Personal Pension Scheme options

jimmeee

Hi folks,

Hope someone can help with my question below.

Background:

My brother has a personal pension (worth around 40k) with Prudential. It is maturing in a few months time.

We understand that he can withdraw the whole lot and 75% of the value will be subject to income tax. With his current annual income, it will take his marginal tax rate to over the 40% bracket, so this isn't an ideal solution as it maximises the amount of income tax payable.

He would like to withdraw it in 2 or 3 lump sums over 2-3 years so that the his annual income doesn't go above the 40% income tax level.

Prudential do not allow the pension to be taken out as multiple lump sums over several years. They will only allow it to drawn all at once or taken out as an annuity.

Question:

Can he open a SIPP with a different provider, transfer the pension from Prudential to the SIPP and then withdraw lump sums as he chooses over the next several years? If this possible, are there any pitfalls to look out for?


Thanks for your help,

Jimmy

xylophone

http://www.pru.co.uk/pensions_annuities/pension-freedom/

http://www.ftadviser.com/2015/03/23/ifa-industry/companies-and-people/another-provider-unveils-post-april-pricing-ANAJUYHMqJQJydqxvKaxEJ/article.html

http://www.hl.co.uk/pensions/sipp/transfer-to-the-vantage-sipp

https://www.fidelity.co.uk/investor/pensions/managing-sipp/before-transfer.page

http://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics/contract-based-schemes/self-invested-personal-pensions-sipp

kidmugsy

jimmeee wrote: »

He would like to withdraw it in 2 or 3 lump sums over 2-3 years so that the his annual income doesn't go above the 40% income tax level.

Prudential do not allow the pension to be taken out as multiple lump sums over several years. They will only allow it to drawn all at once or taken out as an annuity.

Question:

Can he open a SIPP with a different provider, transfer the pension from Prudential to the SIPP and then withdraw lump sums as he chooses over the next several years? If this possible, are there any pitfalls to look out for?

Yes; good plan. If he's going to withdraw the money quickly then there's not much point risking it in investments: he could just hold it as cash within his SIPP - or within some other sort of personal pension. The main thing to do is to compare at least two or three providers, particularly comparing their charges. I'm a fan of Hargreaves Lansdown (my SIPP is there): people have also suggested that Virgin are good value if your purpose is to draw the money out in short order.

dunstonh

My brother has a personal pension (worth around 40k) with Prudential. It is maturing in a few months time.

Pensions only "mature" if you tell them to. It could be that its getting to an original nominated age but that doesnt mean it has to "mature". Generally, if you dont need the pension, you dont take it. So, he could defer it until he needs it (if he doesnt need it now)

He would like to withdraw it in 2 or 3 lump sums over 2-3 years so that the his annual income doesn't go above the 40% income tax level.

Why does he want to take the money out of a tax free environment, pay tax on it to bring it into a taxable environment?

How will taking it when he is not retired impact on his retirement planning?

jimmeee

dunstonh wrote: »

Why does he want to take the money out of a tax free environment, pay tax on it to bring it into a taxable environment?

How will taking it when he is not retired impact on his retirement planning?

He wants access to the money now. I've explained the downsides to him about taking it now, but he really does need it. My suggestion to him was that if he really wanted to take it, then to spread it out over the next 2-3 years to ensure he doesn't get taxed at 40%.

stubtoe

Hi,

If he does really need the money, that's his decision to make and you've obviously done your best to explain the downsides. When shopping around for a suitable SIPP, watch out for closure fees and the like as some providers will let you take withdrawals free of charge but then slap on an exit fee when you take the last bit out.

jimmeee wrote: »

If this possible, are there any pitfalls to look out for?

Probably unlikely as you've said plan is 'maturing' (which is usually provider speak for plan 'normal retirement age'), but worth checking just in case - ask Prudential if there are any penalties that would be incurred for transferring to a new pension or guarantees/bonuses etc that would be lost.