Flexible Drawdown?

SeniorSam

I'm still considering the advantages of Flexible Drawdown or the Drawdown from my SIPP. If I choose the flexible route, I would need to make up my present state and small additional pensions from £15,300 to the £20,000 requirement and at age 72 now, that would mean finding about £75k to buy an annuity. Having retired a couple of years ago, am I allowed to use existing capital for that purchased annuity, or am I limited?

In addition, if I go along the flexible route by reaching the £20k pensiion income, how do I then opt for flexible drawdown? Can I simply draw off my SIPP as required, with the first 25% being tax free, but leave the pot invested? What are the rules on this please?

Sam

atush

You can buy an annuity with any of your money, it is not restricted to pension pots only.

I believe the 20K must be SECURE income (ie guaranteed) so it can't be income from reg DD.

SeniorSam

Thanks for your reply Atush. So, I can therefore use my own capital of, say £75,000, to buy a level annuity of approximately £4,700 +, which together with my present State and private pensions of £15,300, take me above the £20,000 required in order for me to claim Flexible Drawdown on my SIPP pot. Is that correct please?

Can you also answer the second part of my original question?

redbuzzard

I don't see the point in annuitising ordinary savings to do flexible draw down on pension funds, since you can do as much "draw down" as you want on the savings anyway. Why wouldn't you use part of the SIPP pot first for the necessary annuity purchase?

There will be some tax on an annuity purchased with savings, calculated on the deemed interest element, which means that you can't shelter those "savings" from tax in an ISA for example.

Re the second part - speak to your SIPP provider regarding the mechanics. If you organise it properly you should be able to take 25% of the total pot tax free. So you would crytallise say £100k to provide £75k for the annuity and £25k tax free, then the other part would also split 25% tax free and leave the rest available for taxable draw down rather than annuity purchase or capped drawdown. Yes, you can draw what you want and the rest stays invested.

I may well have missed something here, in which case I would be interested in that too!

atush

I believe that is correct. But we'll have to wait for one of the 'professionals' to say.

As far as flex DD, yes the first 25% is tax free, and the rest would be taxed at your highest rate. So you might not want to draw it all the first year, as it could put you over into the 40% HRTax band. So you could take it out a big wadge at a time, keeping your income below that.

But I am not sure it is wise to use 75K for the annuity if it already has a tax wrapprer (such as say S&S ISAs). I would use unwrapped funds or the Sipp as above.

SeniorSam

Just thinking outloud and wanting answers. I have a pension income of £15,300 and as such, can I get tax relief on any pension investment I make? If so, using 'money' from savings or from a pension tax free cash sum, could get a benefit?

Redbuzard said 'There will be some tax on an annuity purchased with savings' which I don't really understand, because any pension income is taxed?

I do understand the SIPP tax free cash of 25% and then opting for drawdown within GAD limits, but perhaps I would have a benefit if I could draw out all of the pension fund, (if needed), as and when required, by opting for the 'Flexible Drawdown' ? If I do that and free up the whole pension pot to draw as I wish, can it remain invested in the present funds, as if it was still to be a drawdown SIPP? Not sue if the rules of changing to a Flexible scheme would change that???? OR, is it just that provided there is a pension income of £20k or more, the whole pension pot can be considered as 'available' and no real change to investment rules?


Sam

redbuzzard

SeniorSam, annuities bought with pension money and those bought with savings are treated differently for tax.

They tax the pension annuity because you had tax relief when you saved it.

The income from the kind you buy with savings is deemed to be partly return of capital (no tax) and partly interest (taxable and paid net at standard rate of tax).

Yes a SIPP in flexible draw down can stay invested in the same funds if you wish.

kidmugsy

Back when Flexible Withdrawal was announced I saw several articles warning that a Purchased Life Annuity would NOT count towards the £20k p.a.

redbuzzard

kidmugsy wrote: »

Back when Flexible Withdrawal was announced I saw several articles warning that a Purchased Life Annuity would NOT count towards the £20k p.a.

That would be an even better reason not to use one for that purpose

mania112

kidmugsy wrote: »

Back when Flexible Withdrawal was announced I saw several articles warning that a Purchased Life Annuity would NOT count towards the £20k p.a.

That's correct.

SeniorSam

mania112 wrote: »

That's correct.

It would be good if a 'Professional' could confirm that is the case. Seems odd that this has not been confirmed by one of the usually helpful guys.

Sam
PS Just checked others and that is so. Thanks for the help. So even though I have existing pensions of £14,654 and have contributed substantially to other pensions that have now been transferred into a SIPP, I am unable to convert any of that to a secure income ?