Should I go over the SIPP lifetime allowance?

jamesd

No law prevents you from using one platform for uncrystallised and another for crystallised, though. You transfer before crystallising in that approach. Then the new crystallised money joins the old crystallised money that was also crystallised at the same place.

HL is just too expensive for your pot size, though they might agree a discount if asked. It'll still be too expensive. If you were to use ETFs and shares or investment trusts instead of funds it'd be a lot cheaper that for funds because there's a cap on the total platform fee for those three combined. In general places with a fixed annual or monthly fee rather than a percentage one will be cheaper for you. The fixed fee ones will normally also have trading costs even for funds that the percentage ones probably won't charge for.

In theory since April 2015 it is now permitted to combine and split crystallised pots but it seems that the costs are too high for platforms to be willing to support it.

Tinten

I miscalculated A J Bell v HL a bit, on £1m SIPP the difference is £2,500 v £3,000. So £500, but costs matter.

Looking around for more information I found this, I can't post the link but it is on "Online Money Advisor".

"an alternative to drawdown is an Uncrystallised Funds Pension Lump Sum also known as a UFPLS or a FLUMP, which allows you to withdraw a lump sum from your pension pot without using drawdown. As is the case for a PCLS, 25% of the sum is paid to you tax free. However, the crucial difference is that if you choose to take a UFPLS, you can continue to make contributions to your pension pot without the post-crystallisation rules applying. This means you can pay in up to £40,000 per year and the money remaining in your pension stays tax free until you choose to access it using annuity or drawdown."

The above is saying you only keep the right to £40,000 contributions because your pot was not crystallised by the 25% tax free withdrawal. Is the UFPLS/FLUMP yet another (different) process? 

I had thought I'd understood now that I can (and should) crystallise part or all my SIPP by taking 25% of the amount to crystallise as a tax free lump sum. Then because I have only withdrawn the tax-free amount, so long as I don't withdraw any further amounts (which would be taxable), I still retain the option to pay the maximum £40,000 in new contributions annually. This option is removed and the cap is lowered to £4,000 only once any taxable income is taken from the SIPP.

Albermarle

Tinten said:

EdSwippet said:

Tinten said:

Good to know. I will ask youinvest.co.uk whether they split crystallised and uncrystallised SIPP investments. Having a different investment strategy for each may be important.

According to this recent thread, they do not split them. It is an annoyance (I'm with Interactive Investor, and they do the same thing).

I had a look at that thread. It looks like hl.co.uk are one of the few that do split crystallised and uncrystallised.

One post also warned that once you have crystallised part of your SIPP pot, you cannot move it to another platform. 

Surely the system isn't set up so once you start crystallising your SIPP you are locked to that platform forever?!

I had a look at HL and on a large SIPP close to the LTA the annual account charges would be £1,000 more than A J Bell. 

I suppose you can use a spreadsheet to keep track on the value of your SIPP and the percentage that has been crystallised. But that doesn't help if you want to invest the uncrystallised portion in 40:60 bonds/equities for more steady / less risk returns, and the crystallised portion in 100% equities to maximize growth potential (now that I understand the LTA has already been applied so the crystallised investments can grow without any LTA cap provided the excess growth is withdrawn by age 75). That needs a platform that separates the portions.

I think that Fidelity split the pots , but you would need to check to be sure . They tend to be pretty similar to HL in they way they operate and their charging structure , except they are cheaper than HL . Not as cheap as the flat fee platforms for a big pot but could be a half way house . It is worth noting that most platforms tend to charge extra for drawdown, withdrawals etc , whilst HL & Fidelity do not. 

I think some platforms will accept crystallised funds, but you have to talk to them in advance to discuss. Unlike transferring uncrystallised funds , which can be done easily online.

Albermarle

Tinten said:

I miscalculated A J Bell v HL a bit, on £1m SIPP the difference is £2,500 v £3,000. So £500, but costs matter.

Looking around for more information I found this, I can't post the link but it is on "Online Money Advisor".

