Hl - SIPP : Tax Free Cash & Drawdown

Pat38493

zagfles said:

That is exactly right. So many people come out with irrelavent stuff like "you'll get more tax free cash if phase it" or "you'll get taxed on the growth if you delay". Both are technically true but are irrelavant and misleading. If invested the same, end result is the same.

It's issues like IHT, LTA and benefit eligibility which could/should swing the decision

True but to be a bit pedantic about it, depending how much we are talking about, it's harder to avoid being taxed on the growth once you take it out of the pension.  You cannot put it all into an ISA immediately unless it's 20K or less I guess.  Also probably those people saying this are basing it on the idea that if you are taking the money out, it's probably because you are planning to do something different with it than just put it in exactly the same investments again, otherwise why bother taking it out?

Albermarle

Workplace pensions also offer the monthly UFPLS option, mine does,

I was not aware of that. My two ex workplace pensions do not offer that option.

But I don't think they offer the option of partial crystallisation, or if they do it's quite hard to set up, so for instance if you wanted a lump sum up front but not the full 25% then it's harder than with the likes of HL, where it's easy

They do not offer partial crystallisation either, as far as I can tell.

It is no big deal at the moment as I am not taking any money from them yet, but could influence what I do when I do e.g transfer one or both of them to my SIPP, or another pension altogether.

ader42

Pat38493 said:

otherwise why bother taking it out?

Well one example might be to put it into a spouses pension (if they earn enough) and get a nice 25% Tax Relief lift especially if they expect Labour to move amounts beyond the LTA into IHT territory.

Or similarly to put £2880 a year into each of their childrens SIPPs and/or £4k into their LISAs.

zagfles

ader42 said:

Pat38493 said:

otherwise why bother taking it out?

Well one example might be to put it into a spouses pension (if they earn enough) and get a nice 25% Tax Relief lift especially if they expect Labour to move amounts beyond the LTA into IHT territory.

Or similarly to put £2880 a year into each of their childrens SIPPs and/or £4k into their LISAs.

Or just to have more readily available funds in case needed unexpectedly, having it available in the pension is fine but generally takes longer to access particularly if you partially crystallise or take a UFPLS.

For people with small funds it can be easier to simply crystallise the lot when they want to access it, particularly if it'll fit in ISAs and IHT is not an issue, or is unlikely to be an issue in the near future (eg a married couple both in good health/estate under £650k).

For larger funds likely to hit the LTA/TFLS limit then crystallising fully can make sense so that the TFLS can grow tax free. Even if it takes a few years to get it into ISAs you'd likely pay less tax on growth outside the pension, than being liable to income tax on growth once the TFLS limit is hit if left in the pension. And that's without even worrying about the LTA being reintroduced. Although IHT needs to be considered too if a concern.

sheslookinhot

zagfles said:

sheslookinhot said:

zagfles said:

dunstonh said:

The plan is to take the maximum up to my tax free allowance each year from my drawdown pot (after taking the initial 25% tax free cash)  so would there be no tax liability there even if there is some later growth in the drawdown pot?

Do you need the TFC upfront?
If not, then taking it on drip with the taxable element will be better in the long run.

For a start, HL don't offer that option. OP could crystallise a chunk periodically eg once a year, which would achieve much the same, but anyway the idea that it "will be better in the long run" as if that's some sort of certainty is a myth we keep seeing here. It might be, for instance if there's too much to fill an ISA, or if inheritance tax or benefits are an issue. Equally if LTA (or rather the associated TFLS cap which still exists) might even be an issue, it may be better to crystallise fully. But for many/most people, it won't make a difference either way.

HL do offer that option. It’s what my wife does. Allowing her to take out over 16.7k (25% tax free) rather than 12.57k.

They offer UFPLS but you I don't think you can set up regular monthly UFPLS payments can you? Don't you have to apply each time and do all the paperwork? So doing it monthly would be too bureaucratic.

That’s right, they facilitate UFPLS but you require to message them for each drawdown request. They send a form which takes two minutes to complete then post it. They send an illustration of what effect your drawdown has on the remaining “pot”.

Pat38493

ader42 said:

Pat38493 said:

otherwise why bother taking it out?

Well one example might be to put it into a spouses pension (if they earn enough) and get a nice 25% Tax Relief lift especially if they expect Labour to move amounts beyond the LTA into IHT territory.

Or similarly to put £2880 a year into each of their childrens SIPPs and/or £4k into their LISAs.

Good point and I suppose this is an example of why financial advice and comments has to be personalised to the individual situation of the person or the family concerned.

zagfles

sheslookinhot said:

zagfles said:

sheslookinhot said:

zagfles said:

dunstonh said:

The plan is to take the maximum up to my tax free allowance each year from my drawdown pot (after taking the initial 25% tax free cash)  so would there be no tax liability there even if there is some later growth in the drawdown pot?

