Drawdown - 25% Tax-Free Options/Rules

jamesd

wary said:

the crystallised pot will be subject to market forces, albeit invested following a low-risk profile?

It has to be a suitable risk profile and is likely to be the same for both parts unless something makes varying  them useful. Commonly, studies of safe withdrawal rates use equity:bond mixtures of 50:50, 60:40  or 65:35 and those are similar to the ones used before retiring.

Some pension places keep crystallised and uncrystallised together in one pot, others use two pots. 

Uncrystallised pensions are ignored for benefit rules until you reach your pension credit age, which is the state pension age of a woman with your date of birth. Taking income - regular withdrawals - from uncrystallised counts as income, taking lump sums adds to savings instead and is likely to be advantageous. The value of a crystallised pot counts as savings. Optimal strategy to avoid the MPAA cut to 4k and maximise benefits is probably going to be using  the small pot rule. Financial advisers are expected to take benefit interactions into account when giving advice.

wary

jamesd said:
Optimal strategy to avoid the MPAA cut to 4k and maximise benefits is probably going to be using  the small pot rule. Financial advisers are expected to take benefit interactions into account when giving advice.

Thanks.  As a result of your post I’ve checked the Small Pot rule.

“Unlike trivial commutation, you do not have to take into account any other pension benefits you may have when giving up a pension for a small pot. You may be able to take up to three small pots of £10,000 each from non-occupational schemes …”

My SIPP is significantly more than £30K, but I’m wondering whether I can still make use of it by splitting £30K into 3 separate smaller pots?  Even then, from reading the literature, I’m confused as to exactly what benefit this would facilitate … although your post would suggest it is a way of taking a portion of the 75% taxable element of the pension without impacting your MPAA?

Albermarle

My SIPP is significantly more than £30K, but I’m wondering whether I can still make use of it by splitting £30K into 3 separate smaller pots? 

It is often mentioned that if you have a SIPP with Hargreaves Landsdown they will do this for you, but as far as I know the other providers will not . Not surprising really as it is not really in the spirit of why the small pot rule is there .

jamesd

wary said:

My SIPP is significantly more than £30K, but I’m wondering whether I can still make use of it by splitting £30K into 3 separate smaller pots?  Even then, from reading the literature, I’m confused as to exactly what benefit this would facilitate … although your post would suggest it is a way of taking a portion of the 75% taxable element of the pension without impacting your MPAA?

You can split.

Yes, it lets you get at some taxable money without triggering the MPAA.

garmeg

jamesd said:

wary said:

My SIPP is significantly more than £30K, but I’m wondering whether I can still make use of it by splitting £30K into 3 separate smaller pots?  Even then, from reading the literature, I’m confused as to exactly what benefit this would facilitate … although your post would suggest it is a way of taking a portion of the 75% taxable element of the pension without impacting your MPAA?

You can split.

Yes, it lets you get at some taxable money without triggering the MPAA.

And doesn't use up any LTA either.