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Pension from a SIPP

PaulCooper
Posts: 292 Forumite


Here's my situation, next year when I'm 59 I'll need to start taking a pension from my SIPP, which has approx £500k in 'crystalised' funds within it.
Outside of the SIPP, completely separate, I have a fund (Aegon) that eminated from contracting out, I've also made a single payment to this recently. Let's assume it has about £60k of 'uncrystalised' funds.
When the SIPP providers value my SIPP (or pension pot), so that they can tell me what the maximum pension is that I can draw---
Paul
Outside of the SIPP, completely separate, I have a fund (Aegon) that eminated from contracting out, I've also made a single payment to this recently. Let's assume it has about £60k of 'uncrystalised' funds.
When the SIPP providers value my SIPP (or pension pot), so that they can tell me what the maximum pension is that I can draw---
- do they take any account of the money outside the SIPP when calculating the maximum pension?
- Would this then be taken into consideration, when calculating the maximum pension I withdraw, or does this part of the SIPP have to be 'crystalised' also?
Paul
0
Comments
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Why are you waiting? The amount you can take is an annual use it or lose it allowance.
The maximum income that can be taken from capped drawdown is calculated independently for each individual pot by each individual pension provider using the value of the crystallised pot. Any other money is ignored except for lifetime allowance calculations.
You can't use money that has not been crystallised for income so the uncrystallised transferred pot will make no difference to the calculation for the other pot.
You can crystallise the moved money if you like, optionally taking the usual tax free lump sum of up to 25%. Most personal pension providers will then combine it with the existing crystallised pot and use one GAD limit calculation date for the combined pot.
It is not necessarily an advantage to have the pots combined to get one GAD calculation date. The cost is lower - just one calculation - but all of the money having the limit changed at the same time increases the income risk due to market volatility. You could instead crystallise independently into two crystallised pots and do it so they have staggered calculation dates. This may take doing the crystallisation at a different pension company from your existing SIPP because pension providers have two ways they can do this, the one big pot way with all combined or individual pots and most have chosen the one big pot approach. Once you crystallise elsewhere, moving it into the same place as your current one will keep it as an independent pot. If there are charges for each sub-account you'd probably pay those charges for each individual pot.
A pot that has been crystallised has to be moved in its entirety. It cannot be split or combined with other pots.0 -
Hi James
Thanks for the answer
The reason for not taking it now, really comes down to my tax position. I'd fall into the bracket of losing more than half of what I'd be taking. So I'll wait until my tax position is different, then max out on the pension up to the 40% bracket
Paul0 -
Have you considered just taking it and recycling the taxable income into more pension contributions? That'll give you a tax gain if you still have annual allowance and earned income available to use.0
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Hi James
Yes I have considered various options, what I've done over the past few years is piled money into pension funds via salary sacrafice, I've maxed out on a few years. I don't want to put more money into my pension wrapper, unless I'm avoiding the 60% 'sweet spot'. Therefore if I get bonuses which puts me in that zone, I'll sacrafice the bit within that zone.
I think I've got enough money within the pension wrapper.
My aim now is to get as much out as I can
do you know the annuity rate that 20% would be added to? I know it's around 5%, but not sure exactly
Paul0 -
PaulCooper wrote: »... my SIPP, which has approx £500k in 'crystalised' funds within it.
Outside of the SIPP, completely separate, I have a fund (Aegon) … Let's assume it has about £60k of 'uncrystalised' funds.
If you have objective reason to think your wife will outlive you, consider leaving the wee one uncrystallised. Then when you die she'll get all of it as a lump sum, tax-free, and without probate delays. You would be taking the view that it would be a particularly remunerative, tax-efficient life insurance policy.Free the dunston one next time too.0 -
Something you might consider doing to some extent is using VCTs. At least one set of them provides around 8-9% tax free income once the effect of the initial 30% income tax refund is taken into account. The 30% is capped at the total income tax paid in the year of investing and has to be repaid if the shares are sold within five years, except after death.
I don't know what your 20% and 5% refer to so without more information on where those numbers come from I can't say anything about them.
I'm unsure why you're buying an annuity when you're relatively young and have a relatively large pension pot. That would normally tend to put you in the good for income drawdown area. Or did you just mean taking an income rather than buying one or more annuities?0 -
Hi James & Kidsmugsy
Thanks for the replies, as constructive as ever
James, I'm not going to purchase an annuity when I take a pension. I'm simply going to use 'income drawdown'
It was this I was referring to
I know the government limits how much income drawdown you can take and it's limited to some 'annuity rate' this was the rate I was refering to as around 5%. I also know that the government allows this rate to be increased by 20% (this 20% being recently re instated by the government after much canvasing)
Hope this explains my ramblings
Kidsmugsy, I hadn't thought of the leaving the smaller pension pot uncrystalised as a 'life insurance policy' very good point, although I think she'll have enough
Paul0 -
You can use this GAD limit calculator to get the current limit value. At age 60 it's currently 6.48% a year at the 120% level with 3.25% 15 year gilt yield. Gilt yields are likely to rise gradually over the next few years and end up nearer 4.5-5%, with the permitted withdrawing being 7.56% at age 60 in that case.
The highest value comes at age 85 and over, when it'd be 17.88% at 3.25% or 18.96% at 4.5%.0 -
Great
Thanks a lot, incidentally where does the 'Gilt Yield' figuire come from?
Thanks again
Paul0 -
The gilt yield is set when gilts are issued, based on market forces in the auction. The applicable 15 year gilt value is taken from the Financial Times on the fifteenth of the month before the one in which drawdown starts, rounded down to the next 0.25% threshold, with a minimum of 2%.
GAD tables that the calculators use behing the scenes are available from HMRC (ignore the female tables, use male for everyone). THe 120% is used on the value looked up in those tables. There are lots of sources for past gilt yields, one is Scottish Life's GAD Interest Rates table. Scottish Life is also one of many places that have a worked example. Nothing special about them, they just happened to be near the top of my search results this time. Here's another source that might be easier to read.
I put together a table showing how permitted drawing varies with age and gilt yield. That uses 100% not 120% becuase 100% is what the rule was at the time I did it.0
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