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Taking Flexi-Access Drawdown

12 replies 1.1K views
iwharrieriwharrier Forumite
2 posts
Hi All,
I have just submitted a request to my SIPP provider, ii, to enter flexi-access drawdown.
The basics:
I am 56 years old but have taken early retirement due to health reasons, I have a military pension in payment giving a base regular income and I want to top this up with drawdown income from my SIPP.
SIPP Value is approx £230k.
I have sold up and emigrated from UK. So no longer have access to stuffing cash into tax-free schemes.
I have a mix of cash ISA, S&S ISA, IFISA already in place.
I have another small final salary pension that I intend to start drawing when I am 60.
So to the issue in hand. I put on the form that I wished to move the whole SIPP pot into flexi-access drawdown but only take £10k as a PCLS. II came back and said I could not do this, I could crystallise £40k and take the requested PCLS or crystallise the total pot but MUST take the full 25% PCLS.
The £10k was just as a standby cash sum and is not required for a specific aim so I can forego the PCLS. I informed ii that I no longer wanted a PCLS, just wanted to take my SIPP into drawdown where I take a regular income. Again I am getting a negative response back from ii who seem fixated on the 25% PCLS. Even though their own website states "up to 25% tax free".
I do realise the tax advantage of taking 25% tax free. But I want to retain maximum income generation for years to come and to have a variable income taken from the natural income dividends.
The only way I see through this is to take the 25% and put it straight into a dealing account invested in the same funds they were invested in within the SIPP and take the dealing cost hit. Tax issues?
Anyone got any advice on how to proceed?
Thanks
Ian
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Replies

  • uk03878uk03878 Forumite
    215 posts
    100 Posts First Anniversary Name Dropper
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    From the OP he has moved out of the UK. Surely the tax question is then based on where he resides. If in Spain the 25% tax free is taxed as income.
  • FatherAbrahamFatherAbraham Forumite
    1K posts
    Part of the Furniture Combo Breaker
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    iwharrier wrote: »
    Hi All,
    I have just submitted a request to my SIPP provider, ii, to enter flexi-access drawdown.
    The basics:
    I am 56 years old but have taken early retirement due to health reasons, I have a military pension in payment giving a base regular income and I want to top this up with drawdown income from my SIPP.
    SIPP Value is approx £230k.
    I have sold up and emigrated from UK. So no longer have access to stuffing cash into tax-free schemes.
    I have a mix of cash ISA, S&S ISA, IFISA already in place.
    I have another small final salary pension that I intend to start drawing when I am 60.
    So to the issue in hand. I put on the form that I wished to move the whole SIPP pot into flexi-access drawdown but only take £10k as a PCLS. II came back and said I could not do this, I could crystallise £40k and take the requested PCLS or crystallise the total pot but MUST take the full 25% PCLS.
    The £10k was just as a standby cash sum and is not required for a specific aim so I can forego the PCLS. I informed ii that I no longer wanted a PCLS, just wanted to take my SIPP into drawdown where I take a regular income. Again I am getting a negative response back from ii who seem fixated on the 25% PCLS. Even though their own website states "up to 25% tax free".
    I do realise the tax advantage of taking 25% tax free. But I want to retain maximum income generation for years to come and to have a variable income taken from the natural income dividends.
    The only way I see through this is to take the 25% and put it straight into a dealing account invested in the same funds they were invested in within the SIPP and take the dealing cost hit. Tax issues?
    Anyone got any advice on how to proceed?
    Thanks
    Ian

    I think Interactive Investor has helped you avoid making what would have been a big tax mistake, if you were a UK resident, which you're not.

    Ignoring the non-residence issue for a moment (for the benefit of the majority of read who will be UK resident), pretty much the whole point of pension-fund-based saving (as opposed to saving in a General Investment Account) is to enjoy tax advantages in exchange for restricting one's access to the funds.

    Withdrawal is the time to take that tax-free allowance - and you are quite correct that the sensible thing to do, if one's investment strategy hasn't changed, is to put the funds withdrawn into similar investments outside the pension.

    Importantly, if one doesn't take the tax-free part of the pension when withdrawing, the concession vanishes. This is a counter-productive thing to do.

    However, you are working not UK resident, and so your taxation position is governed by the fiscal laws applying where you live, together with any double-taxation treaty between the UK and your homeland.

