Safe home for tax-fee lump sum from pension

[FazerBoy]

I’m thinking of taking the full TFLS from my pension pot. I will then commence drawdown from the remainder.

Where does one place a large sum such as this so that it accumulates interest or dividends etc - but more importantly is safe in the unlikely event of the bank or other financial institution going bust?

I really would prefer not to faff around with splitting it up into chunks of £85,000 and lodging it in various places unless that is the only sure way. I’m not that bothered about getting the absolutely best returns - but I want it to be safe.

I’m not particularly financially savvy - so really any advice regarding the best way to deal with the lump sum generally would be appreciated. I envisage being able to cover living expenses with the drawdown amount, and using the lump sum for luxuries, holidays, unexpected expenses etc - so don’t want it locked away too tightly.

Thanks

Jack

[LastPoster]

Protection is £120 k now so only 2 and a bit chunks

[butchstewie]

NS&I if that's your concern.

[Sheepshanks]

Do you need to take it, and are you at the max tax-free amount?

[Lotobear]

I'd consider UFPLS or phased drawdown, it is usually more tax advantageous and you will still see some growth from the undrawn portion going foward

[Mazinbrum]

Why not just take it from your pension when needed? The same investments in an ISA are available in a SIPP.

[C69]

Sheepshanks said:

Do you need to take it...

That was my first thought.

I would think very carefully before taking the full 25% in one go, especially if you don't have any specific plans for it. If you were to put it in a 'safe home' such as NS&I, there is a real risk that the value of your lump sum will be eroded over time thanks to inflation.

There are lots of things to consider. I'd suggest having a look at this as a starting point: https://www.moneyhelper.org.uk/en/pensions-and-ret...

[FazerBoy]

Sheepshanks said:

Do you need to take it, and are you at the max tax-free amount?

Well, I’d like to - and yes.

[Sheepshanks]

FazerBoy said:

Well, I d like to - and yes.

Fair enough - there's no scope to grow it further tax free.

I think the most safe option is NS&I - guaranteed by the Government up to £4M.

[PoorCarCollector]

There's a strong argument if you've reached the TFLS max amount and expect to be a 40%+ taxpayer in retirement, to then take the lot out in one go.

Then keep that in a GIA and drip feed into ISA etc

This is obviously assuming CGT isn't aligned in the future with income tax.....

[FazerBoy]

PoorCarCollector said:

There's a strong argument if you've reached the TFLS max amount and expect to be a 40%+ taxpayer in retirement, to then take the lot out in one go.

Then keep that in a GIA and drip feed into ISA etc

This is obviously assuming CGT isn't aligned in the future with income tax.....

Yes, this is where I’m at. I will be a top-rate taxpayer in retirement, and so that is my thinking.

A ‘good ‘problem’ to have of course, so I’m not complaining.

So it looks as though the safest thing to do is just put the whole £250,000 into NS&I for safety purposes.

[Rollin]

Low coupon short dated Gilts

[PoorCarCollector]

Rollin said:

Low coupon short dated Gilts

This is what I'm doing, very tax efficient for higher rate tax payers

TN28 is getting 4.15-4.3%ish NETT

You'd need a savings account paying over 7% to get the same return!

[Courser]

I took the max tfls and bought a house with it.

My spider senses were twitching that a govt was getting ready to dick about with pensions
That and once the lta was abolished crystalising the lot wasn’t an issue.

[sto66]

butchstewie said:

NS&I if that's your concern.

This

[Wombat3]

FazerBoy said:

I m thinking of taking the full TFLS from my pension pot. I will then commence drawdown from the remainder.

Where does one place a large sum such as this so that it accumulates interest or dividends etc - but more importantly is safe in the unlikely event of the bank or other financial institution going bust?

I really would prefer not to faff around with splitting it up into chunks of £85,000 and lodging it in various places unless that is the only sure way. I m not that bothered about getting the absolutely best returns - but I want it to be safe.

I m not particularly financially savvy - so really any advice regarding the best way to deal with the lump sum generally would be appreciated. I envisage being able to cover living expenses with the drawdown amount, and using the lump sum for luxuries, holidays, unexpected expenses etc - so don t want it locked away too tightly.

