I am a female and have just turned 60 and am now in receipt of 17k pa final salary pension. I did not take any TFC from this pension. I will start receiving my state pension of approx 5k in April 2015.
I have a 600k HL SIPP that I am trying to decide what to do with. I do realise I am in a fortunate position with this level of pension.

My basic aim is to take as much pension out as possible in the early years but to stay within the basic rate (BR) tax band, say 42k. I have no pressing need for the TFC.

My initial plan was to buy a small annuity to give me 3k income, so I would have the 20k to allow me to do flexible drawdown. I could wait until my state pension started, rather than buy an annuity, but I reasoned I wanted to use up my BR bands for the next couple of years and reduce my pension pot.

I would then just crystallise enough of my pot every year to give me taxable income to take me up to the BR limit. I would take out the corresponding 25% TFC each time I crystallised. The benefits of this approach would appear to be that my pension fund would remain uncrystallised and therefore IHT free (until I am 75) and also that the funds representing my 25% TFC entitlement would still grow within the SIPP tax wrapper.

My concerns now are that the government may abolish or severely restrict TFC in future years, so I am thinking of crystallising the whole 600k. If I do this I could probably get enough income in capped drawdown, particularly with the reinstated 20% uplift in Gad rates. The disadvantages would be that I would lose the IHT protection on the fund and that the 150k would then have to be invested outside the SIPP tax wrapper.

I suppose the real question is should I take the full 25% TFC now in case I cannot in the future. Would the chancellor be able to make retrospective changes to this entitlement ? Also if I do crystallise the whole fund would it be preferable to opt for flexible drawdown.

Any comments welcome

The chap you need to attract an answer from is 'Roydo'. Did you see this discussion which may deal with some of your points?

http://moneyforums.cityw...rom-a-pension-fund.aspx

I appreciate that you do not want to wait until 2015 to generate the required level of income but, if you can get to that point, qualifying for Flexible Drawdown seems very attractive to me (capped drawdown puts you at the mercy of the Govt who keep changing the ground-rules). I'm in that happy position myself (Flexible Drawdown) and plan to take a 5% income from my fund which I have easily achieved via a mixture of Corporate Bonds and high-yielding shares so that I expect to be able to maintain that income as a minimum while maintaining the value of the capital in real terms.

Hope you attract a more knowledgable answer regarding TFC's.

Thank you very much for your replies. I must admit I am veering to taking the TFC cash now.
Myself and my husband are both in very good health so the chances are that one or both of us will still be around when I am 75, so I should not worry unduly about giving up the IHT protection. As you stated, if I make age 75, the IHT on the uncrystallised pension fund suddenly goes from 0% to 55%. A weird bit of regulation.

Investing the TFC outside a 'tax free' wrapper seemed counter intuitive to me as I have been brainwashed into thinking investing in ISA's and pension funds was so tax efficient.. I can see that I could manage it outside.

I will get some new quotes on a small annuity to top up my existing pension to 20k, then start a flexible drawdown after April 5. Let us hope the TFC % are not tampered with in the March budget......

As an addendum to the previous posting you can shelter some of your drawings from income tax up to 30% by investing in a VCT. These are of course riskier investments but by choosing carefully you can minimise the risk and expect a good return. I have held some right through the recent problems since 2008/9 and although the value decreased for a while the income continued to flow and the capital value has now come back. Overall my return has been at the rate of just over 7% p.a. which I consider very reasonable when one looks at the period in question. You also avoid CGT if you keep them for more than 5 years. I'm probably teaching you to suck eggs and if so just ignore my rambling.

Just a quick observation on VCTs. Take a little care that you aren't letting the tax tail wag the dog. VCTs are at the higher end of the risk spectrum and having worked to accumulate your current wealth, putting any of it at unnecessary risk for a tax break should be done with careful consideration. A 30% tax break would not look clever if there was a 40% investment loss!

Also, this is a bit off the wall but some more weird regulation may mean VCTs are only going to be available to "high net worth" individuals: the definition of which is typically ambiguous but may be £100k pa income or £250k of investments........ but pensions don't count as investments!