Income from a SIPP

dj240779

Hi, I have had share ISAs for years and am familiar with buying/selling shares and taking dividends as an income.
When I turn 55, I had planned to put my existing 7 pension pots into 1 SIPP, buy shares and take an income.
However, from what I read, to get an income you need to transfer your SIPP to another vehicle.

I'm looking at interactive investor and they call the vehicle a FAD (Flexi-Access Drawdown). 
I have contacted ii for more advice but wanted some independent opinions first.

Has anybody used this FAD option?
How does it pay an income? Is it like an annuity? Can you choose different payment rates like an annuity?
I wanted to control the shares myself as I can earn a better rate through dividend income than an annuity.
Thats why I thought a SIPP would be the best idea, but not so sure now.

Any advice is greatly appreciated.
Thanks.

gadgetmind

Most SIPP providers will let you take tax free cash to crystalise your pension (either all of it or part of it) and then take an income from what's left in the crystalised pot. This is flexi-access drawdown. You can chop and change the amount you take, but there might be a charge for this. With our SIPPs at Best Invest, the income comes from cash in the pot (no idea what happens if not enough!) and they deduct tax via PAYE. No NI of course.

You manage the funds, both in the crystalised and uncrystalised pots, with some providers showing them separately and some showing one pot and tracking things by, um, magic.

Of course, you need to understand asset allocation, and a pot that's 100% in equities for the dividends can easily be a rough ride.

Linton

All mainstream SIPPs will support drawdown.  What may be confusing you is that some old Personal Pensions dont support drawdown and if you wanted the facility you need to transfer to somewhere that does, like a SIPP.

Drawdown is the ability to take money from your pension as and when you need it.  When it was first made legal many years ago it was over complex in that there were several types with restrictions, one type being Flexi-Access drawdown.  However since, from memory, 2014 life is much simpler - there s only one type (and something else very similar, but let's not complicate things) and the term Flexi-Access drawdown is now obsolete.

To explain a bit more, a SIPP works very much like a Share ISA except that it is in a pension environment and so subject to pension rules.  In particular you get a tax rebate when you pay into it and are charged tax when you take money out.  PErhaps you might like to read the info from one (just an example, not a recommendation) of a number of different SIPP providers. AJBell/youinvest:https://www.youinvest.co.uk/sipp/what-is-a-sipp

dunstonh

Has anybody used this FAD option?

All SIPPs and many personal pensions offer FAD.  It is the drawdown option post 2015 (prior to that it was just called drawdown - since 2015, that was renamed capped drawdown).

How does it pay an income?

Uses a payroll system set to the amount you choose.

 Is it like an annuity? 

No. 

Can you choose different payment rates like an annuity?

Think of it more like a cashpoint machine.  If you pension is valued at £100,000 and you draw £500 then your pension will be worth £99,500.

Thats why I thought a SIPP would be the best idea, but not so sure now.

You can do it within a SIPP.

AnotherJoe

dj240779 said:

Hi, I have had share ISAs for years and am familiar with buying/selling shares and taking dividends as an income.
When I turn 55, I had planned to put my existing 7 pension pots into 1 SIPP, buy shares and take an income.
However, from what I read, to get an income you need to transfer your SIPP to another vehicle.
<snip>

Whatever you've seen, you've either misread or been mislead. Millions of people drawdown from SIPPs and other pensions. I do.

Some older pension platforms dont allow this but almost anything new and pretty much any SIPP you'd open now,  provide this capability.

So, back to Plan A, as you were. Though you might want to read this before jumping into dividends as a mechanism to take money

https://www.investmentweek.co.uk/news/4014669/terry-smith-bad-news-equity-income-investors-surface

[Deleted User]

Don't forget that if you are going to transfer to a SIPP, do it months before your 55th birthday, if that is the time you wish to drawdown.
I have been moving 5 pensions into SIPPs since February (albeit not helped by the virus lockdown), one took 10 days, one took 20 days and still awaiting the others.
There is a lot of form filling at ii (and the others), see https://www.ii.co.uk/ii-accounts/sipp/useful-forms#benefits

dj240779

Hi, thanks for all the replies. 

So is there actually any way of getting my 7 pension pots into 1 vehicle and I can then select where the investment goes myself?
I don't want to hand it over to a system that just says it invests in a mixture of safe stocks and cash. Any shortfall and it then pays out of the capital which I want to avoid. I want to select the actual shares and just take dividends.

The only way I can see of doing that is to take the money out and put it into ISAs.
This of course would mean a massive tax hit.

I can do it over years to reduce the tax, but it would take about a decade to get all of the money out.
Any other ways of doing this?
Thanks again.

[Deleted User]

dj240779 said:

Hi, thanks for all the replies. 

So is there actually any way of getting my 7 pension pots into 1 vehicle and I can then select where the investment goes myself?

Thats sort of what Self Invested means in the acronym SIPP. The dividends can go into the cash account in the SIPP, you can then set up a drawdown amount each month, with any shortfall in the cash account having some of the capital sold.
Also you will need to have some money in the cash account to pay for fees (or some allow you pay by dd)

Prism

Yes a SIPP will let you choose exactly the shares or funds that you would like to invest in, receive the dividends and allow you to drawdown the cash whenever you like. 

Linton

dj240779 said:

Hi, thanks for all the replies. 

So is there actually any way of getting my 7 pension pots into 1 vehicle and I can then select where the investment goes myself?
I don't want to hand it over to a system that just says it invests in a mixture of safe stocks and cash. Any shortfall and it then pays out of the capital which I want to avoid. I want to select the actual shares and just take dividends.

The only way I can see of doing that is to take the money out and put it into ISAs.
This of course would mean a massive tax hit.

I can do it over years to reduce the tax, but it would take about a decade to get all of the money out.
Any other ways of doing this?
Thanks again.

Transfer into SIPPs works in a similar way to transfer between ISAs.  You set up your new SIPP and then ask the provider to transfer in your old pensions.  Note this only applies to standard Defined Contribution pensions, not to DB/Final Salary.

It will probably be quickest if you sell your investments inside your old pensions, transfer the cash into your new SIPP and then rebuy in your new SIPP.  The downside is that you will be holding cash for a few days which means if prices rise in the meantime you would lose money.  Conversely if markets fall you will be able to rebuy for a cheaper price than you sold. If the new SIPP supports the same funds as the old pensions you can transfer "in specie" keeping the fund holdings.  This avoids being out of the market but in some cases it can take much longer to transfer.

MallyGirl

One of my 'in specie' transfers took 4 months. I'd always do cash in the future.