Cant cash in pension until 60

Old_Slaphead

jem16 wrote: »

Presumably in transferring to a SIPP, you were then going to take the 25% tax free and put the rest into drawdown.

In my case I certainly wasn't planning to do anything for a few more years yet. At some future date I would choose between drawdown or annuity - am I correct in my understanding that SIPP funds can still be used for either assuming that I've previously taken the 25% cash?

How does future tax free cash work assuming such a transfer of PPP/Stakeholder funds into a SIPP.

Suppose I currently have say £50k in a SIPP and transfer in £45k (say £60k less 25% cashed) from a PPP/Stakeholder.
When I come to utilise SIPP funds in drawdown/annuity - how much tax free cash can I take? Fund value x 50/95 x 25% ??

jem16

Old_Slaphead wrote: »

In my case I certainly wasn't planning to do anything for a few more years yet. At some future date I would choose between drawdown or annuity - am I correct in my understanding that SIPP funds can be used for either?

You would normally be able to use either.

lvader

There is nothing to stop you from doing both, that is what I was intending to do.

jamesd

You can do any combination of the two or something like drawdown then buying an annuity a year for ten years.

If you're 55 now, one good option for a personal or work defined contribution pension can be to enter drawdown immediately and reinvest the income in a new pension. That will get you a second chunk of tax relief and new 25% tax free lump sum. If you're in a salary sacrifice pension scheme you can even get a second chunk of NI saving.

If you think you'll be limited by the GAD cap on drawdown and don't want to retire until after 55 one good option can be entering drawdown at 55 and investing the income outside the pension to accumulate a lump sum that can be used to exceed the GAD limit. Tax rates might make this undesirable if you'd be in higher rate doing it and basic rate after retiring. For higher rate the recycling route is probably better anyway.

Drawdown tends to be best at relatively young ages like 65 and younger, when annuity rates aren't particularly high. Studies have suggested 75 or older as being the age at which buying annuities tends to start being a better deal than drawdown for an objective of maximising lifetime income.

Drawdown can also be good as a holding measure in situations like the current one where unusual economic conditions are suppressing interest and annuity rates.