Practicalities of SIPPS Income Drawdown

SallyG

About putting a pension pot into a SIPP to produce income for income drawdown - how does it work - what would I have to do on a day to day basis?
Assuming a fund of £100k: would I be allowed to transfer that into a SIPP?
Is there any point going into a SIPP and not investing in company shares?
How much would be taken in charges?
How would I decide where to invest initially on going in and after that what happens? When/how often would I have to take action - what sort of action?
Who would be running the SIPP day to day and what decisions would I have to make.
Who reviews it/how/when?
What happens when/if the capital is eroded - below a certain fund level would I be prevented from taking any income?
What happens to the pension moved into a SIPP if I do nothing?
Once I've put my pension fund into a SIPP is there any way out?
Apart from a SIPP what other sorts of pensions enable income drawdown?
Why can't I use my Stakeholder as an income drawdown pension?

yelf

I think you need to see an IFA.
Stakeholders cant go into drawdown - they're not desgined for it.
Lots of other pensions allow drawdown.
If the captial is ereoded below a xcertian point then tough: no ones going to stop that from happening other than you.
IFAs review them - at least annually.
You wiuld be running the sipp on a day to day basis.
"How would I decide where to invest initially on going in and after that what happens? When/how " - see an IFA
"How much would be taken in charges?" - that depends
]"Is there any point going into a SIPP and not investing in company shares?" - pension funds have to stay in the pension world, but you can invest in shares within a sipp.

jamesd

SallyG wrote: »

About putting a pension pot into a SIPP to produce income for income drawdown - how does it work - what would I have to do on a day to day basis?

Nothing on a day to day basis except spend the income.

SallyG wrote: »

Assuming a fund of £100k: would I be allowed to transfer that into a SIPP?

Yes, it's easily sufficient.

SallyG wrote: »

Is there any point going into a SIPP and not investing in company shares?

Maybe, it depends on which investments you want to use. If you're sticking to using funds (unit trusts, OEICs and similar) then a SIPP might be more expensive than a personal pension. Or not. it depends on the investments used and the charges of the provider. An expensive IFA selling you a personal pension could make it more expensive than a SIPP from a reasonably competitive SIPP provider.

SallyG wrote: »

How much would be taken in charges?

Depends on how you buy it and which one you buy. IFA charges and fund-based charges will be the main ones. Some of the IFA charges may be taken from an initial charge or annual charge from the investment provider that is then rebated to the IFA.

SallyG wrote: »

How would I decide where to invest initially on going in and after that what happens?

You already know or you'd ask an IFA to make recommendations. Don't go to a high street bank for this, they aren't generally authorised or trained to do it and will give you a limited range of investments from which you must pick, which sometimes fools people into thinking that they have received personal investment selection advice.

SallyG wrote: »

When/how often would I have to take action - what sort of action? Who would be running the SIPP day to day and what decisions would I have to make.

Changes in stock markets may make it appropriate to change investments. Changes to income desires may make it appropriate to change investments.

SallyG wrote: »

Who reviews it/how/when?

If you can't do it yourself you should arrange for an IFA to do it at least once a year. A mandatory review at the start and every five years is required to work out what the GAD limit is for the maximum amount of money you're allowed to take out of the pension each year. The GAD limit is a Government Actuaries department (GAD) examination of the market for annuities that is used as a basis for how much you can take, currently set at 120% of the annuity available. Proposals have just been made to reduce incomes to 100% of GAD level.

SallyG wrote: »

What happens when/if the capital is eroded - below a certain fund level would I be prevented from taking any income?

The GAD limit will be reduced in the next review but you wouldn't be prevented from taking any income at all unless you ran out of money. the GAD limit calculations are intended to make it hard for that to happen but repeated very bad investment decisions could manage it.

SallyG wrote: »

What happens to the pension moved into a SIPP if I do nothing?

It stays in cash and your pension pot value and permitted income decrease much more rapidly than if you'd invested the money.

SallyG wrote: »

Once I've put my pension fund into a SIPP is there any way out?

You can transfer into providers or use some or all of the money to buy an annuity whenever you like.

SallyG wrote: »

Apart from a SIPP what other sorts of pensions enable income drawdown?

Non-SIPP personal pensions also allow this, though not all providers will offer the option, some might only offer annuities, and some not even a decent range of annuities.

SallyG wrote: »

Why can't I use my Stakeholder as an income drawdown pension?

