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Crystalise and ISA

Lemon Slice
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Crystalise and ISA


Postby NeilW » November 14th, 2020, 1:17 pm

Anybody looked into switching a SIPP in parts into drawdown and drawing out the tax free lump sum as soon as possible, with a view to putting the tax free amount into ISAs?

Given the steady run down in retirement pot benefits, ISTM the best thing to do is lock them in early.

From what I can tell changing the state from uncrystallised to crystallised doesn't really change anything other than you can get your hands on the 25% cash.

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Re: Crystalise and ISA


Postby swill453 » November 14th, 2020, 3:21 pm

NeilW wrote:Given the steady run down in retirement pot benefits, ISTM the best thing to do is lock them in early.

Which retirement pot benefits have been run down and affected you? I can't think of any changes that have affected me to my detriment.


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Re: Crystalise and ISA


Postby Chrysalis » November 14th, 2020, 4:15 pm

The main downside to taking out the 25% as soon as you can, is that you are likely to end up with a smaller tax free lump sum than otherwise (assuming your funds grow, on average). This can make sense if you are about to breach the LTA, but otherwise doesn’t seem sensible.
The principal of pulling out the tax free cash to fund an ISA is fine, but I don’t think it makes sense to crystallise more than you need before you need it. So you could crystallise £80k per year, take the £20k tax free cash for ISA and leave the rest until you need it.

There are of course other complications, whether you are still contributing to pensions and ISAs from earnings etc.
Be aware that once you take any taxable money from a drawdown arrangement you are limited to tax relief on £4K of contributions per year (the money purchase annual allowance).

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Re: Crystalise and ISA


Postby ReallyVeryFoolish » November 14th, 2020, 5:28 pm

Only thing not mentioned so far is loss of IHT exemption whilst the assets are in a pension fund wrapper as opposed to a SIPP. That may or may not be an issue.


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Re: Crystalise and ISA


Postby hiriskpaul » November 14th, 2020, 6:45 pm

A couple of other things I can think of that you might want to consider.

If you do a partial crystallisation you may end up with 2 pension pots where you previously had one. One uncrystallised, the other in flexi-access drawdown. That may result in 2 sets of charges. Not all pension providers do this, but mine (Hargreaves Lansdown) does.

Should you apply for benefits, Council Tax relief or have a care assessment, assets within a SIPP are treated differently and in general more favourably, to those outside a SIPP.

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