Do you need the TFC upfront?
If not, then taking it on drip with the taxable element will be better in the long run.

For a start, HL don't offer that option. OP could crystallise a chunk periodically eg once a year, which would achieve much the same, but anyway the idea that it "will be better in the long run" as if that's some sort of certainty is a myth we keep seeing here. It might be, for instance if there's too much to fill an ISA, or if inheritance tax or benefits are an issue. Equally if LTA (or rather the associated TFLS cap which still exists) might even be an issue, it may be better to crystallise fully. But for many/most people, it won't make a difference either way.

HL do offer that option. It’s what my wife does. Allowing her to take out over 16.7k (25% tax free) rather than 12.57k.

They offer UFPLS but you I don't think you can set up regular monthly UFPLS payments can you? Don't you have to apply each time and do all the paperwork? So doing it monthly would be too bureaucratic.

That’s right, they facilitate UFPLS but you require to message them for each drawdown request. They send a form which takes two minutes to complete then post it. They send an illustration of what effect your drawdown has on the remaining “pot”.

Sounds easier than I thought! Could do it quarterly I guess. I presume the taxable part is paid via PAYE so tax is sorted assuming you have a tax code?

Pipthecat

drip feed it into an ISA

Probably not an issue for Curious but taking a large cash upfront can bring some practical issues.  Not only do you need to think about where to invest the funds beyond an ISA, but you have to be confident that it wont burn a hole in your, or your partner's, pocket (would be the latter in my case). 

Albermarle

Pipthecat said:

drip feed it into an ISA

Probably not an issue for Curious but taking a large cash upfront can bring some practical issues.  Not only do you need to think about where to invest the funds beyond an ISA, but you have to be confident that it wont burn a hole in your, or your partner's, pocket (would be the latter in my case). 

It is a good comment. Most of these threads about drawdown etc tend to assume fiscal responsibility as a given.
Probably because people more feckless with money will not normally be on a forum about pensions ! Maybe do not even have a pension !

snowyy

Bravepants said:

zagfles said:

dunstonh said:

The plan is to take the maximum up to my tax free allowance each year from my drawdown pot (after taking the initial 25% tax free cash)  so would there be no tax liability there even if there is some later growth in the drawdown pot?

Do you need the TFC upfront?
If not, then taking it on drip with the taxable element will be better in the long run.

For a start, HL don't offer that option. OP could crystallise a chunk periodically eg once a year, which would achieve much the same, but anyway the idea that it "will be better in the long run" as if that's some sort of certainty is a myth we keep seeing here. It might be, for instance if there's too much to fill an ISA, or if inheritance tax or benefits are an issue. Equally if LTA (or rather the associated TFLS cap which still exists) might even be an issue, it may be better to crystallise fully. But for many/most people, it won't make a difference either way.

I've been thinking about this issue too, as I too have a decision to make regarding this.

This is my thinking, and I may be wrong, so I'm hapopy to be corrected BEFORE I make my decision! ...

Imagine if one splits a SIPP's value into taxable and taxfree components. If we then imagine taking the tax free component and placing it into an ISA with the same investment product as in the SIPP you would expect both the tax free amount in the ISA and the remaining crystalised pot in the SIPP to grow proportionately by the same percentage as though they both remained in the SIPP. The components would grow in proportion to their original size in both cases. So the tax free amount in the ISA would grow exactly the same as the tax free component had it been left in the SIPP. The same principle applies to any magnitude of tax free sum taken from the SIPP, be it the whole amount or a smaller proportion of it.

There WILL be a difference though, in the longish term, if a tax free component is NOT invested in exactly the same product in the ISA as ther SIPP. The best example being if one takes a tax free component and keeps it as cash in an ISA or a savings account, while any remaining SIPP tax free component is invested in higher risk growth products.

In my case I would be investing it in an ISA in the same product as my SIPP, so in my case it makes no difference whether I take the full tax free completely up front. It would make a different though if I later decide to invest the remaining crystalised amount in a product with higher expected growth than the original product from which the tax free amount was taken.

Pheeww! I really hope that came across properly, I'm still on my first coffee of the day. Would welcome further dicussion on this if needed. 

Thanks for your explanation and i will be looking to do something similar. fairly new to this sipp withdrawl lark and have come to the conclusion it's a real pain in the...! I'm actually at the moment looking to take some money from my HL drawdown account but now have to wait for the next payroll! and because most of my money is invested i cant seem to be able to move it without selling some shares. This seems so inflexible and so i think i have come to the conclusion that i will get as much out of the fund and put it into S&S ISA so much easier to deal with and hopefully when i finally get the state pension in two years i won't have a sipp to worry about getting caught for tax.