ii SIPP

Justso65

Hi

I am considering moving two defined contribution pensions from their current location to a SIPP.  I already have a small ISA shares and some non-ISA shares with ii and keep seeing a SIPP ad saying no charges for 6 months.  So I was considering opening the SIPP and getting a look around the platform before moving any pensions. If I open the SIPP I assume I don’t need to transfer then and could put a small amount in until I decide what to do with my current DC pension pots.

I intend to use those pots to get me from 57 to 67.  At which time my self and my wife each have DB pensions and state pensions to live off.

The combined pots have a current value of around £450k and I have ISA cash, ISA shares and cold hard cash totalling around £140k.  So I’d intend to take my 25% TFLS leaving around £337k in the SIPP.  I want to then draw the maximum tax free per year of around £12700 and hope investment growth could minimize or even cancel out the pot depreciation leaving a significant portion 10 years later at 67. At a 4% appreciation I expect that to keep ahead of my withdraws.

Is that pie in the sky optimistic or reasonably feasible?

If it is feasible I could see myself to 67 with the same or slightly more than my current take home pay which would be enough to say bye bye to the rat race.

Marcon

Justso65 said:

Hi

I am considering moving two defined contribution pensions from their current location to a SIPP.  I already have a small ISA shares and some non-ISA shares with ii and keep seeing a SIPP ad saying no charges for 6 months.  So I was considering opening the SIPP and getting a look around the platform before moving any pensions. If I open the SIPP I assume I don’t need to transfer then and could put a small amount in until I decide what to do with my current DC pension pots.

I intend to use those pots to get me from 57 to 67.  At which time my self and my wife each have DB pensions and state pensions to live off.

The combined pots have a current value of around £450k and I have ISA cash, ISA shares and cold hard cash totalling around £140k.  So I’d intend to take my 25% TFLS leaving around £337k in the SIPP.  I want to then draw the maximum tax free per year of around £12700 and hope investment growth could minimize or even cancel out the pot depreciation leaving a significant portion 10 years later at 67. At a 4% appreciation I expect that to keep ahead of my withdraws.

Is that pie in the sky optimistic or reasonably feasible?

If it is feasible I could see myself to 67 with the same or slightly more than my current take home pay which would be enough to say bye bye to the rat race.

What are you going to do with a TFLS of well over £100K? If you've no immediate use for it which would give the chance of a better return than leaving it in a tax-favoured environment, might you do better to take 25% of each withdrawal as tax free cash rather than taking the whole lot of tax free cash at the outset? 

handful

I can answer the ii SIPP question for you but the rest is best left to the more knowledgeable here! Yes you can open the SIPP and have nothing or little in there whilst deciding what to do. I've just opened an ii SIPP myself and have diverted contributions I was making into another pension so very little there currently. I have a couple of DC pots which I will transfer in when the time is right. 

Albermarle

With most ( all) SIPP providers you can pretty much see 90% of what is on offer without even being a customer.

With a pot of £450K in Pensions and more elsewhere , I would suggest you spend some more time researching about investments , Safe Withdrawal rates ( often discussed on this forum ). how best to efficiently utilise the 25% tax free sum etc .

You could also consider a free pension guidance call with pensionwise .
Pension Wise (moneyhelper.org.uk)

Read though this forum .

Or even paying for professional advice if you are not sure what to do 

Justso65

Marcon said:

Justso65 said:

Hi

I am considering moving two defined contribution pensions from their current location to a SIPP.  I already have a small ISA shares and some non-ISA shares with ii and keep seeing a SIPP ad saying no charges for 6 months.  So I was considering opening the SIPP and getting a look around the platform before moving any pensions. If I open the SIPP I assume I don’t need to transfer then and could put a small amount in until I decide what to do with my current DC pension pots.

I intend to use those pots to get me from 57 to 67.  At which time my self and my wife each have DB pensions and state pensions to live off.

The combined pots have a current value of around £450k and I have ISA cash, ISA shares and cold hard cash totalling around £140k.  So I’d intend to take my 25% TFLS leaving around £337k in the SIPP.  I want to then draw the maximum tax free per year of around £12700 and hope investment growth could minimize or even cancel out the pot depreciation leaving a significant portion 10 years later at 67. At a 4% appreciation I expect that to keep ahead of my withdraws.

Is that pie in the sky optimistic or reasonably feasible?

If it is feasible I could see myself to 67 with the same or slightly more than my current take home pay which would be enough to say bye bye to the rat race.

What are you going to do with a TFLS of well over £100K? If you've no immediate use for it which would give the chance of a better return than leaving it in a tax-favoured environment, might you do better to take 25% of each withdrawal as tax free cash rather than taking the whole lot of tax free cash at the outset? 

Taking the £100k then £12700 per year gets £227k out of my pension pot tax free over the 10 years to 67.  Add to my £140k gives me just short of £370k to live on for 10 years. Coincidentally near my current take home monthly pay of £2.9k.

If I take 25% tax free per year’s withdraw that’s around £16.9k x 10 which gets £169k out of my pension over 10 years tax free.  Personal tax allowance plus 25% tax free each year.  So with my £140k plus £169k gives me £309k over the 10 years. £61k less.

I would use the £100k to fill cash and share ISAs as well as maybe premium bonds to keep as safe as possible.  Then hope the remaining pension pot investments return enough each year to feed my £12.7k withdraws.

This is all about getting as much as possible out tax free over 10 years to live on until my DB and state pensions kick in.

QrizB

Justso65 said:

I would use the £100k to fill cash and share ISAs as well as maybe premium bonds to keep as safe as possible.  Then hope the remaining pension pot investments return enough each year to feed my £12.7k withdraws.

