Decision time for flexible Drawdown!

mickyrod

I am taking early retirement in June this year.
Have around 35k per year db pension and around £64k in a purchase scheme that I have paid into for four years when the company closed the db scheme. (L&G fund)

My plan up till today was always to stop pension payments in March this year. Transfer my L&G fund to Hargreaves Lansdown and take 25% lump sum and flexible drawdown of 100% of the remaining fund. However, I am now having second thoughts. By taking all my fund now I will be paying 40% tax on the vast majority of it. In the area of £9k more that if I just paid 20%. I do not need all the money now, so I am thinking of delaying my first drawdown until April 2013 and just take enough to keep me in the 20% tax band. Questions I have are: 1/ If I go this route will I be able to continue to pay into my pension until June? 2/ What are the ongoing fees likley to be? (I know that there is a setup fee of around £350.

Does my plan make sense? or have a I missed something?

All comments welcome!

5-Star

Looks like you & I are going down the same path (but you before me!) I'm sure others will correct me if I'm wrong but my understanding is that:

1/ If I go this route will I be able to continue to pay into my pension until June?

Yes you can but be aware of the rules around pension recycling if you take a lump sum from your db pension and then pay significantly more in to your SIPP than you have done in the past see www
.hmrc.gov.uk/manuals/rpsmmanual/rpsm04104910.htm
(sorry about the text link - as I'm a newby I can't post URL's)

What are the ongoing fees likley to be? (I know that there is a setup fee of around £350.

I cant answer specifically but I would assume there would be an annual charge for each year there's a payment

5-Star

SippTechie

In answer to the question about making contributions until June this year, if you do this then you must not make your flexible drawdown declaration until 6 April 2013. If you make your flexible drawdown declaration in a tax year in which you make contributions then the declaration is invalid, meaning any later drawdown which exceeds the capped drawdown limit will be unauthorised.

Re fees, I'd suggest looking at the main SIPP and personal pension providers who are offering flexible drawdown and comparing fees. I believe all of the low-cost SIPPs who are mentioned on here now offer flexible drawdown (I work for one of them but won't advertise!).

Think about flexible drawdown as an add-on to normal drawdown when it comes to fees. You'll pay any basic SIPP fees and investment costs, you'll then add on any normal drawdown fees, and then add on the flexible drawdown fees.

I've seen at least one SIPP provider who doesn't charge anything extra for flexible drawdown, but they're not a low-cost provider so you'd be paying higher basic fees for everything else. Amongst the low-cost SIPPs I've seen flexible drawdown fees ranging from less than £100 up to several hundred pounds, but think about the whole package, including what investment charges you might pay.

In terms of what people are doing, the majority of our flexible drawdown clients are withdrawing funds up to their 20% tax limit and I suspect will repeat this until all funds have been withdrawn.

mickyrod

Thanks for the comments. I have now managed to talk to a person at Hargreaves Lansdown and he has given me all the info that I need. I have been very impressed with their customer service!

(I have nothing to do with HL)