Thanks

Jack

Just to check that you know that you do not have to take your TFC in a lump sum unless you want to or have an immediate use for it - but it sounds like you don't.

Assuming you are not at the limit i.e. a pension of a bit over a million that would max out the TFC allowed at £268K then you might be better off making UFPLS withdrawals where say you want £20K , 25% of it will be from TFC and only the remaining £15K will be taxable.

The rest of your fund then stays uncrystallised and the TFC element can continue to grow. If you draw down this way then you should ultimately get more TFC than taking it in one hit assuming the fund continues to grow.

If you take 25% of whatever your fund is at out in one hit as TFC then that's it for TFC, you don't get any more, even if the remaining funds continue to grow.

You can mix & match the withdrawals as well - say take 50% of your available TFC in one hit and then leave the rest in to be drawn down via UFPLS.

If you do take it then the FSCS protection limit is now £120K or £240k if you put it in a joint account.

Edited by Wombat3 on Wednesday 14th October 01:24

[FazerBoy]

Wombat3 said:

Just to check that you know that you do not have to take your TFC in a lump sum unless you want to or have an immediate use for it - but it sounds like you don't.

Assuming you are not at the limit i.e. a pension of a bit over a million that would max out the TFC allowed at £268K then you might be better off making UFPLS withdrawals where say you want £20K , 25% of it will be from TFC and only the remaining £15K will be taxable.

The rest of your fund then stays uncrystallised and the TFC element can continue to grow. If you draw down this way then you should ultimately get more TFC than taking it in one hit assuming the fund continues to grow.

If you take 25% of whatever your fund is at out in one hit as TFC then that's it for TFC, you don't get any more, even if the remaining funds continue to grow.

You can mix & match the withdrawals as well - say take 50% of your available TFC in one hit and then leave the rest in to be drawn down via UFPLS.

If you do take it then the FSCS protection limit is now £120K or £240k if you put it in a joint account.

Edited by Wombat3 on Wednesday 14th October 01:24

Thanks. I am over the limit as it stands - so I am thinking of taking the full £268k.

As Courser mentioned above - I am a little concerned that the rules regarding the TFLS could change if I leave it within the pension wrapper.

Anyway, thanks to all who chimed in. Some food for thought there.

[alscar]

If you decide to take the whole £268k out you are covered by the FCS temporary balance protection for up to £1.4m for 6 months.
You can therefore put all of it with one provider immediately and then take your time to decide how and where to put it longer term.
I took mine ( larger as had FP ) just before the GE and put it with Shawbrook Bank as they were paying the highest instant access rates.
I took mine to give to my children as early inheritances towards their house purchase funds so didn’t need it for longer than that.

[Wombat3]

FazerBoy said:

Wombat3 said:

Just to check that you know that you do not have to take your TFC in a lump sum unless you want to or have an immediate use for it - but it sounds like you don't.

Assuming you are not at the limit i.e. a pension of a bit over a million that would max out the TFC allowed at £268K then you might be better off making UFPLS withdrawals where say you want £20K , 25% of it will be from TFC and only the remaining £15K will be taxable.

The rest of your fund then stays uncrystallised and the TFC element can continue to grow. If you draw down this way then you should ultimately get more TFC than taking it in one hit assuming the fund continues to grow.

If you take 25% of whatever your fund is at out in one hit as TFC then that's it for TFC, you don't get any more, even if the remaining funds continue to grow.

You can mix & match the withdrawals as well - say take 50% of your available TFC in one hit and then leave the rest in to be drawn down via UFPLS.

If you do take it then the FSCS protection limit is now £120K or £240k if you put it in a joint account.

Edited by Wombat3 on Wednesday 14th October 01:24

Thanks. I am over the limit as it stands - so I am thinking of taking the full £268k.

As Courser mentioned above - I am a little concerned that the rules regarding the TFLS could change if I leave it within the pension wrapper.

Anyway, thanks to all who chimed in. Some food for thought there.

In which case I'd give serious consideration to taking a lot of it out.

I have taken a fair chunk of mine out to fund a building project but I've then left a chunk to take as income via UFPLS.

Best instant access account I know of at the moment is Cahoot (Santander) with a bit over 4%.

[FazerBoy]

Thanks for all the advice!