Scheduling planned withdrawals from pensions

In our UK release, the introduction of new Planned Withdrawals screen will likely have its biggest impact on how advisers manage future income from money purchases and drawdown pensions.

Previously, one could either set planned withdrawals from money purchases and drawdown pensions or allow the software to take withdrawals as needed, but not both. Moreover, no option was available to take Flexible Access Drawdown (FAD) from a money purchase, although this could be achieved with some finessing of the crystallisation instructions.

Now incomes (recurring or one-off) can be scheduled from money purchases and drawdown pensions while still allowing the software to take additional withdrawals, whenever needed, to help fulfil future expenses. Withdrawals can be scheduled on the new Planned Withdrawals screen.

Among the withdrawal selections on this screen is a convenient new Flexible Access Drawdown option, which allows scheduled withdrawals from money purchases to be taken from the client’s tax-free cash allowance first.

All the crystallisation options you’ve used in the past remain available with only a few subtle modifications, which we will detail below. Plus, any crystallisation instructions that you already have in place will continue to work as before.

All said, you now have more flexibility than ever before when setting future pension incomes.

 

Managing Withdrawals from Money Purchases and Drawdown Pensions

As was the case before this release, if you simply enter the basics about a money purchase in Voyant Adviser (such as its name, its current balance) and set nothing else, the software will assume the balance of this money purchase becomes available for crystallisation at the owner’s Retirement event. If your client is already retired, the pension is assumed to be available for crystallisation as of the beginning of the plan.

If there is a future income gap, Voyant can take withdrawals from the money purchase or drawdown pension as needed, respective of the software’s Liquidation Order. In this ordering, money purchases and drawdown pensions are broadly categorized under Tax Deferred assets.

As needed withdrawals from money purchases are taken using an UFPLS approach, meaning that each withdrawal is comprised of a mix of taxable and tax-free income.

You can now leave this default “as needed” withdrawals arrangement in place plus schedule regular withdrawals from the money purchase. If you want to take a more proactive approach to scheduling your client’s future pension income, withdrawals are added on the new Planned Withdrawals screen. Otherwise, simply enter the basic details about the money purchase let the software work its magic.

If you want to take a more hands-on approach to setting your clients’ future income strategy, the new Planned Withdrawals screen is a powerful tool to help you do so. Planned withdrawals can be used to illustrate the tax efficiencies of certain drawdown strategies, especially in retirement.

No longer will you need to select individual accounts on the Pensions screens, and then drill down into the advanced settings to schedule withdrawals. Withdrawals are now managed from one easy to access screen called “Planned Withdrawals”, which you will find as a new option in the software’s navigation.

Think of the Planned Withdrawals screen as your withdrawals overview. On it you can add, view and manage all your client’s planned withdrawals. 

Any drawdowns you have set up in the past will be transferred seamlessly from the Drawdown Pensions screen over to the new Planned Withdrawals screen where they can be viewed and managed in one convenient location.

The Planned Withdrawals screen is ideal for managing future incomes from pensions. A few common pension income strategies that can now be easily managed from the Planned Withdrawals screen include:

  • Schedule a recurring income, as flexible access drawdowns or UFPLS, from one or more pensions.
  • Schedule the withdrawal of a couple’s personal allowance from his pension and hers.
  • Draw income from pensions in a particular order.
  • Step down planned drawdown income at commencement of his state pension benefit and later hers.
  • Take a one-off withdrawal from a pension (flexible access drawdown or UFPLS) to buy a home or to invest in a bond.

 

General crystallisation instructions are still set on the Money Purchase screen’s Crystallisation panel.

For example, you would use the Crystallisation panel, rather than Planned Withdrawals, to schedule the crystallization of an entire pension, taking the tax-free allowance in lump sum and depositing the rest into a drawdown account. The Crystallisations panel is probably best used if one were to want to crystallise an entire pension, taking it in lump sum, because lump sum crystallisations are saved to cash whereas planned withdrawals are treated as income – i.e. assumed spent if not saved.

Deferring pension drawdowns or taking them earlier than one’s planned retirement age is now handled using Withdrawal Limits, a new panel on the Money Purchase and Drawdown Pensions screens. Withdrawal limits can also be used to ringfence a pension, preserving it for inheritors.

 

How to schedule withdrawals from pensions step-by-step

To schedule recurring withdrawals from one or pensions, open the Planned Withdrawals screen.

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1. Name: Enter an appropriately descriptive name for the drawdown.