"an alternative to drawdown is an Uncrystallised Funds Pension Lump Sum also known as a UFPLS or a FLUMP, which allows you to withdraw a lump sum from your pension pot without using drawdown. As is the case for a PCLS, 25% of the sum is paid to you tax free. However, the crucial difference is that if you choose to take a UFPLS, you can continue to make contributions to your pension pot without the post-crystallisation rules applying. This means you can pay in up to £40,000 per year and the money remaining in your pension stays tax free until you choose to access it using annuity or drawdown."

The above is saying you only keep the right to £40,000 contributions because your pot was not crystallised by the 25% tax free withdrawal. Is the UFPLS/FLUMP yet another (different) process? 

I had thought I'd understood now that I can (and should) crystallise part or all my SIPP by taking 25% of the amount to crystallise as a tax free lump sum. Then because I have only withdrawn the tax-free amount, so long as I don't withdraw any further amounts (which would be taxable), I still retain the option to pay the maximum £40,000 in new contributions annually. This option is removed and the cap is lowered to £4,000 only once any taxable income is taken from the SIPP.

The info in the article is actually wrong . Taking a UFPLS payment does trigger the £4K contribution limit , as 75% is taxable .

With a UFPLS payment 25% is tax free and 75% taxable . The remaining part of the pot remains uncrystallised .

It is not suitable for what we have been discussing in previous posts about crystallising early.

Tinten

Albermarle said:

Tinten said:

I miscalculated A J Bell v HL a bit, on £1m SIPP the difference is £2,500 v £3,000. So £500, but costs matter.

Looking around for more information I found this, I can't post the link but it is on "Online Money Advisor".

"an alternative to drawdown is an Uncrystallised Funds Pension Lump Sum also known as a UFPLS or a FLUMP, which allows you to withdraw a lump sum from your pension pot without using drawdown. As is the case for a PCLS, 25% of the sum is paid to you tax free. However, the crucial difference is that if you choose to take a UFPLS, you can continue to make contributions to your pension pot without the post-crystallisation rules applying. This means you can pay in up to £40,000 per year and the money remaining in your pension stays tax free until you choose to access it using annuity or drawdown."

The above is saying you only keep the right to £40,000 contributions because your pot was not crystallised by the 25% tax free withdrawal. Is the UFPLS/FLUMP yet another (different) process? 

I had thought I'd understood now that I can (and should) crystallise part or all my SIPP by taking 25% of the amount to crystallise as a tax free lump sum. Then because I have only withdrawn the tax-free amount, so long as I don't withdraw any further amounts (which would be taxable), I still retain the option to pay the maximum £40,000 in new contributions annually. This option is removed and the cap is lowered to £4,000 only once any taxable income is taken from the SIPP.

The info in the article is actually wrong . Taking a UFPLS payment does trigger the £4K contribution limit , as 75% is taxable .

With a UFPLS payment 25% is tax free and 75% taxable . The remaining part of the pot remains uncrystallised .

It is not suitable for what we have been discussing in previous posts about crystallising early.

OK so that website was wrong. Got to be careful what you trust out there!

So the process it was referring to is UFPLS, and that is different from the process being discussed here (crystallise part or all of a SIPP by taking 25% of the amount to crystallise as a tax free lump sum, but not taking any further withdrawals which would be taxable and trigger the £4,000 limit, and keeping the option to make further contributions up to the maximum £40,000 p.a.) So if this process isn't UFPLS does it have it's own acronym (so I know what I'm doing). There has to be an acronym - it's a pension!

jamesd

Tinten said:

Looking around for more information I found this, I can't post the link but it is on "Online Money Advisor".

"an alternative to drawdown is an Uncrystallised Funds Pension Lump Sum also known as a UFPLS or a FLUMP, which allows you to withdraw a lump sum from your pension pot without using drawdown. As is the case for a PCLS, 25% of the sum is paid to you tax free. However, the crucial difference is that if you choose to take a UFPLS, you can continue to make contributions to your pension pot without the post-crystallisation rules applying. This means you can pay in up to £40,000 per year and the money remaining in your pension stays tax free until you choose to access it using annuity or drawdown."

