minimum/maximum for SIPP closure

theGrinch

I heard recently that the government were proposing (indeed it could be now live) a change to allow people with small pension pots to withdraw 100% after a certain age.

What is the current limit on this pot? Is this size pre or post the 25% tax free withdrawal?

jamesd

The limit increased a little this year. The basic limit remains £18,000 for all pension pots combined, after taking out the 25% tax free lump sum. But in addition you can now take all from up to two personal pensions where the value in each is no more than £2,000. Since you can move pensions around it's possible with some creative moves to do it on up to £22,000. There are also triviality rules for workplace defined benefit (final salary type) pensions, again with a capital value up to £2,000.

If you're just over the limit you can do things like transferring to a pension that has charges for certain transactions, then carrying out enough transactions to get you below the limit.

theGrinch

jamesd wrote: »

The limit increased a little this year. The basic limit remains £18,000 for all pension pots combined, after taking out the 25% tax free lump sum. But in addition you can now take all from up to two personal pensions where the value in each is no more than £2,000. Since you can move pensions around it's possible with some creative moves to do it on up to £22,000. There are also triviality rules for workplace defined benefit (final salary type) pensions, again with a capital value up to £2,000.

If you're just over the limit you can do things like transferring to a pension that has charges for certain transactions, then carrying out enough transactions to get you below the limit.

28k after the 25%. the monies were paid into a SIPP over the last few years. no other pension pots.

is it possible to exercise drawdown until the funds are £18k and then withdraw?

jamesd

The value used is the percentage of the lifetime allowance at the time benefits were taken so you can't dodge by drawing income for a while first.

theGrinch

is there another way, by showing income over £20k? is this income from pensions or can other income be taken into account?

thanks for the replies

jamesd

Workplace final salary or similar defined benefit pensions, level or escalating lifetime annuities and the state pensions are the main types of income that count. "Purchased life annuities", a specific type of product, might count, I don't remember and haven't checked. Investment income cannot be included, it must be income that is guaranteed and which you can't stop by selling investments after passing the test. If you do have other income you can raise the guaranteed income by deferring taking the state pensions to get a 10.4% increase for each year of deferral. That may be more efficient than buying an annuity, say.

If that income reaches £20,000 a year you can use flexible drawdown and take out all of this pension pot or as much as you wish. The first 25% is the tax free lump sum and the rest will be taxed as part of your normal taxable income. You can use capped drawdown for a while before using flexible drawdown and you can buy an annuity from the capped drawdown pot if necessary to help you get to the £20,000 target.

jamesd

Here's a table showing the effect of deferring the Basic State Pension. The Additional State pension also increases but I've no idea how much you start with.

No delay: £107.45 if single per week, £5587.40 a year
1 year: £118.41, £6157.31 a year
2 years: £130.49, £6785.36 a year
3 years: £143.79, £7477.46 a year
4 years: £158.46, £8240.16 a year

You can see that it doesn't take that long to get a significant increase in guaranteed income - just four years to add £2100 a year. Plus any increased Additional State Pension. These are in addition to the normal inflation-linked increases each year.

Numbers above are based on 10.2% for deferring, not the real 10.4%.