Crystalised versus Uncrystalised Splits in SIPP Platforms

Chordeiles

kidmugsy wrote: »

That's how my SIPP is at Hargreaves Lansdown: one account is called "SIPP" and the other "drawdown SIPP" if I remember correctly.TFLS.

If you had more than £250,000 of funds in your SIPP when you started drawdown, then Hargreaves Lansdown are cheerfully charging you extra for this split. Because the breakpoint for lower fees gets applied to each of these two accounts separately, so every fund moved from "SIPP" to "drawdown SIPP" moves from 0.25% to 0.45% charge.

If your investments weren't funds then of course the charges are capped at only £200, but even then this cap applies to BOTH accounts, therefore with the potential to double your charges (which sounds dramatic, but small beer compared to the eye-watering fees for holding funds).

So we can see the benefit of dual accounts to Hargreaves Lansdown, but I'm not sure what is in it for the customer !

gibbo888

The way i have been told and i am not 100% that it is true, is for example i have 100k (simple maths)
25% tfls 75% normal

If i crystalise say 20K out of the whole pot, so (5k tfls 15k) taxable at rate.

if then the remaining uncrystalised 80k goes back upto 100k, i then have an equal split 25/75 again.

so i could repeat this very unlikely and simplistic approach over and over and still retain my 25% tfls.
so in theory you will always have 25% uncrystalised TFLS.

Not sure on allocations of pots of money, what goes where etc.

Chordeiles

gibbo888, your understanding is spot-on. But this is the very simple case for which UFPLS was invented.

My problem comes when we add the small twist (to your own example) that in the first crystallisation you take the 5k TFLS but choose to leave the 15K invested - still inside the SIPP (there are lots of valid reasons for wanting to do this, but maybe this isn't the place to discuss them).

In this case what happens to the growth in the 15k portion ? Clearly in the "two account" solution the growth in the 15k is in the "already crystallised" account, so it would appear that there will be no chance of taking any of that extra growth tax-free. But if a pension can be run in phased drawdown in a single account (and with many providers it can) then further growth in the 15k will be indistinguishable from growth in the 80k, and might lead to slightly greater TFLS sums in the future.

But I don't know, maybe too much to hope for, perhaps the providers who continue to use a single account are forced by legislation to apply an accounting solution that calculates the growth in the "crystallised and taxable" sum in proportion to the growth in the invested SIPP as a whole. It wouldn't be a simple calculation, bearing in mind that (to variable extents depending on the situation) contributions to the SIPP are still possible !

These are questions that could be important to those of us who are on the brink of drawdown, but it isn't easy to get the answers ! However in my case when I realised that going into drawdown would add to my (already iniquitous) Hargreaves Lansdown charges (in spite of their scale of charges stating that there are no charges for drawdown !) I started to look for a provider with a one-account solution - or at least one that applies charges in a less sneaky way.

zagfles

Chordeiles wrote: »

gibbo888, your understanding is spot-on. But this is the very simple case for which UFPLS was invented.

My problem comes when we add the small twist (to your own example) that in the first crystallisation you take the 5k TFLS but choose to leave the 15K invested - still inside the SIPP (there are lots of valid reasons for wanting to do this, but maybe this isn't the place to discuss them).

In this case what happens to the growth in the 15k portion ? Clearly in the "two account" solution the growth in the 15k is in the "already crystallised" account, so it would appear that there will be no chance of taking any of that extra growth tax-free. But if a pension can be run in phased drawdown in a single account (and with many providers it can) then further growth in the 15k will be indistinguishable from growth in the 80k, and might lead to slightly greater TFLS sums in the future.

But I don't know, maybe too much to hope for, perhaps the providers who continue to use a single account are forced by legislation to apply an accounting solution that calculates the growth in the "crystallised and taxable" sum in proportion to the growth in the invested SIPP as a whole. It wouldn't be a simple calculation, bearing in mind that (to variable extents depending on the situation) contributions to the SIPP are still possible !

These are questions that could be important to those of us who are on the brink of drawdown, but it isn't easy to get the answers ! However in my case when I realised that going into drawdown would add to my (already iniquitous) Hargreaves Lansdown charges (in spite of their scale of charges stating that there are no charges for drawdown !) I started to look for a provider with a one-account solution - or at least one that applies charges in a less sneaky way.

Try negotiating a discount on the charges with HL - people with that sort of holding with HL have reported negotiating charges of 0.25% or less on the whole lot when threatening to leave.

