'Reactivate' a SIPP

JohnB47

A family member has recently withdrawn 25% of a 'cash only' Hargreaves Lansdown SIPP and then started a regular monthly drawdown. During the phone call to arrange the drawdown, the question was asked "what if I want to invest in a SIPP next financial year". The answer was that HL could reactivate the existing SIPP to allow that.

Obviously this will be clarified with them before any future investment is made but is this really possible? Would it mean 25% of the future fund could be withdrawn tax free?

Sounds a bit odd to me. I thought a new SIPP would need to be opened.

ColdIron

I've done it for the last 6 years. The SIPP should still be visible in the account summary screen alongside the SIPP Income Drawdown account but with some options disabled (e.g. Add Money)

I've always phoned them up to re-enable it but last year they told me the whole thing can be done online now

dunstonh

Obviously this will be clarified with them before any future investment is made but is this really possible? Would it mean 25% of the future fund could be withdrawn tax free?

I suspect this is more of a software question specific to them.   Pensions don't become inactive and need reactivating.   However, some platforms will automatically close a segment when it goes to zero.  That means a new segment will be created on a later contribution.   Some may refer to that as reactivating.   Others just have an uncrystallised segment and a crystallised segment which go to zero if emptied but remains in force and doesn't need a reopening/reactivation or whatever you want to call it.

With most platforms I use, their software keeps the uncrystallised pension open at a nil balance should you fully crystallise and only close it if the crystallised balance goes to zero.

Sounds a bit odd to me. I thought a new SIPP would need to be opened.

Only if the old one is closed.  As per above.

JohnB47

Thanks guys.

So, lets say that the account is reactivated next May and £2880 is deposited this financial year and each year into the future, so adding to the existing fund (and at the same time drawing down a regular amount each month from it). Does this mean that another 25% of that fund totally tax free can be taken out at some point in the future?

Somehow I think not - I think the 25% tax free event is a one off.

dunstonh

Contributions go into your uncrystallised pension segment.    When you crystallise the pension (take the 25%), then any of the 75% gets moved into the crystallised segment.      you can take 25% TFC from any uncrystallised segment.  Whether that is now, next year or some point in the future.  And you can take it in chunks and not all in one go.

kuratowski

As dunstonh said, the SIPP is split into crystallised and uncrystallised parts.  The 25% tax free lump sum is only available on the uncrystallised part.  Taking the tax free lump sum causes the funds to become crystallised.

JohnB47

OK thanks. I thought I'd understood all of this SIPP stuff.

I thought that, once a fund becomes crystallised, that's it for that fund - no further contributions, no further 25% tax free, only drawdown. Now it seems that a fund can have a crystallised part and an uncrystallised part, with the uncrystallised part acting like a completely new SIPP.

Fair enough - thanks for clarifying.

boingy

Your family member probably now has an MPAA limit - Money Purchase Annual Allowance.

What is the Money Purchase Annual Allowance (MPAA)? | unbiased.co.uk

My understanding is somewhat limited but I think it is designed to stop you from taking your whole tax free 25% lump sum then putting it back into a pension and getting more tax-relief on it. Google "pension recycling" but Hargreaves Lansdown should be able to advise on the rules.

Albermarle

JohnB47 said:

OK thanks. I thought I'd understood all of this SIPP stuff.

I thought that, once a fund becomes crystallised, that's it for that fund - no further contributions, no further 25% tax free, only drawdown. Now it seems that a fund can have a crystallised part and an uncrystallised part, with the uncrystallised part acting like a completely new SIPP.

Fair enough - thanks for clarifying.

As previously said it depends on the pension provider, if they can do that and how they do it. So you need to check with them first.

JohnB47

boingy said:

Your family member probably now has an MPAA limit - Money Purchase Annual Allowance.

What is the Money Purchase Annual Allowance (MPAA)? | unbiased.co.uk

My understanding is somewhat limited but I think it is designed to stop you from taking your whole tax free 25% lump sum then putting it back into a pension and getting more tax-relief on it. Google "pension recycling" but Hargreaves Lansdown should be able to advise on the rules.

Thanks. Only £2880 (total of £3600 when topped up by HMRC) is likely to be invested each year from now on, so well below the MPAA limit.