This is all about getting as much as possible out tax free over 10 years to live on until my DB and state pensions kick in.

Do you expect your "cash and share ISAs as well as maybe premium bonds" to perform better than the funds remaining in your SIPP? If not, you could leave the TFC in the SIPP intil you need it. It will always be TFC, after all.

In your illustration, you could take £10k TFC plus £12700 every year for ten years.

The advantage is that growth of your SIPP would include a TFC element. Example assuming a SIPP value of £400k for simplicity:

• Option A. Take £100k TFC, leaving £300k crystallised and taxable. The SIPP grows 3%pa from 57 to 67. All £420k is taxable.
• Optiob B. Take £10k TFC annually. The SIPP grows 3% pa. Roughly £60k of the growth with be from uncrystallised funds (I haven't actually modelled it so this is a rough estimate) and £15k of that will be TFC.
  

By talking all your TFC up-front you're losing out on £15k of TFC growth.

squirrelpie

You haven't said whether you're hoping to leave an inheritance or trying to spend it all before you die? That makes quite a difference to the best strategy.

Justso65

This is why I love this site.  So many great respondents and quick too.  Thank you.

So are you saying crystallise £40k per year and take £10k from that each time? Then the remaining uncrystallised continues to grow?  Would I then take my £12700 personal allowance from the crystallised funds totalling around £22.7k per year tax free?  Then top up from my non-pension pot with £14k making £36.7k tax free per year.

If this is you’re idea it wasn’t something I considered possible but sounds a good option if it is. 

My main concern in any option is some kind of market downturn affecting my plans for the 10 years until DB and state pension start.

Thank you again for your input.  

Justso65

squirrelpie said:

You haven't said whether you're hoping to leave an inheritance or trying to spend it all before you die? That makes quite a difference to the best strategy.

Ideally I would like to leave something but at the end of the day my pension savings were intended to see me out.  If they are used up then so be it.  However, I’m not planning to ski (spend kids inheritance) nor am I working on the basis that I want to leave a specific amount.  If I use my DC pots to 67 as planned I expect to have quite a bit left over when my DB and state pensions kick in.  They’ll be guaranteed a fully paid house anyway.  And to paraphrase my favourite quote.  I’ll make sure the kids don’t sell my golf stuff for what I told my wife I paid for it.

QrizB

Justso65 said:

This is why I love this site.  So many great respondents and quick too.  Thank you.

So are you saying crystallise £40k per year and take £10k from that each time? Then the remaining uncrystallised continues to grow?  Would I then take my £12700 personal allowance from the crystallised funds totalling around £22.7k per year tax free?  Then top up from my non-pension pot with £14k making £36.7k tax free per year.

If this is you’re idea it wasn’t something I considered possible but sounds a good option if it is. 

My main concern in any option is some kind of market downturn affecting my plans for the 10 years until DB and state pension start.

Thank you again for your input. 

Yes, that's pretty much it. In principle your SIPP investments can be the same ones you would have chosen for a S&S ISA, leaving you free to use your existing £140k if you want some of your assets in cash or PBs.

A downturn would affest a S&S ISA in the same way as a SIPP, so you won't avoid that risk even with your original plan.

Marcon

Justso65 said:

Marcon said:

Justso65 said:

Hi

I am considering moving two defined contribution pensions from their current location to a SIPP.  I already have a small ISA shares and some non-ISA shares with ii and keep seeing a SIPP ad saying no charges for 6 months.  So I was considering opening the SIPP and getting a look around the platform before moving any pensions. If I open the SIPP I assume I don’t need to transfer then and could put a small amount in until I decide what to do with my current DC pension pots.

I intend to use those pots to get me from 57 to 67.  At which time my self and my wife each have DB pensions and state pensions to live off.

The combined pots have a current value of around £450k and I have ISA cash, ISA shares and cold hard cash totalling around £140k.  So I’d intend to take my 25% TFLS leaving around £337k in the SIPP.  I want to then draw the maximum tax free per year of around £12700 and hope investment growth could minimize or even cancel out the pot depreciation leaving a significant portion 10 years later at 67. At a 4% appreciation I expect that to keep ahead of my withdraws.

Is that pie in the sky optimistic or reasonably feasible?

If it is feasible I could see myself to 67 with the same or slightly more than my current take home pay which would be enough to say bye bye to the rat race.

What are you going to do with a TFLS of well over £100K? If you've no immediate use for it which would give the chance of a better return than leaving it in a tax-favoured environment, might you do better to take 25% of each withdrawal as tax free cash rather than taking the whole lot of tax free cash at the outset? 

Taking the £100k then £12700 per year gets £227k out of my pension pot tax free over the 10 years to 67.  Add to my £140k gives me just short of £370k to live on for 10 years. Coincidentally near my current take home monthly pay of £2.9k.

If I take 25% tax free per year’s withdraw that’s around £16.9k x 10 which gets £169k out of my pension over 10 years tax free.  Personal tax allowance plus 25% tax free each year.  So with my £140k plus £169k gives me £309k over the 10 years. £61k less.

Which means you've got more still invested in your SIPP and hopefully still growing...you could always take a bit more tax free cash at any stage, even if you only draw down just enough cash to match the personal allowance.

Justso65 said:

I would use the £100k to fill cash and share ISAs as well as maybe premium bonds to keep as safe as possible.  Then hope the remaining pension pot investments return enough each year to feed my £12.7k withdraws.

This is all about getting as much as possible out tax free over 10 years to live on until my DB and state pensions kick in.

Don't forget there's an annual limit on how much you can pay into your ISA in any tax year, so you won't be able to do that one one go - meaning you'll need to invest it somewhere which may not have the same tax advantages as pensions or ISAs.