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Note – Planned withdrawals, bearing the names you choose for them, are now shown in the software’s General Overview but are omitted from the overview’s printable report.  

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2. Available Accounts: This field shows a list of all the liquid assets (present and future) available in the plan.

Depending on your entries, accounts could include present or future pensions, investments, savings and other cash accounts. Default cash accounts (e.g. John’s Cash), which are created automatically by the software to hold unallocated cash inflows, are intentionally omitted from this list.  The pensions in this list might include present or future money purchases and drawdown pensions (in our UK release), ARFs/AMRFs (in our Ireland release), and retirement savings plans (in our Canadian and US releases).

3. Select a source pension account for future withdrawals from the list of Available Accounts and click the right arrow button to move it into the field of Selected Accounts to the right.

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You may select and move any number of accounts from the left field to the right if you intend to set up withdrawals that are to be taken from multiple accounts. When moved, accounts will be added to the list of Selected Accounts in descending order.

Please Note - If you intend to set up a specific liquidation order using the “Total” withdrawal option (more about this in a moment), then be sure to move accounts over in the order desired – i.e. move the first account that is to be liquidated first, and so forth. There is no option to move accounts up or down in the list of Selected Accounts. Accounts can only be removed from the list and added again.

If you need to remove an account from the Selected Accounts, select it and use the left arrow button to move it back into the list of Available Accounts.

4. Scheduled Withdrawal Type: Specify the annual amount that is to be withdrawn from the account. The following options will vary based on the type of account.

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All Available = Will in most cases withdraw the entire balance from the selected account(s) in a single year, provided the account selected is not a product with rules that limit withdrawals or preserve a minimum balance. ARFs/AMRFs in Ireland, for example, have rules that ringfence minimum balances in certain circumstances, which might prevent the total balance from being withdrawn.

Please note - Large lump sum distributions at the commencement of pensions are still best scheduled on the Pensions > Money Purchase screen. When scheduled on a pension screen as a general crystallisation strategy, the software will know to sweep any surplus lump sum from the crystallisation into the owner’s default cash account, if it isn’t scheduled to be transferred elsewhere.  Whereas regularly scheduled incomes from money purchases or even large one-off withdrawals for special purchases or debt payoffs are best scheduled on the new Planned Withdrawals screen. 

 

% of Account Value = Withdraws the percentage specified from the overall balance of the account.

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Fixed w/ Inflation = Withdraw a fixed annual amount escalated annually by the inflation rate. The inflation rate is set is in the software’s Plan Preferences.

Fixed w/o Inflation = Withdraw a fixed annual amount with no inflation.

If you make an entry in either of the fixed withdrawal fields, both will be populated. This is a convenient feature that allows you to easily toggle indexing with inflation on or off for future withdrawals.

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There are two options for fixed withdrawals scheduled from multiple accounts, Total and Each.

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Total = An option for fixed withdrawals, which becomes relevant only when multiple accounts are selected. When Total is selected, the specified withdrawal amount will be taken annually from the first account in Selected Accounts list until that account is depleted. The software will then move on to take withdrawals from the next account in the list and so forth.

The Total option could be used to effectively set an account-by-account liquidation schedule. For example, if your clients have numerous pensions and they would prefer for a certain pension to be liquidated first, before moving on to the next, simply enter a Total annual planned withdrawal amount. Then select the pensions that will be he sources of these future withdrawals. Select them in the order in which they will be liquidated. The first pension in the list of Selected Accounts to the right will be the first to be liquidated, after which the software will move to the second account in the list and so on.

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Understand that the software’s Liquidation Order will still govern how the software takes any additional funds whenever incomes and planned withdrawals do not fully cover planned expenditures.

Each = An option for fixed withdrawals, which becomes relevant only when multiple accounts are selected. When Each is selected, the amount specified will be withdrawn simultaneously from each of the accounts in Selected Accounts list.

For example, rather than taking income from a single pension before moving on to the next, which is how the software’s default liquidation order would work, a couple could schedule withdrawals of £12,500 from his pension and hers. Doing so might be more tax efficient as it would utilise each person’s annual allowance. The Each option allows both withdrawals to be managed in one convenient entry on the Planned Withdrawals screen.

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Dividend Income = Withdraws only dividend income paid annually to an account. Dividends are an option for Investments. If a Dividend Yield is set for an Investment under Advanced Settings > Growth & Yield in the Dividend Yield field. This withdrawals option would not apply to pensions.

