Welcome to my personal finance-focused channel, where I apply critical thinking and analysis to every topic as I learn about them. Just like many of you, I started my personal finance journey as an average Joe, completely unaware of the complexities of personal finance planning. My professional background lies in energy systems modeling, but it's my passion for self-improvement that brought me to the world of personal finance and I want to build tools and help people improve their finances and mine too along the way!
I called this more than twenty years ago, I had four private pensions when I was younger and then one day I decided to do the maths and when I did I was gobsmacked at the results. Using the published retail index data and rates of inflation that are issued each year I sat and calculated the value of all the money that I placed in my pensions each year and then calculated what the val of that money had become over the time that it had been invested in the pension and low and behold, it’s value was far less that it was when I placed it in the pension.
If you have a SIPP, is there any real world difference between the "pension pot" (with UFPLS) and "drawdown account" (with flexi-access drawdown)? Presumably the undrawn monies remain invested in exactly the same account (assuming you don't want to withdraw a large lump sum from the 25% tax free portion).
So the SIPP is your pension pot where you can withdraw either through UFPLS method or drawdown (or take an annuity). In case of drawdown you take the tax free cash but might need to create a drawdown account to reinvest the taxable part (any surplus). For example here’s how that works at vanguard: www.vanguardinvestor.co.uk/investing-explained/flexible-income
@@IncomeBoost42 - Thanks, but the link seems to imply that with flexi drawdown you have to use one of the provider's investment pathway funds for the crystallised monies still in your pot. Other SIPP providers seem to suggest I would still in charge of my investment decisions, i.e. no different from UFPLS, unless I'm reading it wrong. Specifically if I take £16760 (25% tax free & 75% taxed but within the personal allowance) each year from my pot, do I have to put any other part of my pot into a separate flexi drawdown account & have others choose how that's invested?
@Benzknees You’ll get to choose how it’s invested. That said, the Vanguard platform has traditionally has only offered their branded funds - so limited choice there. You can take £16,760 without having to create a drawdown account, that’s what UFPLS is really for. £16,760 is a nice figure because it means you’ll usually pay no tax. However, if you need to withdraw more then FAD offers further tax benefits worth considering. Also remember UFPLS automatically triggers MPAA i.e. annual pension contribution limit falls from 60k to 10k. This can potentially be avoided with FAD.
@@IncomeBoost42 - Thanks for clarifying. Regarding MPAA presumably you mean this is avoided if you only drawdown the 25% tax free portion of your SIPP?
You could just replicate UFPLS using FAD as you mention at the end of the video but don't show a worked example. Just take the tax-free cash and taxable income up to the £12570 limit as shown in your previous video. Flexi-access is just that..Flexible! Looks like you engineer the outcome by insisting on just taking tax free cash from FAD. I can't see any advantage to UFPLS if you take drawdown income up to the tax-free amount. As long as the pot is big enough to crystallise into drawdown.
I'm 54 and my wife and I are VERY worried about our future, gas and food prices rising daily. We have had our savings dwindle with the cost of living into the stratosphere, and we are finding it impossible to replace them. We can get by, but can't seem to get ahead. My condolences to anyone retiring in this crisis, 30 years nonstop just for a crooked system to take all you worked for.
I feel your pain mate, as a fellow retiree, I’d suggest you look into passive index fund investing and learn some more. For me, I had my share of ups and downs when I first started looking for a consistent passive income so I hired an expert advisor for aid, and following her advice, I poured $30k in value stocks and digital assets, Up to 200k so far and pretty sure I'm ready for whatever comes.
@@imohimoh3441 The crazy part is that those advisors are probably outperforming the market and raising good returns but some are charging fees over fees that drain your portfolio. Is this the case with yours too?
Thanks. Many pension fund providers already have this cost factored in their account management charges and as far as I am aware there isn’t a specific charge for accessing your pot through fad or ufpls, although some may not offer ufpls for example. Worth asking your pension provider specifically as they should be upfront and transparent with their fees.
Can I just ask if you use FAD & took out smaller amounts to use up the tax free cash over a longer period, would the main pension pot still grow and compound and so then when you come to take out another amount of 20%, it would be greater overall as well. e.g. if you crystalise 20% of your whole pot every two yrs and only withdraw the 25% portion, crystalising the rest in the drawdown pot, wouldn't the next 20% of the pot be larger due to compounding?? Just wondering as this would mean that over all if the pot remains growing, then you would end up being able to take more than the 25% of tax free cash overall?
Yes that’s correct, your uncrystallised pot grows due to compounding and you can withdraw 25% of that as tax free cash. So the more it grows the more tax free cash is available. However, please remember there is a total limit to how much tax free cash you can take in your lifetime, aka the lump sum allowance, which is currently £268,275. So if your pension pot is £1,073,100 or more, there isn’t additional tax free cash compounding that happens because you would have hit that limit.
I think people can stand living in the UK if everything is working - low crime, affordable housing, NHS, good transport infrastructure. But now all those things are in serious decline, I think people are noticing just how grey and miserable this damp little island actually is…
Majority of English people have been leaving the UK for the longest to invade Australia 🦘 which most in Australia can trace their history back to the UK and Ireland from convicts to pommes.