You may be able to, depends on what options your stakeholder provider offers. They aren't forced to offer drawdown if they don't want to and it'd probably involve a switch to a different product they offer.

You set up the amount of income you want to take out of the pension each month, possibly restricted by the GAD limit. With some drawdown pensions it might be just the income paid from the investments, with others it might be a fixed amount and you need to ensure that there's enough cash in the SIPP account to make the payments -you do that with the income from investments and by selling investments when required. You pick the investments based on how much income you want to take out and maybe periodically sell some to keep enough cash to make the payments in the SIPP account.

That income gets paid into an account you nominate, I suggest a savings account. You set up a standing order from this savings account into your normal current account, just like pay. You start out by putting at least six months worth of payments into the savings account, better a year or two. This is to smooth out the income payments from the pension. If you make savings outside this I suggest using a different savings account, so you keep this one dedicated to a buffer job and can easily see whether the buffer is going up or down. The buffer role is more important for cases where you are taking out only the income paid by the investments, which comes regularly but maybe quarterly, twice a year or once a year.

middlepuss

SallyG wrote: »

About putting a pension pot into a SIPP to produce income for income drawdown - how does it work - what would I have to do on a day to day basis?

Have a look at the Hargreaves Lansdown website. It explains how simple it is to open a SIPP. Also easy to transfer other Stakeholders etc to them.

H-L may not be the best option for you but their website is easy to understand and will give you some useful info.

Cautious_Investor_3

Hi

There have been some great replies but I really do think that because the OP has had to ask so many questions then advice from a suitabily qualified IFA is vital.

Without doubt gather information from sites such as this, it enables you to ask better questions, but in this case I'd definitely suggest advcie is sought.

Speak to friends and family to see who they have used or go to www.unbiased.co.uk to source a suitable IFA.

The Cautious Investor

dunstonh

Apart from a SIPP what other sorts of pensions enable income drawdown?

personal pensions and drawdown plans. The biggest provider of unsecured pensions uses a personal pension, not a SIPP.

Why can't I use my Stakeholder as an income drawdown pension?

Technically you can. The rules allow it. However, there isnt a provider out there that does it because the restrictions of the stakeholder and the market it is really designed for (the bottom end) wont typically go with unsecured income. Plus, most personal pensions can wipe the floor with stakeholders in cost.

Unsecured pension income is considered a higher risk transaction by the FSA. When it goes right you can do very well out of it. When it goes wrong, you can lose a lot of money (and see your income reduced). Some rules are being changed which actually reduces some of the risk. However, it is not a transaction you should go into without knowing all the pros and cons. It is vital to have the correct investments and a strategy in place (not some random selection of investments). There are a few different strategies that can be used which aim to be effective and often are, even through periods like we have had recently. However, get it wrong or suffer a 1 in 100 year event and you could be in big trouble.

SallyG

Thanks for such caring replies - I will see an IFA but I've found it saves money to educate yourself as much as poss and then you know better what to ask - saves time and helps you spot a wrong un more easily - so many thanks for your help.
I find IFAs intimidating - they never seem to start off with the basics, everything seems to be in percentage terms which I find difficult to deal with and you have to think on your feet = like failing O-level maths all over again.
Funnily enough none of my family have had anything other than a final salary pension - even my dad who started out as a miner had a defined benefit pension - DC pensions have been a nasty shock.

dunstonh

I find IFAs intimidating - they never seem to start off with the basics, everything seems to be in percentage terms which I find difficult to deal with and you have to think on your feet = like failing O-level maths all over again.

Be prepared for that again then. Unsecured pension income is not a basic transaction. It is a high risk transaction. It will come with pros and cons with no guarantee of anything. It will have a range of risk warnings and judgement calls. Percentages will come into it not only when you take it out but every year it is reviewed (including the mandatory review points).

It is a transaction designed for someone who takes a greater interest in their finances and is able to understand investments, risk vs reward, potential pros and cons etc. You need to put the effort in.

That said, most IFAs are not intimidating and can explain things in clear English. However, we do have a lot of disclosure requirements and do need to focus on your ability to understand. If you were to complain about it down the road, the IFA has to show not only that it was best advice for you but that you also understood and had the ability to understand a high risk transaction. That doesnt mean you need to know every single bit of detail. It means that you have to know the key risks and how they compare to alternatives. The only way the IFA can evidence that is to tell you and document it.