Multi-Drawdown on SIPP Pension Fund?

meggeth

Hi all. I am just about to start drawing on my pension funds shortly. I have a SIPP fund with some additional ISAs that I have built up over the years. It’s always difficult to find answers to specific queries, so I thought I’d post here, as you seem to be experts!

I would like to initially have around 12.5% of my tax free lump sum from the SIPP, followed by the remaining 12.5% at a later date, so that half of it remains invested in the funds I have selected in my SIPP.

To keep things simple, lets say I have £200K SIPP, so the initial 12.5% = £12,500. Easy. How is the next 12.5% calculated? Is it based on the original 200K value? Or the value of the fund at the time of withdrawing the second 12.5%? Also, if the fund increases in value or if I have added funds into the SIPP in the meantime, is this included in the calculation for the second 12.5%?

Secondly, I am planning to continue to work on a part time basis, so I will be aiming to earn around £12-15K per year. Is it ok to use this money to add to my SIPP, as long as I don’t start to draw on the taxable part of the fund? I assume there will not be a problem with “recycling” as I’m still working during this period?

Hope that all makes sense! Cheers. 

Dazed_and_C0nfused

What method are you using to take 12.5% now and 12.5% later?

meggeth

Hi. I was told by Hargreaves Lansdown that I can have multiple withdrawals to have the tax free lump sum (although they said you wouldn't want to do it many times, because of the forms to sort/time to complete), I thought there was only one way to do this? They said I'd have to fill in certain forms, then it would a few weeks to sort things out? Does that make sense?

Linton

If you take £12500 TFLS, £50K£100K-£12500=£37500 is regarded as "crystalised". You would draw down taxable income from that.  The remaining £150K is uncrystalised and is effectively a separate pension with its own 25%TFLS.  Any further contributions go into the uncrystalised part  leading to a higher TFLS.  Different platforms implement mixed crystalised and uncrystalised SIPPs in different ways.

For recycling I suggest you look at https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/pension-lump-sum-recycling.  From my reading if you simply paid the £12500 straight into the SIPP it would meet the criteria for recycling.  If you spread it out over 2 or more years you would be OK. However as the linked article says it is complex and open to interpretation.  On the positive side I dont think that HMRC would be bothered unless you were really working the system with large amounts of money.

Albermarle

With Flexi access drawdown , if you take part of the TFLS , then three times that amount is crystallised and the rest stays uncrystallised. So to use your example . If you take £25K from a £200K pot - then £75K is crystallised and £100 K remains uncrystallised. If you take any money from the crystallised part it is potentially taxable and you are then restricted on future contributions. For the uncrystallised part you can still take 25% tax free at a later stage . This is regardless of whether the pot shrinks, grows or you add to it . You could in fact also take less than 25% the second time around leaving some of the pot uncrystallised , although HL are correct there is a certain amount of form filling each time.

meggeth

Ok, thank you.  That seems to make sense. So any additional contributions would be made into the "uncrystalised" fund?

Linton

meggeth said:

Ok, thank you.  That seems to make sense. So any additional contributions would be made into the "uncrystalised" fund?

Yes - and I have corrected the error in my posting!

meggeth

Great stuff! Thank you everybody. What a knowledgeable bunch you are here! 

Albermarle

To keep things simple, lets say I have £200K SIPP, so the initial 12.5% = £12,500.

Rereading the original post , this is what has caused a bit of confusion .

12.5% of £200K = £25K , not £12.5K 

So if you take £25K lump sum my calculation applies .

If you take £12.5K lump sum then Linton's applies. 

meggeth

Yes sorry, that was my mistake. 

SonOf

I would suggest you be wary of what providers tell you as they are limited to what they do or what they offer.  If they dont offer an option or their admin is poor in an area, they could tell you things that are not necessarily correct from a generic point of view but right for them.  It is not uncommon to need to transfer providers at drawdown.

Why do you want to draw £12,500 up front?   You can draw the tax free cash anytime. So, if you dont need it upfront you should not take it.  Plus, if you do take it up front you eliminate the popular phased flexi-access drawdown where each payment you take from the pension has 25% tax free and 75% subject to tax.  That results in a greater than 25% amount taken out over the long term and can be far more tax efficient than taking it up front.   Plus, many of those taking it up front have no justification for doing so and just plonk it in a savings account which is completely daft.