Pension Income - Funds are not being crystallised from a money purchase or withdrawn from a drawdown pension

Q - My client has a sizable money purchase, which he plans to start utilising after he retires. However, when I check the cash flow chart the pension is never being utilised. Why don't withdrawals begin when needed? 

A - Voyant normally uses the following default crystallisation settings for money purchases and income settings for drawdown pensions. 

- Crystallise 100% of a money purchase at the client's Retirement.

- When crystallised, 25% of these funds are taken as a tax free lump sum withdrawal.

- The remainder is moved into a drawdown pension with withdrawals of 150% of GAD being taken annually. 

There are a few settings to check if funds are never being withdrawn from a money purchase or its linked drawdown pension. 

 

Funds in a money purchase are not being crystallised

1. First, visit the Pensions > Money Purchase screen and select the pension in the ledger to the right. 

  

 

2. Expand Withdrawals & Annuity and select Crystallisation of Money Purchase. The future crystallisation of the pension is scheduled on this panel. 

 

3. Begin by checking the Apply Crystallisation Instructions check box at the top of the panel. Is this setting ticked?

If it is unticked, be sure tick it to enable crystallisation.

Unticking Apply Crystallisation Instructions will switch off crystallisation of the money purchase entirely, effectively leaving the pension in whole to survivors after the owner's death. 

 

 

4. Next, check the crystallisation event.

If this field is blank, as could be the case for a client who is already retired as of the start of the plan, select a crystallisation event.

 

If the pension is to be crystallised now, in the first year of the plan, select the Start event.

If there is no event to select that occurs in the same year that you plan to crystallise the pension, go the Time screen to drag and drop an event onto the timeline to mark when the crystallisation is to occur. This event will then appear as an option in the drop-down list of crystallisation events. Alternatively, go to the Time panel to the right side of the screen, click the panel's Event tab, and click Create a New Event

 

5. Check the Crystallised Amount setting. Do you have the money purchase set to be crystallised "As Needed"? 

If so, be sure to set the Frequency to Recurring.

If left as a One time crystallisation, the software will crystallise the pension only onetime, when needed, which probably will not be often enough to meet your client's retirement income needs. 

 

6. Now check the Let's See > Cash Flow chart. 

View the chart in its Detailed view to identify incomes by type. 

    

If you set crystallisations of the money purchase to occur only on an "as needed" basis and there is no shortfall in the cash flow and yet still also no pension income, it may be that pension income is indeed not needed.

The "as needed" crystallisation option will use the software's cash flow logic to determine whether any funds need to withdrawn from the money purchase. That logic fulfills future expenses using incomes first, cash second, and will then take withdrawals as needed from liquid assets based on the asset liquidation order, as set in the software's Preferences. Read more >>

If your client has more than enough in cash and other taxable (or possibly non-taxable) liquid assets to provide the necessary retirement income or earns enough in retirement income from state benefits, defined benefits, annuities and other income sources to fulfill their expenses, crystallisations may not be necessary. 

 

Funds are being crystallised but no income is withdrawn from the drawdown pension

1. Go to the Pensions > Drawdown Pensions screen and select the pension in the ledger to the right. 

   

 

2. Expand Drawdown & Annuity

Select Drawdown Strategy / Drawdown Pension (USP). Future withdrawals from the pension on are scheduled on this panel. 

 

3. First, check the Start Drawdowns event. 

If this field is blank, as could be the case for a client who is already retired as of the start of the plan, select an event to schedule the beginning of withdrawals. 

If withdrawals are to begin now, in the first year of the plan, select the Start event.

If there is no event to select that occurs in the same year that you plan to begin withdrawals, go the Time screen to drag and drop an event onto the timeline to mark when withdrawals are to begin. This event will then appear as an option in the drop-down list of events to start drawdowns. Alternatively, go to the Time panel to the right side of the screen, click the panel's Event tab, and click Create a New Event

4. Next, check the Yearly Drawdown Amount. 

If the yearly drawdown amount is set to None and that is not your client's intent, select a drawdown option. 

 

5. Now check the Let's See > Cash Flow chart. 

View the chart in its Detailed view to identify incomes by type. 

    

If you set withdrawals to be taken only on an "As Needed" basis and there is no shortfall in the cash flow and yet still also no pension income, it may be that pension income is indeed not needed.

 

The "as needed" withdrawals option will use the software's cash flow logic to determine whether any funds need to withdrawn from the drawdown pension. That logic fulfills future expenses using incomes first, cash second, and will then take withdrawals as needed from liquid assets based on the asset liquidation order, as set in the software's Preferences. Read more >>

If your client has more than enough in cash and other taxable (or possibly non-taxable) liquid assets to provide the necessary retirement income or earns enough in retirement income from state benefits, defined benefits, annuities and other income sources to fulfill their expenses, crystallisations may not be necessary.

 

Related topics

Expense Fulfillment - In what order are expenses fulfilled and what funds are used to pay them?

 

Videos

Retirement Income (Webinar 2)