Chordeiles

zagfles wrote: »

Try negotiating a discount on the charges with HL - people with that sort of holding with HL have reported negotiating charges of 0.25% or less on the whole lot when threatening to leave.

Thanks, I'm recently aware of that, awaiting a result at the moment. The clue is in the current "cashback" offer for moving accounts to them (£500 for moving £150,000 worth), just shows how much they make out of their customers. New charges would need to be 0.25% or lower on the whole lot to re-validate their claim that there are no charges for drawdown.

Even so ATS would probably still be cheaper. Could be we'll move my wife's (smaller and less complicated) SIPP to ATS as a way of dipping a toe in the water.

Less worried about HL's ISA charges, we already keep only shares (including ITs and ETFs) in our ISAs as a way of keeping costs down, and the HL charges are perfectly reasonable with the cap.

gibbo888

Chordeiles wrote: »

In this case what happens to the growth in the 15k portion ? Clearly in the "two account" solution the growth in the 15k is in the "already crystallised" account, so it would appear that there will be no chance of taking any of that extra growth tax-free. But if a pension can be run in phased drawdown in a single account (and with many providers it can) then further growth in the 15k will be indistinguishable from growth in the 80k, and might lead to slightly greater TFLS sums in the future.

Again, i may be being too simplistic here, but if you draw the 20k in my analogy, and then "spend" the 5k leaving 15k and then reinvest the 15k. seen as you already have paid an amount of tax on this figure, would it not be wiser to put this 15k into an isa? same investments? that way it can "grow" at the same rate as your remaining 80k then any growth of this 15k is tax free anyway?

jamesd

Gibbo888, the 75% is tax free until you take it out. But you're right that it could be best to take it out and put it into an ISA. Partly depends on whether you'd have any tax to pay and the tax rate. If your income would still be within your personal allowance there would be no tax to pay anyway.

It's always a 25%/75% split otherwise, unless you just choose to take less than 25%, which is allowed. After taking the initial £20k as £5k tax free and £15k taxable you could take £20k tax free from the remaining £80k if you wanted to.

There is a limit if you're going above the lifetime allowance, you can only take 25% of your remaining allowance tax free. So typically a quarter of a million tax free and the rest not.

jamesd

Chordeiles, you've described a nice tax evasion scheme for those who never reach the lifetime allowance and a way to create a higher lifetime allowance charge bill for those who do, who would normally benefit from maximising the crystallised amount. Unless you can get a clear answer, which seems hard, you should expect that if you crystallise ten percent then ten percent of the pot value will be used as the crystallised portion, evenly splitting the growth. Then somehow they have to adjust that ten percent to take account of any income you take, perhaps reducing it by the income taken as a percentage of the combined pot.

Using different pots provides simplicity of administration for the people whose money it is, you always know what's in each pot and how your investment mixtures are the same or different between the pots.

It also lets you create multiple crystallised pots that can be moved to the place offering the lowest charge for what you want to do, without being caught out by the requirement to move a whole crystallised pot at once and never combine them. So you might have say a £50k crystallised pot with HL for their nil drawdown fee and others where it's cheaper to hold funds.

If a combined pot is going to be used you need to know the rules before choosing the product because it can help or hurt you depending on your specific situation.

Chordeiles

Hi jamesd, many thanks for your thoughts ! I hadn't considered the lifetime allowance (because it doesn't apply to me, though I appreciate that I'm in a happier position than many even though my SIPP and ISA are nearly all I have - no company pension).

After I posted my last thoughts on my "scheme" I realised that though the calculations to keep track of crystallised versus non-crystallised portion of a single account seem complicated to me, they are as nothing compared to what a fund manager has to do daily to calculate the fund price of income versus accumulation units, not to mention all the different share classes (with varying fees), all the while with funds flowing in and out. So once the spreadsheet is written (and approved by the auditors) then it's doubtless no problem to apportion growth between the crystallised and uncrystallised parts of a single fund (but I remain curious how the result would be presented to the customer, maybe I'll find out in due course).

Thanks for pointing out the potential advantage of the separate pots in the event of moving providers with the possibilty of splitting them. I really ought to have that at the top of my mind if I'm considering moving to a new provider that I may not like for some unforeseen reason ! But the idea of a single pot (without the hassle of deciding which ongoing investments should go in which pot) still seems attractive to me.

jamesd

Fund managers don't do anything involving crystallised and uncrystallised. It's for the pension firm to do that. If you have 5% in cash, 20% in a bond fund and 75% in a global tracker fund the pension firm has to apportion the value of those in some way.