Best financial way to access your pension

funnymonkey

Good morning.
I'm after a little advice please.
I've fallen on hard times recently due to having an accident and broke my collar bone which is taking a long time to repair and only get SSP.

As I'm over 55 I wish to gain access to my private pension to get me through this period period but am totally unsure the best tax efficient way of getting my money?

Can anyone please help as I'm with H.L so don't have a pension advisor?

Thank you

ewaste

If your pension is with HL that points to it being a Defined Contribution SIPP. You can take upto 25% of it Tax Free to tide you over. However you don't want to take anything over that or you will trigger the Money Purchase Annual Allowance (MPAA) which limits future annual gross contributions to £4k total. 

Albermarle

You have six options normally:
1) Leave it alone ( not valid in this case)
2) Take it all out in go ( not tax efficient or advisable normally)
3) Take the whole 25% tax free and leave the rest invested ( as suggested above)
4) Take the whole 25% tax free, and some of the 75% taxable money, but no more than £12570 taxable money each year so you pay no tax ( assuming no other taxable income) as £12570 is your personal tax allowance
5) Take the 25% tax free and buy an annuity ( guaranteed income )
6) Take some of the tax free money and some of the taxable money in a 25 to 75 ratio. A so called UFPLS payment. Here you can take £16,760 in a tax year and pay no tax ( £12570 tax able and £4190 tax free ) assuming no other taxable income.

Options 4) and 6) will restrict your ability to add to a pension in future. Option 4) would give you the most money in the short term ( ignoring Option 2) whilst Option 6) would spread it out a bit more.
If you could manage with Option 3) that might be best .

squirrelpie

There's also option (7), depending on how much you need now. If what you need is less than 25% of your SIPP, say £N, then you can crystallise £4N (i.e. move it into drawdown) and withdraw £N from the crystallised amount tax-free. The remaining £3N can be reinvested in whatever you wish, perhaps whatever it was invested in before.

That gives you the money you need now tax-free, doesn't trigger the MPAA restriction, and leaves you free to take some more tax-free money later if necessary. All the unused money can be invested.

I don't know whether taking money from a pension affects benefits. Depending on how much other tax free income you have and how much you want to contribute to your pension in the future, it might be better to use option (6) for part of the money you need, but that all depends on your circumstances now and in the future.

sgx2000

All of these options MAY effect you SSP  (I may be wrong though)
I'm sure some of the very knowledgeable people here will advise....

xylophone

All of these options MAY effect you SSP  (I may be wrong though)

It appears that SSP is not means tested.

https://www.which.co.uk/money/insurance/life-insurance/statutory-sick-pay-explained-akj5r1f7kxud#:~:text=SSP is not means tested,now eligible for it again.

xylophone

OP, have you obtained a state pension forecast to help with future planning?

https://www.gov.uk/check-state-pension

And you could discuss SIPP drawdown options with H L. 

https://www.hl.co.uk/news/articles/archive/income-options-before-the-state-pension

You are employed by an agency - is a workplace pension  scheme provided and are you a member?

Notepad_Phil

And an option 8) - As you are with Hargreaves Lansdown then you also have the ability to use the 'small pots' rules that do not trigger the MPAA rules and so would not restrict the amount of money that you can subsequently invest into your pension.

Each 'small pot' can be up to £10k and you can do it a maximum of three times - unfortunately you would be taxed on 75% of the money that you take via the 'small pots' route.

So you could 'theoretically' take 3 x small pots of £10k each and then take the 25% of the remaining pot without triggering MPAA rules.

I say theoretically, as running down your pension in such a way is likely to cause you severe issues once you get to your sixties/seventies/eighties/etc and is not to be done lightly.

If you find that you do want to use the 'small pots' rules then you will need to phone them up and tell them that is what you wish to do as I don't believe that they have the option online.

funnymonkey

Thank you for all your advice.
Sorry for the delay as I was back in hospital with complications.
I would like to just like to take the 25%.
Do I just withdraw from my pension or do I need to notify anyone which method of withdrawing i am doing? 
does that mean any further withdrawals will be taxed at 100% as I have used up my 25% allowance?
Thank you

Dazed_and_C0nfused

funnymonkey said:

Thank you for all your advice.
Sorry for the delay as I was back in hospital with complications.
I would like to just like to take the 25%.
Do I just withdraw from my pension or do I need to notify anyone which method of withdrawing i am doing? 
does that mean any further withdrawals will be taxed at 100% as I have used up my 25% allowance?
Thank you

No, 100% is taxable but the tax payable will depend what other income you have in the tax year you take taxable money out.

And don't forget if the remaining 75% is say £100k and that grows to £130k in a few years then the whole £130k is taxable, not just £100k.

squirrelpie

When thinking about how much money to take out now, do remember that whatever you spend now won't be available once you retire. A broken collar bone won't be a problem forever and you don't want to leave yourself short later.

Good luck with everything.