SIPP - am I paying far too much?

Albermarle

STINKLER said:

dunstonh said:

I am 54 and plan to take my 25% ad a small amount each year from 2022.

Have you discussed that with your IFA or is that your plan before you have discussed it?

At age 55, taking the 25% up front and a small income isn't likely to be the best option for most people.  

It''s been discussed with my IFA.  I am about to add another £90k and we've worked it all out - adequate for my needs.  Or should I be asking other questions?  Why wouldn't it be the best option?

Thanks :-)

If you actually need the tax free money for a reason , it is a good option. But normally just withdrawing it because it is there is not the best course of action for most people . However without knowing all the fine detail of your circumstances it is difficult to comment exactly.

kuratowski

You also don't want to take too small an income between age 55 and SPA, in order to get as much out of the pension as possible tax free, you want to use the full personal allowance.

dunstonh

STINKLER said:

dunstonh said:

I am 54 and plan to take my 25% ad a small amount each year from 2022.

Have you discussed that with your IFA or is that your plan before you have discussed it?

At age 55, taking the 25% up front and a small income isn't likely to be the best option for most people.  

It''s been discussed with my IFA.  I am about to add another £90k and we've worked it all out - adequate for my needs.  Or should I be asking other questions?  Why wouldn't it be the best option?

Thanks :-)

We do not have sufficient information to be sure but there are some pointers that suggest potential issues.
If you are retiring at age 55, then you are unlikely to be using all or any of your personal allowance.    So, you would draw from the taxable element at least up to the personal allowance.   You will have multiple unused allowances between now and state pension age.  So, the ability to draw taxable income without tax each year.    
Unless you have a capital spending need at 55, then drawing the tax free cash upfront in full is unlikely to be suitable without some other justification.   We have limited info as I said, but too many people draw it upfront just to stick it in the bank without realising they can get more by leaving some or all of it where it is.   The 25% can be paid in phases or on drip with the income or a combination.

A small income can mean different things to different people but, as mentioned above, the personal allowance means the taxable element is free of tax.   So, this can make it unnecessary to draw a lump sum in advance to see you over the years (your wording suggested that you could be using the lump sum to tie you over).   Whereas drawing it when needed and more tax efficiently could be more suitable.   It was just the way you explained things that has put us on guard.  You could have that capital spending need that needs you to draw all the tax free cash in one go.   Or some other planning need.

AlanP_2

STINKLER said:

dunstonh said:

I am 54 and plan to take my 25% ad a small amount each year from 2022.

Have you discussed that with your IFA or is that your plan before you have discussed it?

At age 55, taking the 25% up front and a small income isn't likely to be the best option for most people.  

It''s been discussed with my IFA.  I am about to add another £90k and we've worked it all out - adequate for my needs.  Or should I be asking other questions?  Why wouldn't it be the best option?

Thanks :-)

It depends on what you are going to do with the 25% TFLS really.

Clear debts or buy Lamborghini then you need a chunk of cash.

Take out of pension and put into 0.01% savings account - Why?

Take out of pension and invest in an ISA - Why?

The other reason we see mentioned on here is because of a belief that the Chancellor will do away with the TFLS option (comes up in every pre-Budget topic).

MissBojangles

Thanks everyone - really appreciate the responses.  I am planning to pay off the mortgage with the TFLS.  I won't take more than I need to.  I have a £2k per annum pension and am intending to take £10k from my SIPP. thus maximising my personal allowance.  I will reduce the amount I take from my SIPP at SPA.

(Get me with my acronyms now!  )

MallyGirl

Is the mortgage rate high? you might find that investment growth outstrips mortgage rate.

jamesd

Paying off a pension mortgage or any mortgage can be desirable but it'll usually make you worse off by the difference between pension growth rate and mortgage interest rate.

An alternative is to keep several years of mortgage payments in cash and low risk investments, as you'd do for your day to day living expenses. 

I've been able to repay my own mortgage for years but haven't because not doing it has seemed more beneficial.

MissBojangles

I have been on a staff rate for a number of years and will swap to variable rate next April.  I can make enquiries but I think that as I am now 'unemployed', I may not be able to remortgage and don't want to be stuck on the variable rate.  I'll definitely look into this - thanks :-)

dunstonh

STINKLER said:

I have been on a staff rate for a number of years and will swap to variable rate next April.  I can make enquiries but I think that as I am now 'unemployed', I may not be able to remortgage and don't want to be stuck on the variable rate.  I'll definitely look into this - thanks :-)

Is there are a problem with being on the variable rate?  Most have it around 2%.    WHilst you may not be able to do a remortgage, you should be able to to a product transfer from the same lender.

barnstar2077

As others have said, I would definitely look into that variable rate before you make your mind up, it may well be peanuts.