stick or twist with DC pot withdrawal this tax year ?

HillsideRetired

first post so be gentle 
i am 59 . no taxable earnings tax year 22/23 .( living off redundancy) . i have opened a sipp with £2880 for the HMRC addition . which I believe leaves me £9690 of unused allowance for this period as i will be withdrawing during this tax year 

I have £213000 in Standard Life DC fund SL sustainable Multi asset Pension fund . in normal times i would be taking £9690 plus 25% of the withdrawal  ... to get it out without tax penalty .. and put in S&S isa . 

However the fund is down approx £12000 on its highest point ( not alot i know from what I have seen reported on other funds ) 

option 1 do i leave it untouched for growth ? with potential growth outstripping any gains made by not paying tax ?? 

option 2 do i take max amount i can take this year to make use of unused allowance.

i cant see the wood for the trees on this .which may be better option ..  but my instincts tell me to wait as long as i can in this tax year hoping for some further recovery then drawdown 

thoughts please on possible best practice approaches 

ewaste

If it's getting reinvested in an S&S ISA you'd be better utilising your personal allowance. Doing so should outweigh any difference caused by being out of the market for a few days until the money is reinvested.

NoMore

Unless I've misunderstood something, contributions have no effect on the amount you can drawdown using your personal allowance. So with no other income this year and assuming you haven't crystallised all of the pension you could take £16760 out tax free (12570 tax free allowance plus 25% tax free)

Whether you should or not I'll leave up to you, but it looks like you may have been underutilising your tax free allowances

ader42

I'm not sure where you get the £9690 from, but it looks like you think putting £2880 (from your redundancy money?) into a SIPP reduces your personal tax allowance? I don't see how that makes any sense to be honest. 

But as @ewaste said,  if the amount withdrawn from the pension (in a taxable arena) is simply going to be put into an ISA (outside of the tax arena) in the exact same investments it does make sense to use your personal allowance - to protect it from tax in the future.

squirrelpie

i have opened a sipp with £2880 for the HMRC addition . which I believe leaves me £9690 of unused allowance for this period

I don't think that's right. Paying money into a SIPP does not affect your tax allowance, which remains at £12570 (9690+2880)

HillsideRetired

thanks all , to clarify  I plan to withdraw the 2880+720  from the SIPP  this tax year  . will that come off the £12570 Annual allowance ?

Dazed_and_C0nfused

HillsideRetired said:

thanks all , to clarify  I plan to withdraw the 2880+720  from the SIPP  this tax year  . will that come off the £12570 Annual allowance ?

I think you are making life more complicated than it needs to be as the amount you contribute is irrelevant in relation to your Personal Allowance.

If by chance you were to take £3,600 from a DC pension and 25% was a TFLS then you would have £2,700 in taxable income.

If you haven't applied for Marriage Allowance this has used £2,700 of your Personal Allowance leaving £9,870 unused (£12,570 less £2,700 = £9,870).

ader42

HillsideRetired said:

thanks all , to clarify  I plan to withdraw the 2880+720  from the SIPP  this tax year  . will that come off the £12570 Annual allowance ?

That clarifies somewhat thx.

You don't say if you have previously had a 25% TFLS (and crystallized the whole pot)... I am assuming not otherwise you wouldn't be asking about "plus 25% of the withdrawal".

You have no other taxable income.

So, this tax year you plan on withdrawing £3,600 from your SIPP, 25% of that is £900 tax free.
Leaving £2700 taxable which reduces your personal allowance to £9870

HillsideRetired

ader42 said:

HillsideRetired said:

thanks all , to clarify  I plan to withdraw the 2880+720  from the SIPP  this tax year  . will that come off the £12570 Annual allowance ?

That clarifies somewhat thx.

You don't say if you have previously had a 25% TFLS (and crystallized the whole pot)... I am assuming not otherwise you wouldn't be asking about "plus 25% of the withdrawal".

You have no other taxable income.

So, this tax year you plan on withdrawing £3,600 from your SIPP, 25% of that is £900 tax free.
Leaving £2700 taxable which reduces your personal allowance to £9870

Pot not crystallised... ... thanks i will wirk on 9870 PA .... 

MX5huggy

Have you considered MPAA? Once you take any (even a penny) of taxable income (even if it is not actually taxed because it’s below your personal allowance) from a DC pension you are restricted to pension contributions not exceeding £4000 per tax year (even if your earn more than the £3600 limit you are working to your advantage). It’s not an issue if you never intend to work again but you’re only 59 with what could be considered a small pension, some people don’t start their main career until 73 👑.

If you just withdraw money to reinvest (in the same fund) it it makes no difference what markets have done it’s just physiological taking out money that is “down”. 

But you need a drawdown strategy how much cash to hold, low risk fund vs high risk etc (start a new thread, or read threads in drawdown). 

HillsideRetired

MX5huggy said:

Have you considered MPAA? Once you take any (even a penny) of taxable income (even if it is not actually taxed because it’s below your personal allowance) from a DC pension you are restricted to pension contributions not exceeding £4000 per tax year (even if your earn more than the £3600 limit you are working to your advantage). It’s not an issue if you never intend to work again but you’re only 59 with what could be considered a small pension, some people don’t start their main career until 73 👑.

If you just withdraw money to reinvest (in the same fund) it it makes no difference what markets have done it’s just physiological taking out money that is “down”. 

But you need a drawdown strategy how much cash to hold, low risk fund vs high risk etc (start a new thread, or read threads in drawdown). 

interesting thought ,but i dont think i will work again ,  i also have a couple of DB pensions , which i will take in maybe in year 23 or 24 , just waiting for the fund statutory revaluation on each one following this high inflation period