Two separate SIPPS - considerations for Drawdown

older_and_no_wiser

I wasn't sure to post this here or in the Savings and Investments forum. It's probably more relevant for here though.

I am 52 now and have two separate SIPPs. One is my workplace pension which is with Hargreaves Lansdown. We have a discounted 2.5% platform charge. It is currently valued at £245K. I also have a personal SIPP with Interactive Investor valued at £160K. In addition, I have stock ISAs and GIAs valued at around £70K and a £22K emergency cash/savings fund. I am planning to move all the GIA (general investment accounts) money into the ISA wrappers ASAP - but I've maxed out this years allowance so will need to wait.

My plan is to retire in around 6 years time (aged 58/59). I'm estimating at that point - based on future pension contributions and a conservative 2% annual growth - I will have around £310K in the workplace pension and £210K in my personal SIPP. This will all be DC - not DB.

I have full NI contributions so will get full state pension at age 67. I have no debt currently other than £42K left to pay on my mortgage.

For retirement (my mortgage will be paid off at that point) I have done a spreadsheet which allows for all annual expenses, entertainment, holidays, 'new' cars etc. I have calculated I will require approx. £25K per year to live on (I've allowed for guesstimated inflation rises between now and 2028). This year 1 number will obviously rise with inflation.

I will be using drawdown for retirement (keeping the funds going into retirement) - as tax efficiently as possible! My question is whether I should treat my 2 pensions differently leading up to retirement. I am aware that I may never spend the whole of my pots - especially as I have no dependants and am not bothered about any inheritance tax implications. I'm also not bothered about leaving a "legacy" to anyone. Also, I may not touch either pension until a couple of years into retirement as I have the ISAs.

So, is it worth using one pot in a more adventurous way leading into and beyond retirement? By this, I mean invest in a more aggressive/risky fashion. This could almost be like a reserve pot used when the other pension pot runs out? The second fund will be the cautious fund that I will start using when retired for drawdown. Are there any tax implications which could impact this? Is this a good strategy? Should the ISAs be used before I touch the pensions? Should I merge the two pension pots before/during retirement?

I appreciate this is a personal decision and you can't formally advise. However, I'm just after opinions and suggestions at this point based on my personal circumstances.

OldMusicGuy

The two pots thing is irrelevant. You can invest in different funds in a single SIPP, so you just select the funds that meet your needs and put a relevant amount in each. You can put x% into a less risky fund and y% into a more risky fund. You clearly have a bit of an issue with "risk", because you somehow think allocating one pot to "riskier" investments will "protect" the less risky one. 

You should watch this video which is good explanation of how to choose a single multi-asset fund to match your risk level: https://www.youtube.com/watch?v=jrNyl5u93xI

You decide to consolidate (or not) your SIPPs based on fund choices, flexibility of drawdown options and costs. Not on a risk basis.

There is no tax implication for anything in a pension fund (apart from LTA). It is all immune from tax until you start taking money out. 

I am using savings to mainly bridge the gap of six years between early retirement and SP (gap of 6 years) because I have set up a cash bond ladder which means the funds are not invested. I may take small draws from my DC pot if needed.

Albermarle

One is my workplace pension which is with Hargreaves Lansdown. We have a discounted 2.5% platform charge.

Presume this is a mistake and you mean 0.25% ??

Otherwise the only issue with having two pots is if you draw from both it can complicate your tax situation and you might find yourself on the phone to HMRC in the beginning to sort it out .

Probably easier to just draw from one and top that up from the other , or just have one .

dunstonh

My question is whether I should treat my 2 pensions differently leading up to retirement. I am aware that I may never spend the whole of my pots - especially as I have no dependants and am not bothered about any inheritance tax implications. I'm also not bothered about leaving a "legacy" to anyone. Also, I may not touch either pension until a couple of years into retirement as I have the ISAs.

You should treat your whole portfolio (pensions, GIA, ISAs etc) as one thing.  Then draw across the portfolio in the most tax-efficient way.   Whether it is split into individual providers is irrelevant in that respect.      The only real issue is if you draw from both pensions at the same time as only one will have your tax code.  Plus, you will need to let the other know what lifetime allowance you have used.

So, is it worth using one pot in a more adventurous way leading into and beyond retirement?

If that is your chosen investment strategy across your whole portfolio (and some people do like that method of segmenting their portfolios into different timescale segments) then that is fine.  If that isn't your investment strategy then there is no need to do that.

 Is this a good strategy? 

It is a viable strategy.  There are many ways to do these things and whether you pick that strategy or another viable strategy is personal choice.

Should the ISAs be used before I touch the pensions? 

It would depend on your tax position.     You need to model the variations to see what is best.

Should I merge the two pension pots before/during retirement?

It will reduce admin but it may not be necessary.   

MK62

If you retire at 58, I would seriously give thought to not depleting your ISAs before accessing your pension(s).....its not all that tax efficient. Ideally you should draw the equivalent of your personal tax allowance plus 33% from your pension...(as the first 25% of any withdrawal is tax free). The potential drawback is that doing this will reduce your Annual Allowance to £4000pa.....though once retired it's probably not a problem as without any qualifying earnings for pension purposes, you'd be restricted to £3600pa in pension contributions anyway.


As for running two accounts, it probably doesn't matter that much if they are both %based fee accounts.....you can minimise tax issues by simply accessing them sequentially rather than in parallel.


