Do I move account into drawdown?

zagfles

poseidon1 said:

RocheM said:

Sarahspangles said:

Drawdown of only the 25% tax free won’t trigger the MPAA so you will continue to be able to contribute more than £10k a year going forward.

However doing that, you crystallise the 75% from which you are taking the 25% tax free so it will all be taxable when you do take it - including any investment growth. So what’s tax efficient in the short term may not be in the long term. 

Ohh thank you. I see. So going into "drawdown" is normal and expected when accessing a 25% tax free lump sum, then?

The combined pension pot is £44k, of which I need to take around £10500 for the essential work on my house. It looks like I can get the £10500 tax free, but the remaining 75% (£33,500) will go into a drawdown 'account'. Is this the way that it normally works? I don't plan on accessing any more of that £33,500. I get that its not tax efficient, but I'm stuck with needing to pay for these works and this is my best option riht now.

As mentioned, I plan on calling HL next week, but first just wanted to understand the situation so that I know what I'm dealing with and don't want to appear too clueless to them, LOL

Thanks again!

Rochelle

You say accessing your TFC is your only option.

Is a £10k personal loan out of the question?

 Depending on your credit score, a £10k unsecured loan over 5 years at 6.7%  ( Lloyds Bank ) would cost around £195 per month, so total interest charge over the 5 years thereon would be around £1,740. 

Obviously, do not know the annual rate of growth you are achieving on your pension pot, but it would have to be very poor, not to exceed by a noticeable margin the interest paid on a modest personal loan over 5 years. At say a modest compound growth of 4% on your £44,000 pension pot, after 5 years it could then be worth in excess of £53, 000. Seems a shame to impact on this future growth (to your longer term benefit) , if an unsecured personal loan is viable in your circumstances.

Certainly this is advice I gave a friend who was similarly looking at accessing TFC for roof repairs. I Was able to convince him cheap unsecured borrowing was a better overall solution to his predicament. 

A mortgage would potentially be cheaper, but much more faff , delay and formalities involved in getting mortgage advances these days.

Why do you think getting a loan at 6.7% is better than crystallising and using the TFLS assuming 4% investment growth? It's obvious that borrowing money at a higher interest than investment growth will work out worse.   

zagfles

dunstonh said:

Ohh thank you. I see. So going into "drawdown" is normal and expected when accessing a 25% tax free lump sum, then?

Going into drawdown is a vague term and could cover more methods of drawdown.  It isn't helped by different providers often referring to different methods by different names.    And some providers not being particularly helpful.  For example, Aviva will say "yes we support drawdown on some of their legacy plans and when you ask them to pay a monthly income with each payment 25% and 75% split, they will then say we don't support that method.

If you have chosen to draw 25% TFC up front and zero income then you are crystallising your pension with nil income.     There are other methods of drawdown.  That method does not trigger the MPAA

It’s all in my Hargreaves Lansdown SIPP. When I sign in to the website I have two options:

I thought HL finally supported phased drawdown but perhaps not.

HL have always supported phased drawdown. I've used it. 

OP  - to get £10500 tax free you could partially crystallise, so tell HL you want to crystallise £42000 of your SIPP and take 25% of this tax free. You'd then get your £10500 tax free lump sum, £31500 would go into a drawdown account (which you mustn't touch if you don't want to trigger the MPAA) and you'd be left with £2000 in the SIPP.