Take 25% lump sum or not?

jamesd

terin wrote: »

If you have £100K SIPP and you decide to 'crystallise' £40K but take out only £10K tax free, where does the other £30K go? I imagine it stays in the SIPP.

It stays in the SIPP. In almost all cases you will end up with two different SIPP sub-accounts, one for the uncrystallised £60k and one for the crystallised but not yet withdrawn £30k. I only know of one DIY place that doesn't do it this way.

"plan" is just one way of saying SIPP or other pension plan. A more generic word than SIPP that would include personal pensions that aren't SIPPs.

terin wrote: »

So if you're invested in S&S you have to sell £40K of them and wthdraw £10K as cash then buy S&S back again with the remaining £30K that is crystallised but not withdrawn? Or you just sell £10K of S&S and withdraw the cash, and fill out some forms telling the SIPP provider that you have taken £10K in cash and to treat £30K of your remaining SIPP invested in S&S as crystallised.

The SIPP provider will sell the investments then buy them back again outside the SIPP. They also have to deduct the income tax due on the 30k taxable part and you can reclaim that from HMRC.

terin

Thanks! Well it does look like things get more complicated as soon as you want to start taking withdrawals from the SIPP. But thank you for explaining.

terin

jamesd wrote: »

It stays in the SIPP. In almost all cases you will end up with two different SIPP sub-accounts, one for the uncrystallised £60k and one for the crystallised but not yet withdrawn £30k. I only know of one DIY place that doesn't do it this way.

"plan" is just one way of saying SIPP or other pension plan. A more generic word than SIPP that would include personal pensions that aren't SIPPs.

The SIPP provider will sell the investments then buy them back again outside the SIPP. They also have to deduct the income tax due on the 30k taxable part and you can reclaim that from HMRC.

Does this mean where now in my SIPP (with YouInvest) I have a simple portfolio of a dozen funds and I rebalance them every so often. But once I withdraw anything from the SIPP I end up running two parallel portfolios, one crystallised but not withdrawn, and one uncrystallised? Well it does look like things get much more complicated as soon as you want to start taking withdrawals from the SIPP. But thank you for explaining.

jamesd

Yes, I think that is what they do, though you could phone them to get confirmation.

rtaylorman

jamesd wrote: »

Yes, I think that is what they do, though you could phone them to get confirmation.

That's not good news. So during the accumulation phase running the SIPP is nice and simple, just rebalancing the portfolio of funds as necessary. But once you start to withdraw anything you have to hold and rebalance two portfolios and double the dealing costs? If it doubles the amount of dealing and dealing costs that's good for the platform provider so I can see why the system is set up that way. :mad:

jackyann

I have a small private SIPP in which the pension payments increase in line with inflation (as does my public service one) so I take the payments.
Is this likely to be an issue in this case?

jamesd

rtaylorman wrote: »

But once you start to withdraw anything you have to hold and rebalance two portfolios and double the dealing costs?

It's usually irrelevant because it's usually best to take the tax free lump sum from the whole pot and leave yourself with just one crystallised pot for the money.

Another one would be used for ongoing contributions of £3600 a year but that's cheap enough since it's easy to get efficient no cost buying for this. Or to pay it in as a lump sum and crystallise soon after that without doing any buying transactions, so it joins the rest in the one crystallised pot.

jamesd

jackyann wrote: »

I have a small private SIPP in which the pension payments increase in line with inflation (as does my public service one) so I take the payments.
Is this likely to be an issue in this case?

Since you're taking benefits presumably from your whole initial pension pot you've already taken all of the 25% tax free lump sum you can take so no, the choice of when and how much tax free lump sum to take is no longer an issue for you.