Drawing down lump sum from pension

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lukegriffen

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I'm 55 & have my own company pension , so I'm able to draw down a 150k lump sum. I don't need this money for anything in the near future, so the only reason I can think of to draw it down is to just move it from a life company charging 0.75% fees to somewhere like degiro with much lower fees.
Are there any reasons why I should just leave it in the current pension & wait until I need the money? I'll continue working for the next few years. Thanks in advance
 
Can you not continue to contribute to the pension?
If you draw it down, would that not prevent further contributions?

The only other reason I could think of would be a change in the legislation reducing the tax-free lump sum.

Brendan
 
lukegriffen said:
Are there any reasons why I should just leave it in the current pension & wait until I need the money?
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The main reason is that it can grow tax-free while it remains in a pension fund.

If you have no particular need for the money now (for example, to clear debt), then I think you should leave it alone until you retire.
 
time to plan said:
Agreed. The tax on any gains after drawing down would dwarf the 0.75% annual fee.
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Would it though? Id love to see a calculation on this. Heres my basic understanding.

0.75% of 150k is 1125 per annum. Not once off, each yr.

Cgt of 33% on a gain after draw down. Say 150k grew by 4% thats 6k then at 33% is 1980 once off not per annum

I think 0.75% per annum on fund balance can add to a lot
 
ArthurMcB said:
Would it though? Id love to see a calculation on this. Heres my basic understanding.

0.75% of 150k is 1125 per annum. Not once off, each yr.

Cgt of 33% on a gain after draw down. Say 150k grew by 4% thats 6k then at 33% is 1980 once off not per annum

I think 0.75% per annum on fund balance can add to a lot
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But you are assuming 4% growth for only one year.

If 150,000 grew at 4% for 10 years it would be 222,000.

Meaning CGT of 23,760 (33% of 72,000)
versus 1125 x10 = 11,250
 
And what would the annual charge be for the fund outside of the pension? Presumably its not zero.

And is there an annual CGT allowance to take into consideration, assuming it's not already being used by other gains?
 
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k06351000 said:
But you are assuming 4% growth for only one year.

If 150,000 grew at 4% for 10 years it would be 222,000.

Meaning CGT of 23,760 (33% of 72,000)
versus 1125 x10 = 11,250
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Yeah there are a few assumption but even you modestly increased that 0.75% charge to 1% the 11k becomes 15k. So hopefully you see where im going. Adjust any of the assumptions even modestly and its difficult to see how tax on gain "dwarfs" management fee. It doesnt really dwarf it at all.

Thats why i said it woukd be goog to see real world realistic numbers used as i may not be using realistic assumptions.
 
ArthurMcB said:
Yeah there are a few assumption but even you modestly increased that 0.75% charge to 1% the 11k becomes 15k. So hopefully you see where im going. Adjust any of the assumptions even modestly and its difficult to see how tax on gain "dwarfs" management fee. It doesnt really dwarf it at all.

Thats why i said it woukd be goog to see real world realistic numbers used as i may not be using realistic assumptions.
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ArthurMcB said:
Yeah there are a few assumption but even you modestly increased that 0.75% charge to 1% the 11k becomes 15k. So hopefully you see where im going. Adjust any of the assumptions even modestly and its difficult to see how tax on gain "dwarfs" management fee. It doesnt really dwarf it at all.

Thats why i said it woukd be goog to see real world realistic numbers used as i may not be using realistic assumptions.
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Ya maybe dwarf isn’t the right word, but still seems in the pension assuming any sort if growth.

Those figures were only for 4% growth for 10 years. I’m sure 8% over 15 would be a much bigger difference.

150,000 @8% for 20 years = 700,000

CGT - 550,000 @33% is 181,000

In a pension the fees would be at most 40 or 50 thousand, Which in fairness is astronomical and more than I would have realized
 
But 8% growth is very optimistic and of course tips the scale towards investing outside a pension. Over 20 yrs one could possibly harvest the annual personal cgt exemption (including for spouse) which reduces tax by about 40k. Rough figures but possibly reasonable.

Also over 20 yrs at 1% pa on a significant pebsion fund it would be a lot more than 50k in total. A lot more.
 
Gordon Gekko said:
Arguing about whether it’s better to invest inside rather than outside of a pension structure is beyond ridiculous.
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That is not what is being debated. I dont think anyone disagrees that investing in a pension wrapper makes sense versus outside a wrapper.

The question is - at retirement is it better to draw down and invest personally (and pay cgt) or leave it in pension (paying pension fees).

If fund is say 800k at retirement and you take 200k lump sum. On an annual basis ŵith a mngt fee of say 1% that'd be 2k per annum in mngt fees.

If invested outside pension with say 4% growth that'd be an annual gain of 8k (less say 2k of tac credit for a couple) is 6k at cgt of 33% is about 2k. So roughly similar.

I might be oversimplifying it but i dont see the huge advantages of leaving it a pension given the mngt charge, in this example. Of course all numbers can be tweaked but it isnt clear cut.
 
ArthurMcB said:
If you use de giro etc i dont think youre paying an annual mngt fee as Its DIY
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You also need to put a zero value on your own time and have no value on diversification (we've established that investment trusts aren't being used as their is no management charge assumed). Presumably only securities with no dividends or coupon are being utilised.
 
Fortune said:
You also need to put a zero value on your own time and have no value on diversification (we've established that investment trusts aren't being used as their is no management charge assumed). Presumably only securities with no dividends or coupon are being utilised.
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Im not sure i fully understand this post.

The premise I am suggesting is that investing through de giro or what have you and paying cgt isnt much worse or even worse at all versus through a pension where the assumption is that there is a mngt fee.

Assumptions:
Mngt fee =1%
Cgt = 33%
Cgt relief + spouse =2k approx
Modest Growth 4%

Mngt fee wouldnt apply if investing through de giro.

Cgt wouldnt apply through pension.

Does it make sense to take ones lump sum and invest through de giro or to leave in pension fund, is the question, i think.
 
I think there is confusion here

You are asking about the tax free lump sum and whether or not withdraw it or leave it there? The remaining larger amount you plan keeping inside the pension.

If you withdraw the tfls you pay zero income tax.

If you leave it there (is that even possible?) Then you end up paying income tax when you withdraw it.

So basically, withdraw it
Invest it
Pay cgt or dirt as applicable
 
I have concerns about what our next Government might do, assuming SF get elected, so I think I'd be looking at getting the tax free lump sum out, tbh.
 
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