What to do with small cash sipp

Suzzi59

Hi, I am planning to retire next year when I am 60. I will have a crystalised cash sipp of £55k I will also be able access £10k pa DB pension and a £30k TfL’s. My dilemma is how best to withdraw the cash in my sipp to minimise the tax I will pay withdrawing it. My out going’s are very low and would be quite happy with an income of £12500 pa

I don’t need to draw on the cash sipp straight away, but I am aware that leaving it in cash it will lose money and investment is for the long term. I am single, and have no debt, mortgage paid off . I have very little savings as I’ve been putting it into my sipp these past couple of years. I was very late learner regarding pensions. I am greatful that I have an occupational pension :j

Brynsam

Why keep your SIPP in cash - surely there are other funds available to you?

Suzzi59

Thank you for your response. I’ve no idea, what other funds there are? I thought it was either cash or investments and I’m totally lost on that.

where_are_we

What is a "Tfl`s" - is it a pension commencement lump sum and part of your DB pension? If you can manage on an income of £12500 then you will pay no income tax (personal allowance £12500 for 2019 - 2020). Your tax in your first year of retirement will depend on when you stop working because your occupational income will be taken into account as well as your DB pension after you retire. You say you will have a crystallised cash SIPP - does this mean you will have already taken the 25% tax free element? Then you are in drawdown and all withdrawals will be taxed - this means you could withdraw cash from your SIPP each tax year which when added to your DB pension would equal that tax years personal tax allowance and that withdrawal would be tax free.This would deplete your SIPP by about £2500 tax free each tax year until you reach state retirement age when this additional income will mean you can no longer avoid paying tax on SIPP withdrawals unless you defer your state pension. At 59 you need to invest a part of your SIPP for growth.

Alexland

Have you checked your State Pension forecast recently?

Marcon

Suzzi59 wrote: »

Thank you for your response. I’ve no idea, what other funds there are? I thought it was either cash or investments and I’m totally lost on that.

Have a look on your SIPP provider's website. That will give you the options and details of each fund - you need to take a deep breath and do some reading (don't panic!). The fund descriptions will give you an indication of how risky they are in terms of potential loss of capital, so start from there.

Suzzi59

Yes the £30k TfL’s is a tax free lump sum which, comes with my final salary pension. I was wondering if I should take the reduced pension approx £8k and bigger lump sum £52k so that I would be able to draw more tax free money from my SIPP. I understand the exchange is 12.1 which, I believe is not good. Yes my SIPP is in drawdown, but I don’t intend to draw on it until I retire at the end of June next year.

Suzzi59

I’ve checked my SP and I will have the full amount by the time I retire.

My SIPP is with HL I have had a look at their funds and I’m baffled. I have been reading the threads on here for awhile and my understanding is, investing is for long term 10 years + ? I’ve also read Vanguard LIfe Strategy Fund is good and if you are risk averse then go with 60/4? I also understand Multi Assest Funds are good. My concern is the little capital I have might dwindle away with fees and poor performance?

My overall aim to have £50k cash savings and £12500 per year until my SP kicks in when I’m 66

If you think at 59 I should still go for growth and it’s possible with the right fund, I would be happy to risk a little. Would a IFS help me with such a small amount?

Alexland

Does your DB scheme offer any incentive to defer your retirement age? If so it might be tempting to just draw the income out of the cash SIPP in the next few years and take an enhanced guaranteed inflation linked income alongside your SP to enjoy the remainder of your retirement?

Alex

Suzzi59

Hi Alex, I’m not sure, it’s NHS 1995
I thought you had to take it at 60 ?
I’ll have a look.

Albermarle

My concern is the little capital I have might dwindle away with fees and poor performance?

Yes this is possible and also the opposite could be true , in that it could grow quite steadily even if invested in a relatively low/medium risk fund , such as a multi asset fund with 20 to 40% equities.
What is 100% certain is that leaving it in cash in a pension ( probably at zero % interest ) it will decline in real value every year due to inflation.
Of course does not have to be 100% one way or the other and you could keep some in cash and invest money that you do not need in the medium term.