SIPP Advice

Olivia111

Hi all,


Could someone please advise me what my options are. I got my pension about 6 years ago and at the time I took 25% of it. The rest I put into drawdown and have been taking a income every year.


With the new rules coming in what are my options, can I take the whole lot, if so will I be able to get first 25% tax free again or will I just have to pay tax on all of it. I have roughly £190,000.


Thanks


Olivia

dunstonh

can I take the whole lot

yes

if so will I be able to get first 25% tax free again or will I just have to pay tax on all of it.

You have had your 25% . You dont get another one. It will be fully taxable.

I have roughly £190,000.

So, why would you want to take it out of the pension?

Olivia111

Hi dunstonh,


Thank you for the reply, I am still only 40 I was able to take my pension early because of my career. I have a mortgage of £73000 costing £436 and a loan costing me £146 a month.


I was thinking of taking the money out of pension paying these off and then investing say £600 a month going forward.


I have other investments buy to let etc, do you think this is a wise move.


Thanks


Olivia

agarnett

I am still only 40 I was able to take my pension early because of my career.

Must be a professional footballer ! Hey hey hey - Up th 'Ammers ! She'll be blowin' bubbles - or at least the champagne will, come 6th April

I think your career was the wise move - the rest is world is your oyster stuff, isn't it? :beer:

jamesd

It's not a good idea to take a lump sum out of a pension to pay off a typical mortgage. This is because unless you have an unusually high mortgage interest rate or unusually cautious investments the money in the pension is expected to grow by more than the mortgage interest cost. So taking the money out for this purpose would actually make you worse off long term, not better off. Instead what you might do is withdraw enough income from the pension to pay the monthly mortgage bill.

It may make more sense for the loan, depending on its interest rate.

Use caution when reading pension guidance here. Because of your career you have an unusual pension type and very few people her will be familiar with the capabilities and limitations that apply to it. Pay particular attention to comments from the professionals like dunstonh and less from those who aren't like me.

Beyond that I'll describe what applies to normal pensions but may not apply to yours.

The changes from 6 April 2015 introduce a new way to get money out, called flexi-access drawdown. That allows unlimited withdrawing. The money taken out is added to your normal taxable income to work out the tax rate that applies, so if someone was to take out say £73,000 it's quite likely that their total income for the year would end up being over say £125,000. Just depends on the rest of their income. Most of that would be taxed at 40% and because income went well over £100,000 they would also lose their whole tax free personal income tax allowance, which starts being withdrawn at £100,000. If the person split it over two years they wouldn't lose their personal allowance. If the person instead happens to have an income of say £30,000 a year they could take out around £12,000 a year and only pay the 20% basic rate of income tax on the money, saving at least 20% on much of it. If you take more than the initial 25% tax free lump sum you have your annual limit for pension contributions cut from £40,000 to £10,000.

The way drawdown is currently available is called capped drawdown. This limits how much money can be taken out after the initial 25% tax free lump sum to something called the GAD limit. Money in capped drawdown can be converted to flexi-access drawdown from 6 April then the limit is removed.

However give your circumstances I think that you might have something called a "scheme pension". If you do you are not allowed to convert it to flexi-access drawdown because that is specifically prohibited in those rules.

The best thing to do initially is to contact the pension people you already have an ask them what type of pension it is and if the new flexibilities will apply to it, or if it can be moved to use them.

If you say more about why you're interested in accessing the money - not just what you want to do but why - we might come up with some alternative ideas. For example, it can often pay to seek a 0% for spending or 0% balance or money transfer credit card to reduce the cost of loans, with the idea being to completely pay off that new borrowing by the time the 0% deal ends.