Paying cash against platforms charges

bowlhead99

IanSt wrote: »

Zorillo wrote: »

Why is that? It's occurred to me that I will have to leave a considerable amount uninvested at age 50 to cover the last decade of LISA fees. Or move.

Or make use of Income funds to pay the fees.

Yes: if you have 'considerable amounts" of assets in your LISA it seems highly unlikely that you couldn't generate some dividend / interest / property income in the LISA. And if you decided you didn't want to hold any income generating assets you could easily sell some shares or fund units from time to time. No reason to try to hold ten years worth of cash for costs which will be unknown at the start of the ten years.

As to 'why is that' , it is simply easier for an investment platform to require you to pay money for the services out of the money that is in the account, rather than maintaining some external billing arrangements to settle fees for the services. If it's easier for them, the services can be offered at relatively lower cost than if they had needed to implement some other solution or a greater array of payment options and still wanted to make the same profit margins off it.

aroominyork

My wife owed Interactive Investor £120 for the annual SIPP fee and because we didn't act on their reminder email they sold £120 worth of units to take the fee. Could that count as a withdrawal and create any problems? I think I remember some rule about a restriction on paying into a SIPP after you've made a withdrawal.

eskbanker

aroominyork wrote: »

My wife owed Interactive Investor £120 for the annual SIPP fee and because we didn't act on their reminder email they sold £120 worth of units to take the fee. Could that count as a withdrawal and create any problems? I think I remember some rule about a restriction on paying into a SIPP after you've made a withdrawal.

Are you perhaps thinking of MPAA (Money Purchase Annual Allowance)?

This reduces the amount you can pay into pensions right down to £4K per annum, once you've started to draw down DC pensions (for which you'd need to be over 55):

https://www.moneyadviceservice.org.uk/en/articles/money-purchase-annual-allowance

Selling units within a SIPP wouldn't trigger this....

soulsaver

Correct me if wrong, but I believe SIPP platform fees don't count as a withdrawal for tax purposes.
...so best to be taken from the sipp (vs external ac) - ostensibly gaining tax relief on them.
(I usually have a cash balance waiting to take advantage of dips on selected shares..)

capital0ne

eskbanker wrote: »

....or use a platform where ISA fees can be settled from money held outside the ISA!

... or use a platform with no fees

aroominyork

eskbanker wrote: »

Are you perhaps thinking of MPAA (Money Purchase Annual Allowance)?

This reduces the amount you can pay into pensions right down to £4K per annum, once you've started to draw down DC pensions (for which you'd need to be over 55):

https://www.moneyadviceservice.org.uk/en/articles/money-purchase-annual-allowance

Selling units within a SIPP wouldn't trigger this....

soulsaver wrote: »

Correct me if wrong, but I believe SIPP platform fees don't count as a withdrawal for tax purposes.
...so best to be taken from the sipp (vs external ac) - ostensibly gaining tax relief on them.
(I usually have a cash balance waiting to take advantage of dips on selected shares..)

Phew! When I spoke to ii last week to avoid getting into this situation again, they explained the order that fees are taken (like post #6) as:
- direct debit, and if you don't have one then...
- trading account, and if you don't have one then...
- ISA.
But, they said, never from a SIPP because it would be seen as a withdrawal. That is what concerns me but you guys seem to be saying not to worry.


Are you sure, looking at the link in post #14, that selling units and having the money taken to pay the ii fee would not technically count as "take ad-hoc lump sums from your pension pot".

Chickereeeee

Albermarle wrote: »

A future solution could be to have at least one income producing fund , which would generate just enough income to pay the platform fees.

Fidelity cannot do that, if income is paid out. I had several income producing funds but they cannot/will not take charges from that. They sell largest holding instead.


A J Bell, on the other hand, take charges from income in the first instance, before it is transferred out. If not enough income in the month the charges are taken, they will wait until there is (they tell me).

Albermarle

But, they said, never from a SIPP because it would be seen as a withdrawal. That is what concerns me but you guys seem to be saying not to worry.