The text you have quoted is wrong. Both UFPLS and taking money out of a flexi-access drawdown account trigger the MPAA restriction to 4k.

This crucial difference arises because when you use UFPLS you are required by law to take both the tax free 25% and that taxable 75% at exactly the same time. So using UFPLS to crystallise 600k would require withdrawing all 600k. Using the 25% tax free lump sum and flexi-access drawdown approach only the tax free lump sum has to be withdrawn and the rest can wait until the 4k restriction no longer hurts.

EdSwippet

Albermarle said:
The info in the article is actually wrong. Taking a UFPLS payment does trigger the £4K contribution limit, as 75% is taxable .

Yup. The referenced article appears to be garbage. Although dated Oct 2019, it also states "Your allowance will drop from £40,000 per year (or 100% of your income if lower) to £10,000." The MPAA dropped from £10k to £4k in 2017.

For the OP, here is a better article that much more clearly explains what does and does not trigger the MPAA (and a few ways to counter it, if needed):

What is the money purchase annual allowance (MPAA) - everything you need to know - Prudential

Tinten

EdSwippet, that link helped thanks. The bit that applies to the situation boing discussed I think is this:

"Flexi-access Drawdown Income

A designation of funds for flexi-access drawdown does not in itself trigger the MPAA, nor does the payment of a PCLS. However, once income (or any lump sums from the designated pot) are taken from the funds designated to a flexi-access drawdown plan, the MPAA will apply"

So is this correct:

I would be doing a FADI on my SIPP by taking a PCLS of £150,000 which would crystallise £600,000 of the SIPP. The £450,000 is then in drawdown and crystallised. So long as the £450,000 remains invested in the SIPP and nothing is withdrawn, I can continue to make contributions up to £40,000. These contributions and the investments purchased will be uncrystallised.

Is the following also correct:

The crystallised £450,000 can grow within the SIPP along with the the uncrystallised investments. So long as the total value of the SIPP (crystallised + uncrystallised investments) does not exceed the LTA £1.073m no LTA tax is paid. This can be achieved by withdrawing gains from the crystallised investments (maintaining their value around £450,000). If the SIPP total value starts to approach the LTA even after withdrawing crystallised gains, then it is necessary to crystallise some uncrystallised investments by taking another tax free PCLS lump sum.  This can be repeated up to a maximum total of £268,250 (25% of £1.073m) has been withdrawn as PCLS tax free lump sums, leaving a SIPP holding crystallised investments of £804,750. If the SIPP value exceeds that then any withdrawals on the excess would be subject to LTA tax.

gm0

Almost there. 

The only thing to remember is that LTA is only tested at crystallisation events (Age 75 defines 2 of them BCE5A, 5B).  Taking benefits for the first time (TFC) is another group.  Best to google the list of events on official UK tax website.  Google PTM088100 and .gov will come up with the exact list.

Taking income from already "marked for income/crystallised funds" (i.e. where you took tax free cash @ 25%) doesn't consume any more LTA as income from marked for drawdown funds is not a crystallisation event.

All that matters on the marked for income portion is that the value (of the crystallised 75% doesn't grow above it's initial value by 75 *if* there is no spare LTA left.  After any remaining uncrystallised stuff is settled off on the way or at 75 each of which is another crystallisation. 

So Uncrystallised remaining + Crystallised growth above it's initial value minus the LTA allowance remaining if any x 25%.  

But now there is now a small piece of bad news.  Not all platforms are equally adept at handling mixed crystallised and uncrystallised funds and the investment control, reporting and web functionality offered.  It would be fairly logical from the customer's pov to hold uncrystallised and crystallised funds separately in different accounts and to allow you to manipulate each pool of investment to suit your goals - what is held and the reporting and statementing.

But that is not the reality of how LTA was introduced and % tracking setup and tacked onto existing platforms.  Slightly better implementations have been added more recently.  This is not something they talk about much in marketing so you need customer feedback on the specific platform you plan to use. 

