A new panel called “Withdrawal Limit” has been added to the Money Purchase and Drawdown Pensions screens for use in setting limits on when and how money can be withdrawn from a pension.
To view the software’s default withdrawal settings for Money Purchases, open the Pensions > Money Purchase screen.
Expand Withdrawals & Annuity and select the new link to Withdrawal Limit.
"As needed" is the default withdrawal limit for pensions
The software’s default setting for money purchases and most other types of liquid assets is to allow withdrawals to be taken “As Needed”.
Based on the settings on this panel, the software will assume that the balance of a money purchase becomes available for crystallisation at the owner’s Retirement event. If your client is already retired, the pension will be available for crystallisation as of the beginning of the plan (at the Start event).
If there is a future income gap, Voyant can take withdrawals from the money purchase “as needed”, respective of the software’s Liquidation Order. In this ordering, money purchases are broadly categorized under Tax Deferred assets. Withdrawals 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.
But suppose your client has plenty of money for retirement in other assets. They wish to preserve the money purchase as an IHT shelter, passing it on to their inheritors.
In the past, a pension would be preserved by unticking the “Apply Crystallisation Instructions” setting on the Crystallisations panel. With no crystallisations applied, the pension would be ringfenced, at least until it was passed to an inheritor.
How to preserve (ringfence) a pension to pass to future inheritors
If you want to preserve a pension for inheritors, open the Money Purchase screen’s new Withdrawal Limit panel and under Yearly Withdrawal Limit, simply click the “Do Not Allow” option.
Based on these instructions, the pension would be ringfenced until it is passed to an inheritor. The only withdrawals allowed from the pension would be any transfers that you schedule separately on the Transfers panel, and any possible tax penalties for lifetime allowance overages during the final lifetime allowance check (BCE 5A) at age 75.
Note – The new “Do Not Allow” withdrawal limit will be applied automatically, as shown, to any pensions that were set to be preserved prior to this new release, using the previous method of unticking “Apply Crystallisation Instructions”.
Use the Withdrawal Limit panel to defer and control pension drawdowns using events
Withdrawal Limits can also be used to make the pension available for withdrawals, scheduled or as needed, earlier or later in the planning timeline.
If you want to have complete flexibility over when withdrawals begin from a pension without affecting any other items scheduled around your client’s Retirement event, go to the Time screen and add an event to the timeline for this purpose – e.g. “Allow Drawdowns”.
Next, go to the Pensions > Money Purchase screen. Select the pension and under Withdrawals & Annuity open the Withdrawal Limit panel.
In the drop-down list at the top of the panel, select the event you added to the timeline a moment ago.
In most cases leave the default setting of “As Needed” selected. This setting will allow withdrawals to be taken as needed by the software as well as any you have scheduled on the new Planned Withdrawals screen to be taken from the pension on or after the selected event, wherever you position the event in the timeline.
Scheduled Only - Allow only scheduled withdrawals, otherwise ringfencing the pension
A new option, “Scheduled Only” is also available on the Withdrawal Limit panel. This option limits withdrawals only to those you’ve scheduled on the Planned Withdrawals screen. This setting prevents the software from taking any withdrawals from the investment as needed. Only scheduled withdrawals and transfers will be allowed as well as tax withdrawals for any possible lifetime allowance overages. The pension will be otherwise ringfenced.
For the ultimate hands-on approach, one could exercise complete control over future pension incomes by setting each with a Withdrawal Limit of “Scheduled Only”. Income could be switched on for each pension by scheduling future withdrawals on the Planned Withdrawals screen. Granted, this would be much more of an effort than we would recommend, but the option is available if you are so inclined.
Withdrawal Limits for Drawdown Pensions (UK) and ARFs/AMRFs (Ireland)
The same Withdrawal Limit options are available for drawdown pensions on the Pensions > Drawdown Pensions screen, under Withdrawal Limit & Annuity.
On the Withdrawal Limit panel you will find the same default setting allowing for withdrawals to be taken “As Needed”.
Withdrawal Limits can also be set for ARFs/AMRFs in our Ireland release.
The same Withdrawal Limit options are available for ARFs/AMRFs on the Pensions > ARF/AMRF screen, under Withdrawals. On this panel you will find the same default setting allowing for withdrawals to be taken “As Needed”.
If there is a future income gap, Voyant can take withdrawals from the drawdown pension “as needed”, respective of the software’s Liquidation Order. In this ordering, drawdown pensions and money purchases are broadly categorized under Tax Deferred assets.
New in Our December 2018 Release - The Planned Withdrawals Screen
About the Planned Withdrawals screen (how to schedule planned withdrawals)
Scheduling planned withdrawals from pensions
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)