 

Max w/o Penalty = Withdraws the maximum available without a tax penalty for certain products. This option is intended primarily for use in setting tax deferred withdrawals from bonds (life funds) in our UK release.

Please Note - This option is not designed to calculate withdrawals up to the client’s personal allowance. If you select this option for an account type that has no rules regarding withdrawal allowances, the result will be the liquidation of the entire account.

This withdrawals option would not apply to most pensions.

 

Pension Withdrawal Strategy (UK money purchases only)

Two options are available to set how incomes will be taken from money purchases in our UK release. These are UFPLS and Flexible Access Drawdown and they determine whether an element of taxable income will be included in each withdrawal or if withdrawals are to be taken entirely from the pension owner’s tax-free cash allowance.

Flexible Access Drawdown (FAD) = Allows scheduled withdrawals from money purchases to be taken from the client’s tax-free cash allowance first. The total withdrawal amount specified will be tax free. With each amount withdrawn tax free, an additional 75% is crystallised and moved into a linked drawdown account, which he software creates automatically.

Please Note – The Flexible Access Drawdown option can only work if the amount you are withdrawing is less than the pension’s overall tax-free cash allowance, which is normally 25% of the pension’s balance. For example, if you were to schedule a withdrawal of 50% or 100% of a pension’s total balance, the software will withdraw this amount. It will not limit withdrawals to only the tax-free allowance since the amount scheduled clearly exceeds it. Your client will receive a combination of taxable and tax-free cash, effectively an UFPLS withdrawal, even if you have the Flexible Access Withdrawal selected as the withdrawal strategy.

UFPLS = The software’s default for as needed withdrawals taken from money purchases. Withdraws a mix of taxable and tax-free monies.

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5. People: Simply disregard the People panel. There is no need to assign an owner to a planned withdrawal. The People panel is a standard feature on all the data entry screens in Voyant Adviser, which is why you will find it on the Planned Withdrawals page. The software already has ownership details for the available accounts.

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6. Time (Event and Stages): Withdrawals can now be easily set to begin and end for discreet time periods on the Time panel.

The events and stages available on this panel are set on the Time screen or you can add events as needed from the Planned Withdrawals screen. More about this in a moment.

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To schedule the start of withdrawals, go to the Time panel, select the panel’s Events tab, and click an event. A green dot will appear next to the selected event indicating that this is when the planned withdrawals will begin.

To end recurring withdrawals, select a second event, an end event. A red dot will appear next to selected event indicating that this is when scheduled withdrawals will end.

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Withdrawals will recur for the duration set on this panel, provided the selected accounts are not fully liquidated before the end of the selected timespan.

To schedule a one-off withdrawal, simply leave the single start event (green dot) selected. There is no need to select an end event. A single selected event indicates a one-off withdrawal.

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Note – There is no need to leave the Planned Withdrawals screen if you need to add a new event to the timeline to schedule the beginning or end of withdrawals. Simply click the New Event button at the bottom of the Time panel’s Events tab. Events can be added based on year or the selected event owner’s future age.

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Recurring withdrawals could also be scheduled using stages. On the panel’s Stages tab, select one or more stages in the timeline. The software will assume that withdrawals begin at the start of the first select stage and end at the end of the last selected stage. If you select only one stage, withdrawals will begin and end with the start and end of the selected stage.

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Stepping Future Withdrawals Up or Down

Planned withdrawals can be stepped up or down (increased or decreased) if changes need to occur within timespan over which the withdrawals are scheduled. The overall timing of planned withdrawals is set on the Time panel.

 

The Basic Rules of Stepping

There are a few basic rules about steps to bear in mind when stepping planned withdrawals or anything else in your client cases.  

- Steps are always scheduled using events on the planning timeline. Events can be added to the timeline whenever a step is needed.

- Steps can only be scheduled in the years between the planned withdrawal’s start event (green dot) and end event (red dot), as set on the Time panel. You cannot step a planned withdrawal in the year that it is scheduled to begin or end. Steps can only occur in the years between.

- The initial amount entered for the planned withdrawal sets the total first-year withdrawal. The year in which the withdrawals are to begin is set by the start event (green dot) on the Time panel.

- Withdrawals will stop (provided the accounts are not depleted beforehand) in the year set by the end event (red dot) on the Time panel. There is no need to step withdrawals down to zero to end them.

- You cannot step a withdrawal multiple times in a single year – one step per year maximum.

- Only a recurring withdrawal could be stepped. There is no concept of stepping a one-off withdrawal.

