the same returns. Pensions generally win because of the tax relief.

[@bricktop2090]

I’m taking the lot out” the Whole 100% pension 😳

[@normangt]

Should be ISA not USA

[@philattlee1]

All this assumes you are going to live a reasonable amount of time. My wife drew her tax free sum from her pension. She died unexpectedly only 2 years later, pension payments ended, but at least had the 25% we could draw. Food for thought.

[@broadleyboy2]

Sorry for your loss . Sounds like your wife has either a company pension or had bought an annuity if the rest of the fund was not available . He is talking about a SIPP where on death before 75 the whole fund is paid out tax free on the pension holders death before retirement or where after 75 the fund can be drawn down as income .

[@hants1]

My pension company will only let me have 25% of what I take out tax free.So if I take out 10k I will have 2.5k tax free.The rest you get shafted at 40%.

[@MeaningfulMoney]

That's not your pension company, that's HMRC rules. And yes, the rest is taxable as income in the year you take it, but pensions are flexible, so you may be able to stage when you take the money out only to pay basic rate tax. Also, if you never spend your fund, it can be left very tax-efficiently to your beneficiaries when you die. Finally, don't forget you get paid to put money into a pension in the form of tax relief, so HMRC is helping you make your pot grow. It's swings and roundabouts, but pensions are still the most tax-efficient way to save...

[@insertnamehere5146]

hants as far as i can see, whether you take it as a lump or monthly/yearly once you exceed the 25% you pay tax. This is because you never paid any tax on the money when you contributed it from your gross NOT your net pay in the first place. HMRC is just getting back what they think is rightfully theirs!!!!

[@hafiseanwar1366]

I would take the Tax free cash lump sum and purchase Physical Silver, 1oz Britannia coins, held in your own possession! One eventually selling your coins, they are exempt from any Capital gains Tax as the coin is recognised as legal tender currency! Silver is the most under valued asset on the Planet right now and in Percentage terms will increase in value more than Gold!

[@jgobin]

Don't you have to pay VAT on them?

[@AG-so4gl]

Tax twice, no thanks. There's ways and means