Ufpls

cogito

Apologies if this has been asked and answered previously.


My wife retired 4 years ago and we have been living off my state pension and SIPP. I'm 66 and she will be 55 shortly so will have access to her own SIPP.


We proposed to take £10,600 from her SIPP to cover her personal allowance and reduce my own drawings by the same amount to save on tax.


Our SIPP provider says that under the new rules she must actually take £14,133 consisting of £10600 as income and the balance as tax free cash. The fact that we neither want nor need tax free cash seems irrelevant, neither can we put £3,600 back into her SIPP as that is considered to be recycling. (Maybe we could put it into my SIPP instead to get round this)


We also asked for the income to be paid monthly but have been told that this cannot be done and we must take the full £14,133 as a lump sum. Again, we don't to take a lump sum as we prefer to leave the money invested.


Have I been informed correctly?

sandsy

Providers themselves can decide (a) whether to offer UFPLS at all and (b) how frequently to let customers take income via UFPLS. So if that's their position, then yes, you have been informed correctly.


If you proceed and will only take payment after the start of the new tax year, you might want to check how they intend to tax the money as despite the fact that it's a yearly amount, it may be taxed as though it was the first of 12 monthly amounts.


Alternatively, you could ask for a once off payment of £883. Then again the following month. And the following month and so on... depending, of course, on your SIPP provider's withdrawal charges and minimum withdrawal requirements.

xylophone

http://www.metlife.co.uk/uk/Documents/Technical_Library/1677-Pensions_flexibility_from_6_April_2015-Technical_guide.pdf

Is flexi access drawdown not available?

There are numbers of pensioners with no earned income who take advantage of the ability to pay £2880 into a pension scheme and receive tax relief of £720 - if worried about recycling, you can give your wife a present enabling her to do so?

If your wife's SIPP provider is inflexible, she could transfer elsewhere?

http://www.thisismoney.co.uk/money/pensions/article-2999665/Pension-revolution-Beware-240-charge-using-pension-like-cash-machine.html

kidmugsy

There's no rule against recycling pension income: the restriction is on recycling TFLS.

P.S. If you are in good health it's worth considering rearranging your own income by deferring your state pension in return for extra pension when you restart it: 10.4% for every year deferred. And heritable (in part) by your widow.
https://www.gov.uk/deferring-state-pension/what-you-may-get

redbuzzard

cogito wrote: »

We proposed to take £10,600 from her SIPP to cover her personal allowance and reduce my own drawings by the same amount to save on tax.


Our SIPP provider says that under the new rules she must actually take £14,133 consisting of £10600 as income and the balance as tax free cash. The fact that we neither want nor need tax free cash seems irrelevant,

That is how UFPLS works - every withdrawal is 25% tax free so you can take £10,600 if you wish but only £7950 will be taxable so your wife will still have unused allowance.

If she takes £14133, she will still pay no tax as £3533 will be tax free.

I suppose you could just reduce your income draw further to balance it out, or put the "excess" back into tax shelter i.e. an ISA?

If you really don't want to have tax free income from your own SIPPs, you can put it all into flexi drawdown and elect to have no PCLS, making the whole lot taxable (subject only to her allowances) but why would anybody do that?

Answers own question...would you rather have unused money in the pension than in an ISA so it can be inherited outside of IHT?