 

How to Schedule a Future Step in Planned Withdrawals

With these basic rules in mind, to schedule a future step in planned withdrawals:

1. On the Planned Withdrawals screen expand Advanced Settings and select Step Up / Step Down.

2. Select the event at which the step/change in in withdrawals is to occur.

3. Select and enter details of what the planned withdrawal will be from that point onward.

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Note – The Fixed w/ Inflation withdrawal option indexes future withdrawals with inflation. The withdrawal amount you enter will be an inflated one if withdrawals begin in the future. The same goes for steps. The future stepped amount you enter will be an inflated amount when the future withdrawals are increased or decreased.  

When you add a step, an additional set of fields will appear automatically on the Step Up / Step Down panel. These are available if you need to add additional steps. Simply disregard these fields if you don’t. Scroll down and click the OK button to save the step.

There is no need to leave the Planned Withdrawals screen if you need to add a new event to the timeline to schedule a future step in withdrawals. Simply click the New Event button at the bottom of the Time panel’s Events tab. Events can be added based on year or the selected event owner’s future age.

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Please Note - If you add an event on the fly via the Time panel, you may need to collapse and expand again the Planned Withdrawals screen’s Step Up / Step Down panel. Doing so will give the software the opportunity to refresh this panel’s list of available events.

 

Surplus Withdrawals - What happens to the surplus if I withdraw more from a pension than my client needs?

Planned withdrawals, whether recurring or one-off, are always treated by the software as regular income. And unless set otherwise, the software normally assumes surplus income is spent if your client dies not plan to save it. This assumption applies to planned withdrawals, which are managed now on the Planned Withdrawals screen. 

Exceptions are made for certain lump sum inflows such as windfalls, property liquidations, protection policy benefit payouts, estate distributions and in our UK release, withdrawals of tax-free cash from money purchase crystallisations (which are managed separately from planned withdrawals). Read more >>

There are two settings on the software’s Plan Preferences that can change this assumption.

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Beneath the Plan Preferences, on the right side of the Preferences screen, under Calculation Settings, is the “Transfer [all] Excess Income Credits to Savings”.

When this setting is ticked, the software will transfer all unspent, otherwise unsaved surplus, regardless of source, into the owner’s default cash account (e.g. John's Cash). This assumption would be applied in for the total duration of the plan.

The new “Save Income After Retirement” setting will do the same, but only for surplus income received on or after Retirement.

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We generally recommend that you avoid selecting these options and instead take a more proactive approach to planning. Otherwise, your client may seem to accumulate a sizable and probably unrealistic reserve of surplus cash over the course of the plan without making any real plans to save this money.

If your client does intend to save some or all surplus income, consider entering this as a planned contribution to savings, investments, or pensions in your client’s plan. 

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UK - Should withdrawals from money purchases be scheduled as crystallisations or planned withdrawals? 

This consideration is especially important if you plan to take a large lump sum withdrawal of cash from the crystallisation of a money purchase (in our UK release).

Pension Commencement Lump Sum (PCLS) withdrawals from money purchases are still best scheduled on the Pensions > Money Purchase or Defined Contribution screens. Whereas regularly scheduled incomes from pensions or even large one-off withdrawals made for special purchases or debt payoffs are best scheduled on the new Planned Withdrawals screen.

When scheduled as a general crystallisation strategy on the Money Purchase screen , the software will know to sweep any surplus lump sum from the crystallisation into the owner’s default cash account, if it isn’t scheduled to be transferred elsewhere.

Money Purchase Crystallisation Instructions (UK)

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Ireland - Crystallising Defined Contribution schemes and taking drawdown income from ARFs/AMRFs

In our release for Ireland, defined contribution schemes must be fully crystallised together with any lump sum distribution, and the funds moved into an ARF/AMRF before they can be withdrawn as an income. 

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Withdrawals from ARFs/AMRFs are now scheduled on the new Planned Withdrawals screen, where they can be found in the list of Available Accounts. The ARF/AMRF will remain available for additional withdrawals to be taken when needed. Options are available on the ARF/AMRF screen to limit or disallow withdrawals. 

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Related Topics

New in Our December 2018 Release - The Planned Withdrawals Screen

About the Planned Withdrawals screen (how to schedule planned withdrawals)

Withdrawal Limits – Placing restrictions on the software’s ability to liquidate assets as needed

Surplus Withdrawals - What happens to the surplus if I withdraw more than my client needs?

Crystallisation Instructions for Money Purchases (UK)

Withdrawal Limits on Money Purchases and Drawdown Pensions