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A Guide to Crystallisation

Updated: Jul 20, 2022

Crystallisation may seem like a minefield - but it's very simple.

Many people don’t realise what crystallisation means. It may sound incredibly complex, but it’s very simple.

The term ‘crystallised’ simply refers to the benefits you can start to take, and spend, from your pensions.

If your pension is uncrystallised you can’t touch it. The quantity crystallised is the amount of your pension used to start paying your pension income, plus any amount used to pay you a tax-free lump-sum.

To undertake phased crystallisation, Reeves Independent advise you to only crystallise enough of your pension for the income you need - your pension is not a bank account. As always, we want to make sure you make the smartest decisions possible and remain flexible in your approach to your investments and pension. We review this with you twice-a-year to ensure you maximise allowances and keep your retirement on track.

Caroline Chambers is a 56-year-old Senior Line Manager for a telecommunications company. She recently became a grandmother and wants to make sure she spends as much time with her new granddaughter and help her son with childcare. As such she drops down to 3 days-a-week. She has £20,000 from income but will need another £10,000 to cover her expenditures.

The way to arrange this is to crystallise £40,000 of accrued, untouched pension. By doing this £10,000 can be paid out to Caroline – this can be done as a one-off payment or one a monthly basis. £30,000 can then be moved into a flexi-access drawdown pension. This way the money is still invested and within a pension wrapper – it’s a win-win situation.

However, if withdrawn from a pension pot, it’s subject to a marginal rate of tax. By leaving the money in an accrual pension, and not touching it for as long as possible, less tax will be paid for the longest time possible.

It’s certainly a huge benefit to consider – Reeves Independent can help you to get the most out of your investments.

Names have been changed to protect identity. These articles are for information only and are based on specific client circumstances which may be different to yours. No advice should be conferred from the articles. No action should be taken without independent professional financial advice as any actions on your pension may be irrevocable and have a big impact on your income in retirement.

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