Does transferring a sipp in drawdown become uncrystallised?

Oldhand_2

We are considering transferring a sipp which has been in drawdown for some years to a new provider. No cash lump sum was taken at setup time. If we transfer do we get the opportunity to change the conditions with the new provider? We don't want a lump sum, but we are interested in taking small lump sums each month of the same value as now to gain the 25% tax relief on these payments, which we were not offered or aware of at setup.

dunstonh

Does transferring a sipp in drawdown become uncrystallised?

drawdown is the transaction/method to draw money. It is not the pension itself.

The pension will either be crystallised, uncrystallised or beneficiary crystallised (or combination).

 If we transfer do we get the opportunity to change the conditions with the new provider?

What do you mean by conditions?
Your new provider will have its own software, functionality and investment choice but it will still be constrained by HMRC rules and classifications.

We don't want a lump sum, but we are interested in taking small lump sums each month of the same value as now to gain the 25% tax relief on these payments, which we were not offered or aware of at setup.

That is confusing.
1) taking small lump sums does not gain any tax relief
2) tax relief is on contributions made to the pension. Not taken from the pension
3) tax relief is not 25%. Basic rate relief at source is 20%.

Pension providers will act on your instructions.  They won't offer things to you.  They expect you or your adviser, if you use one, to know what you are doing.  What is wrong with your existing provider?

Oldhand_2

Thanks for the fast reply. It's not always easy to explain things concisely and unambiguously.

The last item first. If no lump sum has been taken from the fund, then instead of withdrawing a fixed amount each month (which is taxed at 20%) then a 'small lump sum' of a similar amount can be taken. Twenty-five percent of this SLS payment will be tax free (apologies for calling this tax relief). As far as I can see this carries on forever. It's not a fortune, but it all helps. And the question is does transferring a pension in drawdown enable us to opt for this benefit?

Our existing provider is expensive and not more than average performing.

NoMore

Maybe you could explain what you mean by its in drawdown ?

There's two ways (well at least four, but we will ignore purchasing an annuity and small pots), that allows you to withdraw from a pension. These are Flexi Access Drawdown (FAD) and Uncrystallised Funds Pension Lump Sum (UFPLS).

Both options would generally involve you having taken some tax free cash, very unusual for you not to draw any tax free cash using either option, as if you don't I believe you lose the chance to do it later. How much you withdrew and with which method would dictate how much tax free cash (if any) you have available.

LHW99

If your pension fund consists of crystallised and uncrystallised parts, changing the platform / provider it is on keeps the proportion between these two the same. Some physically separate the two into two "pots" in the same account, others just give a % of the whole (eg 30% crystallised, 70% uncrystallised). You cannot change that by transferring.

It is possible to take 25% from the uncrystallised part tax-free. either in one go, so that all the remaining funds are crystallised, or successively as eg UFPLS, where you get 25% of each payment tax-free and 75% subject to tax at your highest rate (ie no tax if you keep your 75% withdrawals / other income below the personal allowance).

Any crystallised funds no longer allow a tax-free amount to be taken. Your old platform will tell the new one about the crystallised / uncrystallised amounts at transfer.

dunstonh

The last item first. If no lump sum has been taken from the fund, then instead of withdrawing a fixed amount each month (which is taxed at 20%) then a 'small lump sum' of a similar amount can be taken. Twenty-five percent of this SLS payment will be tax free (apologies for calling this tax relief). As far as I can see this carries on forever. 

That method is known as UFPLS.       The fund itself would remain uncrystallised.

And the question is does transferring a pension in drawdown enable us to opt for this benefit?

Drawdown has not been used if you are using UFPLS.    If drawdown had been used, a crystallised fund would remain.   (terminology can be fun at times )

Our existing provider is expensive and not more than average performing.

Providers do not perform.   the investments give the performance.   If you have the same fund (or similar) across different pensions, then the performance will be the same or similar.    

For the last 7 years, performance has come down to the following things:
1 - bonds are slightly negative over 7 years.
2 - equities nearly doubled over 7 years.
3 - so, your ratio of bonds to equities is the key reason for your performance.
4 - UK equity has not been great in this cycle. US equity has been the best in this cycle (reversed in the previous cycle).    
6 - so if your equity content has been UK heavy, its had lower performance and if its US heavy then its had better.

None of that is down to your pension but your fund choices.  And be wary at looking at past performance as US equity and global equity tend to alternate over cycles.

Oldhand_2

From Nomore's description I would say that we are in Flexi Access Drawdown. We didn't take any cash as we believed - rightly or wrongly - that the more we had in the pension fund the better.

Although we have taken monthly payments from this fund we have never taken a tax-free lump sum. Does this mean that the entire fund is crystallised, or is some part still uncrystallised?

dunstonh

Although we have taken monthly payments from this fund we have never taken a tax-free lump sum.

You must have taken some tax free cash.     You cannot take taxable lump sums by themselves unless you have already crystallised the pension.    What you described earlier sounds like UFPLS where 25% is tax free and 75% is taxable.

Does this mean that the entire fund is crystallised, or is some part still uncrystallised?

Your earlier posts suggest it would be uncrystallised.

From Nomore's description I would say that we are in Flexi Access Drawdown.

your description suggests you didn't.  It suggests you used UFPLS.

hotncold47

I would be suprised if when you log into your SIPP account that you cannot see how the remaining funds are classified. When I have used the UFPLS method the  payment was made in two separate portions , one the tax free amount and then the remainder with tax removed.

NoMore

hotncold47 said:

I would be suprised if when you log into your SIPP account that you cannot see how the remaining funds are classified. When I have used the UFPLS method the  payment was made in two separate portions , one the tax free amount and then the remainder with tax removed.

Some SIPP providers do it by having two separate 'accounts' and others just assign a proportion of the total as crystallised. However with either method, it should be clear how much is crystallised and how much isn't.

gm0

It would be quite unusual to have used Flexible Access Drawdown. And setup taxed income.  Without taking tax free cash at the time this was done.  It is theoretically possible to do that i.e. allowed.  So it would be possible to have instructed a platform to do it.  Essentially opting out of the tax free cash bit. Crystallising a piece of pension. And taking income from that portion taxably thereafter.  Most people using FAD would in that situation have taken 25% tax free.  And then phased whatever income (to suit other income sources paying income tax each year) out of the 75%

It would be normal - if no tax free cash was wanted as a lump sum. To use UFPLS and take 25% Tax Free cash with each payment.  And being subject to self assessment income tax on the 75% of each such payment.   With the remaining pot untouched and so uncrystallised.

So only with FAD as a mechanism do "crystallised" pots exist for a long time inside the pension.

As I understand it - TFC is a one time thing with FAD.  There is so far as I know no "do over".  At the point a pot or part of one is crystallised to be accessed for income.  An amount up to the scheme limit (normally 25% but varies sometimes) can be taken.  If it is not taken.  The right to take it lapses.  And the crystallised pot remaining is available for income.  This is a poor use of the tax free cash allowance.  So it is rarely seen.

You need to check your paperwork for what has happened.   An uncrystallised pot offers full flexibility.  A crystallised already pot - less so.  As moving it will not change the tax treatment.