Retirement Planning Options - Default Settings

For anyone wishing to use their pension benefits without buying an annuity, the new 'flexi-access' drawdown provisions, in force from April 2015, are very similar to previous drawdown options, but with unlimited withdrawals. In line with the new provisions, the software provides the ability to model many different retirement planning scenarios.

As a starting point, this particular document focuses on the software’s default settings, relating to money purchase and drawdown benefits.

NB: The default settings within the software have changed (as of September 2015) - we no longer assume that 100% of an individual's 'money purchase' benefits are crystallised, at the individual's Retirement event.

Towards the end of this guide, you will find a list of some common retirement planning scenarios; each item links to a separate, individual guide with details of how to model that particular scenario. Collectively, these guides are intended to help you navigate the software, in modelling the various options. Please identify the option that looks most similar to the scenario you are attempting to model, and follow that link.

Default settings:

To view and/or amend these settings, go to: Pensions > Money Purchase, and choose the Withdrawals & Annuity option - you will be presented with 3 options, as illustrated below:

1. Crystallisation of Money Purchase

2. Income from Drawdown Pension

3. Annuity

Select the option titled Crystallisation of Money Purchase. The software's default retirement planning assumptions are as follows:

1. As illustrated below, the Apply Crystallisation Instructions option is ticked.

2. Money Purchase benefits will be retained within the existing money purchase wrapper for as long as possible.

3. Withdrawals will be determined by the software on an As Needed basis, i.e. sufficient only to meet outstanding expenses.

4. Benefits will be taken as (a series of) 'Uncrystallised Funds Pension Lump Sum (UFPLS)' withdrawals.

5. Any income tax arising from UFPLS withdrawals will be paid in arrears.

NB: Given the above assumptions, when the As Needed (crystallisation) setting is selected, one can effectively ignore both the Lump Sum and Frequency settings; or - more precisely - these settings can be taken, respectively, to read 100% and Recurring (regardless of the actual settings, illustrated below).

Default Setting – Taxable Drawdown Income:

Having looked at the default settings relating to the 'crystallisation' of benefits, it remains only to reiterate that, as 'UFPLS' withdrawals are an alternative to drawdown, it is not necessary to make any further entries under Income from Drawdown Pension (given that no funds will be deposited into the drawdown account, by default).

It is the case, nevertheless, that the software will create an empty 'Drawdown' account, corresponding to (and linked to) the respective money purchase account. As a result, in the Pensions > Money Purchase screen, you will see that your newly-created account has a small 'link' next to it, as illustrated below: 

If one clicks the 'link', a small window containing the name of the corresponding (Drawdown/USP) account will appear – by clicking on this small 'window' (not shown), the software will take you, immediately, to the Pensions > Drawdown Pension screen, where the Drawdown/USP account will be displayed in the Ledger, and will appear as having an account balance of £0 (which is the balance as at start-of-plan).

Now (back in the Pensions > Money Purchase screen), choose the option entitled Income from Drawdown Pension:

As illustrated above, the software assumes - in the event that taxable benefits are received into the drawdown account - that benefits are to be used on an As Needed basis, starting from the individual's (default) Retirement event.

As an aside: note that the Income from Drawdown panel, shown above, can be reached both from the Money Purchase screen (as in this instance) and also via the Pensions > Drawdown Pension screen – this becomes relevant in those instances where one wishes to increase, or reduce/stop the level of taxable drawdown income being withdrawn, at some later point during the plan.

Retirement Planning Scenarios: 

Having reviewed the software's default settings, please take a look at the following common retirement planning scenarios – please note that this list is not intended to be exhaustive! As you can see, each one presents a link to a separate document, with further detailed instructions:

1. Preserve pension benefits (after withdrawing tax-free cash), for passing to one's chosen beneficiaries, or heirs. Read more >>

2. Preserve pension benefits (without taking tax-free cash), for passing to one's chosen beneficiaries, or heirs. Read more >>

3. Defer the withdrawal of Money Purchase benefits beyond 'Retirement'. Read more >>

4. Take 100% of benefits as a 'lump sum' (UFPLS). Read more >>

5. Provide a long-term income using tax-free cash only - defer taxable income. Read more >>

6. Provide a long-term income (UFPLS) - combination of taxable income and tax-free cash. Read more >>

7. Take 100% tax-free cash at retirement (with deferral of taxable income). Read more >>

8. Take a series of discrete, one-off (i.e. <100%) withdrawals. Read more >>

9. 'Phasing' options.

10. 100% annuity

11. Partial annuitisation (In Progress)

12. Later/subsequent annuitisation of drawdown benefits (In Progress)

13. 'Step' Taxable Drawdown Income e.g. reducing income with state pension. Read more >>


Last updated 23 November 2015, Release 4.0.29



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