If you have a standard personal allowance of £12570, then you can withdraw £16760pa and pay no tax (actually you do pay it and then claim it all back thanks to HMRC's way of dealing UFPLS payments).........then top up £8240pa from your ISAs to get your £25kpa income.

You could also use phased drawdown..........a slightly different way of arriving at  a similar result..........though perhaps more flexible if planning to forward load your early years withdrawals.

Linton

dunstonh said:

My question is whether I should treat my 2 pensions differently leading up to retirement. I am aware that I may never spend the whole of my pots - especially as I have no dependants and am not bothered about any inheritance tax implications. I'm also not bothered about leaving a "legacy" to anyone. Also, I may not touch either pension until a couple of years into retirement as I have the ISAs.

You should treat your whole portfolio (pensions, GIA, ISAs etc) as one thing.  Then draw across the portfolio in the most tax-efficient way.   Whether it is split into individual providers is irrelevant in that respect.      The only real issue is if you draw from both pensions at the same time as only one will have your tax code.  Plus, you will need to let the other know what lifetime allowance you have used.

.......

Is this true?  Certainly if one has multiple pensions each is assigned a separate tax code.  In my case I have 2 annuity-type pensions and one SIPP with a total of 3 tax codes.  So I would have thought that with multiple drawdown SIPPs each would have a separate tax code.

Linton

I agree with Dunstonh that you should regard all your investments as a single portfolio.  Where any particular fund is held is pretty irrelevent.

However holding a portfolio across multiple platforms can cause significant extra hassle with activities such as rebalancing.  If you sell one fund and want to use the money to buy another currently held elsewhere what do you do?  Eventually you may find that every investment is held on every platform.

dunstonh

Linton said:

dunstonh said:

My question is whether I should treat my 2 pensions differently leading up to retirement. I am aware that I may never spend the whole of my pots - especially as I have no dependants and am not bothered about any inheritance tax implications. I'm also not bothered about leaving a "legacy" to anyone. Also, I may not touch either pension until a couple of years into retirement as I have the ISAs.

You should treat your whole portfolio (pensions, GIA, ISAs etc) as one thing.  Then draw across the portfolio in the most tax-efficient way.   Whether it is split into individual providers is irrelevant in that respect.      The only real issue is if you draw from both pensions at the same time as only one will have your tax code.  Plus, you will need to let the other know what lifetime allowance you have used.

.......

Is this true?  Certainly if one has multiple pensions each is assigned a separate tax code.  In my case I have 2 annuity-type pensions and one SIPP with a total of 3 tax codes.  So I would have thought that with multiple drawdown SIPPs each would have a separate tax code.

It can vary with scenarios but typically your highest income will be allocated your tax code with others set to BR.  If you start doing ad-hoc withdrawals from both or make regular adjustments, that is when it can get messy.  If it is a static regular from both, then its not an issue.  

fineclaret

Here's what I do - make of it what you will. For sundry reasons I have ended up with a mix of one SIPP in drawdown with a fixed-percent Provider A, one uncrystallised SIPP with a monthly-fee provider B, and an ISA with a low-cost per-trade provider C. The mix of investments is fairly consistent, mostly low-cost things I've bought on various whims! My drawdown SIPP reflects the proportions at the moment I crystallised a portion of my original single SIPP, so A and B are similar. And the ISA contains some of the tax free lump sum taken when I went into partial drawdown, so it's just been shifted to another tax efficient wrapper. I tend to rebuy what I've sold when I do that. I've given up faffing around with investments too much; I doubt I'll live to see the difference in return! (I'm 63). But I do try and keep charges as low as poss.

I take £12570 from the drawdown fund annually to use up my tax code. The rest, about the same amount annually, comes from the ISAs. Proportions will change when I hit 66 and collect my state bung, and approaching 75 will also need attention (hopefully I'm still compos mentis!). When I've used up that drawdown fund I'll have to generate another, topping up my ISAs with the tax free sum. It's slightly complicated by Provider B's policy of allocating a percentage to drawdown rather than a separate account. I've decided I prefer separate accounts. They also charge a drawdown fee, and on trades, so with these smaller sums a percentage basis might be cheaper. 

So, mostly, I'm driven by charges-and-tax rather than investment strategy. As someone else said, you can always mix and match in one wrapper if you want to apportion risk.

kidmugsy

swleventhal said:  I am 52 now and have two separate SIPPs. One is ... currently valued at £245K. I also have a personal SIPP ... valued at £160K. In addition, I have stock ISAs and GIAs valued at around £70K and a £22K emergency cash/savings fund. I am planning to move all the GIA (general investment accounts) money into the ISA wrappers ASAP - but I've maxed out this years allowance so will need to wait.

Moving capital from GIA to ISA is a good idea, unless you are a higher rate taxpayer, or make pension contributions by salary sacrifice, in which case consider making extra pension contributions instead. You could even empty the ISA to do so.  After all, your tax-free lump sums will be available to back up your emergency savings in less than three years time.

Even if you are neither a higher rate payer nor a salary sacrificer it might still be worthwhile, though more marginal.  At least consider it for the GIA.  But at your age I wouldn't worry about emptying an ISA because at 55 you can always fill a new ISA just by taking some tax-free lump sum from one of the pensions.

I have full NI contributions so will get full state pension at age 67.

You may well be right but the "so" doesn't necessarily apply because of the transitional rules.  It's worth checking on the government website to see exactly what you can expect.

Response in italics.