Comments on this Cash SIPP Drawdown strategy please 1 February at 3:12PM in Pensions, annuities & retirement planning 14 replies 676 views

JohnB47

The plan is to avoid paying tax on the proceeds. Is there a better/alternative way to do this? Or some other strategy available?

The money is not needed for any urgent purpose. It’s just that the time seems right to ‘take profits’, bearing in mind that the Personal Tax Allowance will not increase now for a few years and therefore the amount of tax free amounts drawn down will probably reduce over time.

The person is aged 67 and has a cash only SIPP which, after 5th April 2023 will hold approx. £36000. The person is a ‘new’ State Pensioner, has no other income and has the full Personal Tax Allowance.

The plan is, early in the next tax year (2023-2024), to take 25% of the SIPP fund as a tax free lump sum and move that into an existing ISA, earning 3% per year. The remainder will be drawn down at approx. £164 per month. This will avoid the person paying any income tax, as the £164 per month uses all of the available tax allowance, after the State Pension is taken into account.

The SIPP provider (Hargreaves Landsdown) allows up to £4000 to be invested after Drawdown is initiated, so the person may invest £3600 each year, in future.

Any thoughts?

ader42

The thing I immediately thought of was the small pots rules, but having more than £30k will preclude that.

Perhaps deferring the state pension is an option?

Albermarle

Utilising the full personal tax allowance is normally a good idea, so this part makes good sense.

I would question the need to keep it all in cash, including the 25% tax free, earning maybe two or three  per cent and losing out to inflation. It will be > 10 years before the pot is exhausted so keeping some of it invested would be the usual way forward. Especially if the plan is to feed back in £3600 some years, that makes the timescales and the logic behind investing even stronger.

JohnB47

ader42 said:

The thing I immediately thought of was the small pots rules, but having more than £30k will preclude that.

Perhaps deferring the state pension is an option?

Thanks but state pension already being taken.

Linton

JohnB47 said:

ader42 said:

The thing I immediately thought of was the small pots rules, but having more than £30k will preclude that.

Perhaps deferring the state pension is an option?

Thanks but state pension already being taken.

You can defer SP after starting to take it.

JohnB47

Albermarle said:

Utilising the full personal tax allowance is normally a good idea, so this part makes good sense.

I would question the need to keep it all in cash, including the 25% tax free, earning maybe two or three  per cent and losing out to inflation. It will be > 10 years before the pot is exhausted so keeping some of it invested would be the usual way forward. Especially if the plan is to feed back in £3600 some years, that makes the timescales and the logic behind investing even stronger.

The person didn't look at investment type SIPP holdings. Presumably because of the relatively small holding and the risk of poor returns (and maybe actual reduction of investment). Yes, inflation has been a factor - even more so in recent months. 

Can you suggest a suitable investment strategy? Will check with Hargreave Lansdown too if course.

JohnB47

Linton said:

JohnB47 said:

ader42 said:

The thing I immediately thought of was the small pots rules, but having more than £30k will preclude that.

Perhaps deferring the state pension is an option?

Thanks but state pension already being taken.

You can defer SP after starting to take it. 

Ah sorry, I didn't realise that. Anyway, I looked into that when my own state pension was about to start. The ' break even' period was far too long in my view ( used to be much shorter).

Albermarle

Can you suggest a suitable investment strategy? Will check with Hargreave Lansdown too if course.

HL will not offer you personal  investment advice, ( unless you pay for it) only general guidance. Although their website will nudge you towards one of their expensive multi manager funds.

They could have a look at something like these which are available on the HL platform. There is a choice of 5 risk levels. I would avoid the most cautious and the most adventurous.

HSBC Global Strategy Portfolios - HSBC Asset Management UK

and the risk of poor returns (and maybe actual reduction of investment)

There is always this risk, but the longer you stay invested, the smaller the risk becomes and the chance of good growth increases. So could be suitable for any money unlikely to be needed for a few years, with rest still held in cash . 

JohnB47

Thanks for that.

shortseller09

ader42 said:

The thing I immediately thought of was the small pots rules, but having more than £30k will preclude that.

Perhaps deferring the state pension is an option?

I thought HL could facilitate this regardless of pot size....?

JohnB47

shortseller09 said:

ader42 said:

The thing I immediately thought of was the small pots rules, but having more than £30k will preclude that.

Perhaps deferring the state pension is an option?

I thought HL could facilitate this regardless of pot size...

Interesting. I've never heard of that. I'll have a look at their web site.