Implications of withdrawing from a SIPP?

zolablue25

Hi


I have a very small pension provision that consists of several smaller pots. I also have savings outside of my pension pots that are equivalent to about 3x my annual salary.


I have always liked having money I can get at in a hurry should an emergency occur.



I am now approaching 55 and thinking that I should be transferring much of my savings to a SIPP to take advantage of the tax relief available (Basic rate tax payer)


I think that when I reach 55 I would be able to get access to these SIPP funds for any emergency - is this correct? If I am correct are there any implications from withdrawing these funds (other than the obvious reduction in pension at retirement)? Would I be restricted in how much I could continue to add to my pension savings? Anything else to consider?


Thanks

kidmugsy

zolablue25 wrote: »

I am now approaching 55 and thinking that I should be transferring much of my savings to a SIPP to take advantage of the tax relief available (Basic rate tax payer)

I think that when I reach 55 I would be able to get access to these SIPP funds for any emergency - is this correct?

Yes. Depending on the provider you may have to wait for about a month before the money arrives in your bank account. Check their T&Cs.

zolablue25 wrote: »

If I am correct are there any implications from withdrawing these funds (other than the obvious reduction in pension at retirement)? Would I be restricted in how much I could continue to add to my pension savings?

If you withdraw anything in excess of your 25% tax-free lump sum you (and your employer) will be limited to a £4k per tax year contribution: contribute more and you face tax penalties that would make the extra contribution pointless.

What would you plan to invest in within the SIPP? If you prefer to hold cash you can get far better interest rates unwrapped than you do in a SIPP.

zolablue25

kidmugsy wrote: »

Yes. Depending on the provider you may have to wait for about a month before the money arrives in your bank account. Check their T&Cs.



If you withdraw anything in excess of your 25% tax-free lump sum you (and your employer) will be limited to a £4k per tax year contribution: contribute more and you face tax penalties that would make the extra contribution pointless.

What would you plan to invest in within the SIPP? If you prefer to hold cash you can get far better interest rates unwrapped than you do in a SIPP.

Thanks KM. So, provided I don't take more than the TFLS I would be OK but anymore and I (and my employer) can only put £4K in - got it.


I wouldn't hold it in cash, it would be put into funds. If I wanted to hold cash, though, it would need to be a significantly higher rate outside the SIPP to compensate for the tax relief wouldn't it? Or have I misunderstood (again).?

kidmugsy

zolablue25 wrote: »

it would need to be a significantly higher rate outside the SIPP to compensate for the tax relief wouldn't it? Or have I misunderstood (again)?

You have to remember the tax relief is a form of tax deferral - you will have to pay tax on 75% of the money when you draw it out.

Unless - and this would make a SIPP excellent - you draw the money out when you are not a taxpayer e.g. when your Personal Allowance versus income tax is bigger than your income.

p00hsticks

zolablue25 wrote: »

I wouldn't hold it in cash, it would be put into funds.

Which doesn't really sit well with your initial statement that

zolablue25 wrote: »

I have always liked having money I can get at in a hurry should an emergency occur.

atush

you are limiited by 40K or your enture earned income, whichevere is lower. So you cant really put all yoru savings in your Sipp.

I would hold some emergency cash outside the sipp. Maybe 6 months outgoings or up to 12 if you want to hold some more as cash. Then put the rest into pension.

LHW99

I wouldn't hold it in cash, it would be put into funds.

Then why take it out of the pensions? If these are all DC schemes, you could tranfer them into a single DIY SIPP, and invest in the funds you want there. That means you have a chance of them growing tax free, and could take a larger 25% when you actually need it. rather than taking it immediately.
This assuming you mean "DC pots" and one or more is not a deferred DB scheme.

zolablue25

Sorry. I realise now that I have confused things with very generic statements. I know I can only add in to my pension fund my earnings (less 20%) each year. I would do this over a few years. I also wouldn't put all of my savings in but I have funds that can either go in to an ISA or a SIPP. Whilst I appreciate putting savings in to funds does mean that there is every chance that they will have decreased in value if I need them in a hurry there will, at least, be some money I can get at in an emergency scenario.

zolablue25

LHW99 wrote: »

Then why take it out of the pensions? If these are all DC schemes, you could tranfer them into a single DIY SIPP, and invest in the funds you want there. That means you have a chance of them growing tax free, and could take a larger 25% when you actually need it. rather than taking it immediately.
This assuming you mean "DC pots" and one or more is not a deferred DB scheme.

One is a deferred DB, one has a GAR that is much higher than I would get anywhere else. One is my current employer's workplace pension and two are DC schemes.