Please note that while the default settings for money purchase pension accounts are much the same as before, the configuration of screens within the software has changed, with effect from December 2018.
This particular document lays-out the software's default settings, with regard to money purchase and pension drawdown benefits.
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.
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. Withdrawal Limits
Select the option titled Crystallisation of Money Purchase. The software's default retirement planning assumptions are as follows:
1. As shown below, the Apply Crystallisation Instructions option is not 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 'as needed' UFPLS withdrawals will be paid in arrears.
NB: Existing users of the software should note that the 'As Needed' setting has been removed (see screenshot below). In effect, we have brought withdrawals from pension accounts into line with other types of account (savings/investments), and so the 'as needed' function will be applied - automatically - unless you impose constraints, via the 'Withdrawal Limits' option (see previous screenshot).
Default Setting – Taxable Pension Drawdown Income:
Having looked at the default settings relating to the 'crystallisation' of benefits, it remains only to reiterate that, since 'UFPLS' withdrawals (the software's default mode of operation) are an alternative to drawdown, benefits will not get deposited into pension drawdown without the software being given an instruction to do so.
(There are now a couple of ways by which one can move benefits into pension drawdown, if desired).
It remains the case, nevertheless, that the software will create an empty 'Pension Drawdown' account, corresponding to (and linked to) the respective money purchase account, to receive crystallised benefits, if desired. 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) account will appear – by clicking on this small 'window' (not shown), the software will take you, immediately, to the Pensions > Drawdown Pension screen, where you will see the Drawdown account displayed in the Ledger. By default, the drawdown account will appear as having an account balance of £0 (representing the balance at start-of-plan).
NB: Back in the Pensions > Money Purchase screen, there is no longer an option labelled Income from Drawdown Pension. Scheduling an income from a pension drawdown account will now be carried-out via the new 'Planned Withdrawals' screen, reached via the left-hand menu.
As with un-crystallised 'money purchase' benefits, the software assumes - in the event that taxable benefits have been received into the drawdown account - that benefits are to be used on an As Needed basis, starting from the individual's (default) Retirement event. This will be the case unless one instructs the software otherwise, via the Pensions > Drawdown Pension screen, under Withdrawal Limit & Annuity > Withdrawal Limits as illustrated below:
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. In progress.
3. Defer the withdrawal of Money Purchase benefits beyond 'Retirement'. Read more >>
4. Provide a long-term income using tax-free cash only (FAD) - defer taxable income. Read more >>
5. Provide a long-term income (UFPLS) - combination of taxable income and tax-free cash. Read more >>
6. Take 100% tax-free cash at retirement (with deferral of taxable income). Read more >>
7. Take a series of discrete, one-off (i.e. <100%) withdrawals. Read more >>
8. 'Phasing' options. Read more >>
9. 100% annuity Read more >>
10. 'Step' Taxable Drawdown Income e.g. reducing income with state pension. Read more >>
Last updated 10 December 2018, Release 4.5.76