Or essentially your workaround options are:

- go to a better platform (may cost more) which lets you do and see what you want more effectively

- move partial funds as part of crystallisation step (i.e. you keep uncrystallised elsewhere (e.g. the source accumulation scheme)

- go to a cheap reputable SIPP bucket, ignore any limitations and run your own spreadsheet to fix any management deficiencies that bother you.

tiring33

Tinten said:

Is the following also correct:

The crystallised £450,000 can grow within the SIPP along with the the uncrystallised investments. So long as the total value of the SIPP (crystallised + uncrystallised investments) does not exceed the LTA £1.073m no LTA tax is paid. This can be achieved by withdrawing gains from the crystallised investments (maintaining their value around £450,000). If the SIPP total value starts to approach the LTA even after withdrawing crystallised gains, then it is necessary to crystallise some uncrystallised investments by taking another tax free PCLS lump sum.  This can be repeated up to a maximum total of £268,250 (25% of £1.073m) has been withdrawn as PCLS tax free lump sums, leaving a SIPP holding crystallised investments of £804,750. If the SIPP value exceeds that then any withdrawals on the excess would be subject to LTA tax.

As gm0 says you're nearly there, but you still haven't quite got your head around how the LTA is calculated and until you do you'll struggle to make sense of it.

Try thinking of your pension as containing 2 buckets, crystallised and uncrystallised funds. All of your pension starts off in the uncrystallised bucket and moves to the crystallised bucket when you take the tax free cash. So if you move £100k from uncrystallised to crystallised you take £25k as tax free cash and the remaining £75k goes to the crystallised bucket available for you to withdraw/drawdown whenever you want, subject to income tax when you take it. Each time you move funds from the uncrystallised to the crystallised bucket, it is subject to an LTA test which consumes a percentage of your LTA. So if the LTA is £1,073,100 in the year you crystallise the £100,000, it uses-up 9.32% (100,000/1,073,100) of your LTA, leaving 90.68% remaining (it's important to think of the LTA in % terms not £ terms).

Lets say a few years go by and you run out of funds in your drawdown/crystallised bucket and you decide to move across another £100k of uncrystallised funds. Once again you take the £25k tax free cash with the £75k going into your crystallised/drawdown bucket and once again there is an LTA test. Unless you have a protected LTA figure (like Individual Protection 2016) the LTA test will use the prevailing LTA in the year you crystallise. So let's say the Chancellor has increased the LTA to £1.5m in the year you crystallise, then transferring another £100k into drawdown this time will use up 6.67% (100,000/1,500,000) of your LTA. So in total you will have used up 15.99% (9.32+6.67) of your LTA and have 84.01% remaining.

And so you carry on using up percentages of your LTA each time you crystallise funds until you have used up 100% of your LTA. At that point any remaining uncrystallised funds that you move across to the crystallised bucket will be subject to an LTA charge of 25% if you assign them to drawdown (and pay tax when you take the money as income) or 55% if you want to take the money directly without paying income tax.

At 75 all remaining uncrystallised funds will automatically crystallise and be tested against your remaining LTA - if there is any left. If you have already used 100% of your LTA all of these funds will be subject to an LTA charge. As previously mentioned there is also a test against growth in crystallised funds. You need to keep a record of the value of all the funds you've crystallised and ensure that the total value of these funds has not grown, if they have you will pay an LTA charge on the growth. Just withdraw the growth as you go and you won't be troubled with an additional charge.

Remember that, unless you have a protected LTA, the LTA test uses the LTA of the year in which you crystallise. This is currently fixed at £1,073,100 until 2025/26, but who knows what it will be after that, or indeed whether there will be a change of mind on the freeze in the interim.  For those crystallising after 2025/26 planning is very difficult as there is no knowing whether it will be lower (and you'll consume your LTA percentage more quickly), or higher (and you'll consume it less quickly). In each case you can't be absolutely sure how much of your fund will be subject to an LTA charge.

As has been pointed out in previous posts, pension providers don't always make it easy to differentiate between crystallised and uncrystallised funds, a consequence of poor IT systems that have failed to keep up with evolving tax rules. Most of them however do seem to have got to grips with the calculation of LTA % which they should report to you each time you crystallise funds so you (and they) can keep a track of it.