Updated: January 16, 2023
Crystallised Pension Drawdown
Want a better understanding of your pension pots? Here’s what a crystallised pension drawdown involves and how to access funds in retirement.
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Author: Tony Stevens - Finance Expert
Updated: October 22, 2019
If you’ve been exploring different pension drawdown options, you may have come across the concept of a crystallised pension. But, how does this work and what other options should you consider?
This guide covers all the essential details you need to know. We’ll explain what a crystallised pension drawdown means, the process that’s involved, and where to get expert advice to help with your retirement plans.
Keep reading for a complete explanation or click on a link below to jump straight to a section…
The following topics are covered below...
What is a crystallised pension?
A pension becomes crystallised when a benefit crystallisation event (BCE) takes place. The most common crystallisation events usually occur when a personal pension is accessed via drawdown or used to purchase an annuity. Whereas, an uncrystallised pension pot is one that has not yet been accessed through drawdown and has not yet been subject to a benefit crystallisation event. It is important to note that a proportion of your pension benefits can be crystallised while the rest is left uncrystallised. This will depend on how you take your pension benefits.
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What happens to your pension when it crystallises?
The main thing to be aware of is that a crystallised pension will be teste against your lifetime allowance (LTA). You don’t have to pay tax on your pension until you start taking money.
Currently, the standard lifetime allowance is £1,073,100 and is frozen at this level until April 2026. If your crystallised funds exceed the lifetime allowance, you will be subject to a lifetime allowance charge which is calculated as a percentage of the excess above the lifetime allowance. Drawdown rules mean you can still make contributions to your pension once it’s crystallised, but you will be subject to money purchase annual allowance (MPAA). This essentially limits the amount of contributions you can make into your pension that are eligible for tax-relief.
Will your pension crystallise if you access drawdown?
Yes. Once you reach the minimum pension age (currently 55 but this is increasing to 57 in April 2028) you will be eligible to enter into a drawdown arrangement. If you proceed with this option, it is classed as a benefit crystallisation event and part or all of your pension will be crystallised depending on if you opt for partial drawdown, phased drawdown or full drawdown.
How an expert pension advisor can help with a crystallised pension
Regardless of whether or not your pension has already been crystallised or is currently uncrystallised, it’s well worth getting some expert advice to guide you through the drawdown process. An independent pensions advisor will be able to take a look at your pensions along with the rest of your finances and develop a personal plan for accessing funds through drawdown.
Ideally, it’s best to get some assistance from a specialist pensions advisor as you’re approaching retirement. But, if you’re already there, don’t fret. An experienced advisor will show you the best way to access your pension with flexible drawdown, or show you some alternative options to help reach your financial goals in retirement.
Drawing down from a crystallised pension
If your pension is already crystallised, it’s definitely possible to explore flexible drawdown options. Your options will be limited, though, if you’ve already purchased an annuity – this is a one-off decision which can’t be reversed or changed. Some pension providers will allow flexi-access drawdown if you’ve opted for this, giving you control over how you take income. The right way for you to access your pot on a flexible basis will depend on your financial circumstances and your individual goals for retirement.
It’s worth discussing your situation and drawdown tax position with a specialist pensions advisor who can calculate the most tax-efficient way for you to draw down funds and create a bespoke retirement plan that’s tailored to your needs. This may involve switching or transferring to a provider who offers more pension options at retirement..
Other options to consider
If you’re looking to access funds in retirement, flexi-access drawdown isn’t your only option. Here are some potential alternatives worth discussing with your pensions advisor:
- UFPLS: this was touched on earlier, but using uncrystallised funds pension lump sums can allow you take multiple lump sums where the first 25% is tax-free. You do not have to take your entire pension as an UFPLS which means you do not have to crystallise your entire pension pot to utilise this option.
- Phased drawdown: your advisor can look into phased income drawdown options if you would like access to a regular tax-free cash amount. This is usually a useful option if you plan on doing some more work and want to top up your income while reducing your hours.
- Savings: if you have cash savings, it may be worth using some of this before accessing your pension further. Your cash holdings will likely be losing real value due to inflation rates that exceed your interest rates and leaving your pension untouched (uncrystallised or crystallised) will allow it more time to grow before you begin income drawdown.
- Borrow against assets: another option is to borrow funds and use assets as security. This can be a useful option if you own property or have significant sums tied up in stocks and shares. Many wealthy people borrow against their investment portfolio because the interest rate is often cheaper than the tax you might pay when selling investments.
Speak to a pension drawdown specialist
It’s well worth discussing your individual situation and options with a pensions expert whilst your pot remains uncrystallised because you’ll have more choices. But, if you’ve already crystallised your pension, an experienced advisor will still be able to help you reach your financial goals.
We offer a free, advisor-matching service. This means we’ll do a quick assessment of your needs and then pair you up with an experienced drawdown specialist.
Just call 0808 189 0463 or make an enquiry. We’ll set up a free, no obligation chat between you and your ideal advisor today.
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If you reach 75 with a crystallised drawdown pension (perhaps just taking your tax-free lump sum initially) the total growth of the remainder of your drawdown fund will be tested against your remaining lifetime allowance, known as a ‘benefit crystallisation event’ (BCE).
Ask a quick question
We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions Ask us a question and we'll get the best expert to help.
About the author
Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.
Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.