I am from the UK, (left obviously), I think they fudged those crime statistics, even if they didn't if you go to the UK police map that shows all the crimes that happen in your postcode, just look at how many actually go unsolved, the majority, they just get you to fill out a statement and on their way they go.
The biggest ‘trap’ that the government catch pensioners with is in not increasing the personal allowance! As pensions increase by various percentages related to earnings etc (the Triple Lock) then those on small pensions like millions of us are having to pay more and more in tax! We were ‘conned’ by governments in the past to ‘do the right thing’ and save to provide for our retirement and received some tax relief for doing that, which would mean we wouldn’t claim any benefits in the future and save the government money. Now, due to the treasury fiddling the personal allowance we are having to pay that tax relief back and are actually getting poorer and poorer in spite of all the propaganda around the Triple Lock etc! This country is a disgrace the way it treats its pensioners on small and moderate pensions!
We retired to Cyprus 20 years ago, and it's the best thing we ever did financially and health wise, and pay peanuts in income tax on our pension's ! So the best thing to do is escape from the 'YUK' ASAP when you retire ! Oh our Council Tax is only €170 a YEAR and we get our bin emptied twice a week !
Anyone who is young enough and has the skills that are wanted/needed in Australia and or NZ should say get the heck out. I retired in 2013 and left but to live next to only brother in a rural area near the sea (North Sea) in North Germany. Its still 99.9% German here with more retired Germans moving in after buying plots of land and building their houses. We are 90 kms from Bremen
I will never leave the UK I was born and bred here and nothing and nobody will push me out no matter how bad things may get even with all these illegal migrants this is my country born and bred 100% British and proud
This is no more England. So many good people are leaving. Just don’t make sense. This country is not run well and just change for everything. There’s no life.
@@Stephen-lx9nm In tech you'd be very lucky to get a week's annual leave and often you wouldn't even get your entire weekend to yourself. Many commenters on here don't seem to realize that the entire Western world is in a mess. The UK is actually relatively better than the rest.
@@Glenn-ei3xp You don't seem to have travelled much. I know single people working for Google in Sunnyvale on $200k who hardly save a penny and describe working conditions in the US as 'modern slavery'. Let's not even talk about the tent cities there. Canada is in an even worse state.
@@jimbocho660 ok, got nothing to do with me. Wrong part of the world. And I have travelled a lot. I’ve seen the hole that london now is. So get off your high horse. We all know that the UK is a complete joke these days.
As has every single race on the planet. What's your point? Go find everyone and punish them for things done before they were born? Your an idiot and a racist. Nothing more, take your 2 iq whining back to your corner and pretend someone cares.
Its not correct to state Tax is needed to pay for essential services. Many would be much cheaper and better if run by private companies...one notable exception would be the water supply which would be better off managed by the State but for normal things like roads, rubbish collection etc it's 30+% cheaper if farmed out directly to a private company. The govt adds unnecessary cost and bloat for most essential services
After the Robert Maxwell pension scheme theft decades back, I just stuck with a state pension. Seeing the employment trap of 'work until you're useless', I burnt my bridges and bought a small acreage at age 45. Planted woodland and orchard, eventually got lawful residence under the Four Year Rule, and now have started coppicing my first trees after 18 years. Free heating fuel for life, offgrid solar, springwater supply and even though I've only managed 60% of my N.I. contributions, the other 40% would have been lost to bills in a conventional residence, so I haven't lost out. Less is more.
@@IncomeBoost42 Harmony and 'embattled' with nature, are two sides of the same coin. But as I'm merely the steward of my land in my lifespan, I can only work with forces greater than I and never control. Lady Nature's taught me a lot.
Hi, I did things differently. Worked from 18, 2 years in FE so these get taken off the 35 years needed. Full pension due at 56, even with contracting out. Claiming small DB pension, so it gets the yearly increase. Still working and saving for retirement. Finishing at 60 looks like a possibility. Take care M.
I would be extremely careful with paying more tax earlier using UFPLS as larger withdrawals increase sequence risk. A linear model wont do this justice. Also we aren't concerned with how much tax we pay just how much money we have left / longevity of the pot. The total tax shown is meaningless as its spread out over 30 years and it is valuing £100 of tax 30 years from now the same as £100 of tax today. Showing it in today's money (inflation adjusted) would be more useful - though still not showing the whole picture. I also have modelled this and don't get the same results with FAD coming out further ahead, suggesting this is very assumption dependant. It doesn't seem as if you raise any of the thresholds at all. Adding in state pension improves the FAD numbers more.
Thanks and you're correct! I guess I should have made it clearer that this is an 'edge' case as most of the time FAD was indeed ahead. I had to massage the inputs a bit to get UFPLS to come out ahead and still only marginally (right growth rate, pension pot size, withdrawal amounts...etc). I would hope one doesn't think that I am implying UFPLS is better than FAD, from the video, because that's now was going for! Agreed regarding the sequence of returns risk - it's generally the problem with simplistic linear growth models like here. I re-ran the script to account for adjusted thresholds (or rather a workaround!) and again FAD is ahead most of the time but 'edge' cases still exist. In your model, do you have any scenarios where UFPLS comes out ahead of FAD ? Also, just curious, did build/code your own model or use some commercial software ?