I would say you are not withdrawing as you never see any of it . An investment is turned into cash within the SIPP, which is used to pay the SIPP fees.
Only if you withdraw taxable money out of the SIPP altogether does the MPPA apply , I would have thought .
On the other hand you could turn it on its head and say if you pay the SIPP fees via a separate account , that payment should then attract tax relief, as it is effectively a payment into the SIPP, if you follow the logic .

Albermarle

Nope. Fidelity cannot do that. I had several income producing funds but they cannot/will not take charges from that. They sell largest holding instead.

I think you have misunderstood what I meant . They will always look to see if there is enough in the cash account first to pay the fees . You can keep the cash account topped up by having an income fund pay the income directly into the cash account .
Obviously in this case the cash account will fluctuate and you need an initial float but seems to be an easy way . It means you have some spare cash floating around but the amount is very small compared to the usual SIPP size

bowlhead99

aroominyork wrote: »

Are you sure, looking at the link in post #14, that selling units and having the money taken to pay the ii fee would not technically count as "take ad-hoc lump sums from your pension pot".

Yes, we are sure. Because you would not be taking lump sums from the pension. You are not taking the money anywhere. Instead, the *service provider* is taking money from the pension, to cover a debt incurred by the pension - for the provision of platform services: assisting the pension to acquire and hold assets. The pension (with a sipp trustee as it's operator) is a separate legal person to yourself. That's why for example if you go bankrupt the creditors don't take your pension, or if you die the trustee can pay the assets over to someone else, outside your 'estate' for inheritance tax

aroominyork wrote: »

My wife owed Interactive Investor £120 for the annual SIPP fee and because we didn't act on their reminder email they sold £120 worth of units to take the fee. Could that count as a withdrawal and create any problems? I think I remember some rule about a restriction on paying into a SIPP after you've made a withdrawal.

In that situation you are not drawing any taxable income out of the pension. Instead, the pension is incurring running costs, which the pension is paying for, out of its assets. The transactions are between the pension trustee on one hand, and a service provider on the other. Yor wife isn't drawing out her pension when she agrees for the service provider to be paid.

Consider a big corporate defined benefit pension scheme. In order to make enough money over time to be able to pay the pensioners the income they've agreed, they have to incur plenty of running costs (administration, accounting, audit, legal, brokerage, custody, bank charges, fund management, etc etc). The source of the money they spend on those things can be a combination of new contributions made by current members and the employer, and existing cash or other assets which have already been in the fund for decades.

It's not the case that each time they spend a bit of money running the scheme, it counts as a taxable distribution /withdrawal for members. That expenditure to keep it running is just the pension scheme spending money to do its thing - create money to support future distributions. The more they spend on running costs, the more they will have to make in investment gains or take in contributions, to end up with the same distributions able to be made to members.

In your case your wife had a choice. Assuming under age 75 with sufficient annual and lifetime allowance and current year income, she could put in another £96 contribution into the pension, and have it grossed up to £120, so that her pension had cash on hand to afford to pay its running costs. Or she could let the existing assets in the pension be sold off, so that it had cash on hand to afford to pay its running costs, meaning it has fewer assets available to allow her to take taxable withdrawals in future.

Going forward, she could restructure her portfolio to produce some income (inside the pension, so the pension can afford its operating costs) or simply not invest all her contributions (so the pension has those unused contributions as cash and can afford its operating costs). But there is no issue with using pension assets to pay costs of running the pension - whether that's management fees within individual funds, or transaction costs for buying assets, or platform fees for holding assets, or advisory fees for advising on the assets.


The situation you fear - where taking an ad hoc lump of income causes you to move over to the 'money purchase annual allowance' method of limiting future annual contributions - is only something that would happen if you said for some reason that you wanted to take money out of your pension into your own personal bank account as income (bringing it outside the pension tax wrapper). If it were just for fees, nobody would do that - i.e. creating taxable income into their personal account, just so you would have money in your bank account to be able to afford to contribute money into the pension so that the fees could be paid from that cash in the pension... would be a big mess and not tax efficient.

HTH