    Pensions are already complex, but you situation is doubly so. You might need to consult professional advice, in order to avoid expensive mistakes. In the worst case, your tax residence might permit no tax-free withdrawal from a pension, thus emigrating will have cost you dear.
    Thus the old Gentleman ended his Harangue. The People heard it, and approved the Doctrine, and immediately practised the Contrary, just as if it had been a common Sermon; for the Vendue opened ...
    THE WAY TO WEALTH, Benjamin Franklin, 1758 AD
  • IanStIanSt Forumite
    366 posts
    ✭✭
    iwharrier wrote: »
    Anyone got any advice on how to proceed?

    You could perhaps think of taking the money via UFPLS. This would leave the rest of your money in the pension available for further UFPLS payments in future years.
  • consider withdrawing from your Isa funds for some emergency cash top up ?
  • AlbermarleAlbermarle Forumite
    3.5K posts
    1,000 Posts Name Dropper First Anniversary
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    I am guessing that II systems can not cope with what you are suggesting . So if you take £10K TFLS it will automatically crystallise £30K and the rest will be left uncrystallised . It's just the way drawdown works and the IT system will only work that way.
  • dunstonhdunstonh Forumite
    101.1K posts
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
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    So to the issue in hand. I put on the form that I wished to move the whole SIPP pot into flexi-access drawdown but only take £10k as a PCLS.

    You cant do that.
    II came back and said I could not do this, I could crystallise £40k and take the requested PCLS or crystallise the total pot but MUST take the full 25% PCLS.
    That is correct.
    I informed ii that I no longer wanted a PCLS, just wanted to take my SIPP into drawdown where I take a regular income. Again I am getting a negative response back from ii who seem fixated on the 25% PCLS. Even though their own website states "up to 25% tax free".

    If you are crystallising funds, the 25% forms part of that. You can't give it up with most platforms (technically you can but many providers/platforms have software that prevents mistakes and that is what is happening here).
    I do realise the tax advantage of taking 25% tax free. But I want to retain maximum income generation for years to come and to have a variable income taken from the natural income dividends.

    In that scenario then phased flexi-access drawdown would be used. Each payment made to you would be 25%/75%. So, you still get y our 25% TFC.
    The only way I see through this is to take the 25% and put it straight into a dealing account invested in the same funds they were invested in within the SIPP and take the dealing cost hit. Tax issues?

    If that was done under advice, it would be a missale.
    Phased flexi-access drawdown is the way to do it.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • xylophonexylophone Forumite
    34K posts
    Part of the Furniture 10,000 Posts Name Dropper
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    https://www.blevinsfranks.com/news/article/UK-pension-options-for-expatriates-Spain

    might be worth a look.

    It would seem to be a good idea to take expert advice as you are a resident of Spain?
  • jamesdjamesd Forumite
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    Part of the Furniture 10,000 Posts
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    Your country of tax residence matters greatly. Portugal has an opt in scheme that gives you a 0% income tax rate on foreign pension income.

    Either the reinvest the 25% or the phased drawdown described by dunstonh could work. The tax treatment in your country of tax residence could make one better than the other.
  • iwharrieriwharrier Forumite
    2 posts
    Thanks for the input all.
    The situation is that I am outside EU. Vietnam to be precise.
    Not working so have very little income outside of military pension and ISA Income. So am tied to UK taxation regardless of any double-taxation agreement but growth and income from ISA is allowed to remain tax-free even as a non resident.
    It is not advisable to move funds to Vietnam as it tends to be a one-way transfer and very difficult to move it out of country. Pension income doesn't seem to be treated as earned income - but that depends on who you ask. :mad:
    It is looking increasingly likely that I have to take the 25% PCLS as the ii platform is unable to do otherwise. But then I do not have access to ISA contributions to protect income from tax. Won't be entertaining QROPS because they are poison in my humble opinion.
    I won't be going down the financial advice route here as it is more akin to the wild west.
    ah well, I'll go and have another coffee.
  • IanStIanSt Forumite
    366 posts
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    Hi, are you sure that you have to take the full 25% of your pension out in one go?

    If you take the payments out in series of UFPLS payments then you only take the tax free lump sum out in small bits at a time e.g £2,500 if you take a UFPLS of £10,000 out - see https://www.ii.co.uk/ii-accounts/sipp/income-drawdown.
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