Take out annually or Monthly from SIPP

Skinnydad

Hi there I've a question I'm hoping the forum members can assist with. I'm receiving my State pension and a small other. I want to withdraw from my larger SIPP the equivalent of say 700 per month. is it better drawing this 700 down monthly or taking an annual withdrawal and paying myself say 520 a month after tax. Is there any benefits or drawbacks by doing this? my thinking being if I withdrew 8,400 in a year would there be a better chance of the remaining pot making up this withdrawal prior to the next years withdrawal sum? or is it swings and roundabouts? or is there any other caveats I've not taking into account?

Thanks in advance

Kernowshep

Doesn't it just depend on how much the funds you plan withdraw from the SIPP (would have) gone up or down vs the interest on what's left of the £8400 outside of the SIPP?  Generally the longer investment time the more likely it will be to go up, e.g. leave it invested

Cobbler_tone

Skinnydad said:

Hi there I've a question I'm hoping the forum members can assist with. I'm receiving my State pension and a small other. I want to withdraw from my larger SIPP the equivalent of say 700 per month. is it better drawing this 700 down monthly or taking an annual withdrawal and paying myself say 520 a month after tax. Is there any benefits or drawbacks by doing this? my thinking being if I withdrew 8,400 in a year would there be a better chance of the remaining pot making up this withdrawal prior to the next years withdrawal sum? or is it swings and roundabouts? or is there any other caveats I've not taking into account?

Thanks in advance

In terms of establishing regular income, regular taxation and keeping as much as possible in your pension wrapper I would take it monthly. Far simpler method but I'd always check any associated fees. Ultimately I think you'll be counting in pennies. It might also depend if you have exhausted your tax free element of the SIPP to do it the most efficiently.

SouthCoastBoy

When I start to draw from my pension, I intend to withdraw once per year towards the end of Feb/early March.

Moonwolf

Skinnydad said:

Hi there I've a question I'm hoping the forum members can assist with. I'm receiving my State pension and a small other. I want to withdraw from my larger SIPP the equivalent of say 700 per month. is it better drawing this 700 down monthly or taking an annual withdrawal and paying myself say 520 a month after tax. Is there any benefits or drawbacks by doing this? my thinking being if I withdrew 8,400 in a year would there be a better chance of the remaining pot making up this withdrawal prior to the next years withdrawal sum? or is it swings and roundabouts? or is there any other caveats I've not taking into account?

Thanks in advance

First check the costs with your SIPP provider.  I think for most they won't be any different but some might charge more for monthly withdrawals.

I agree with your point on leaving it invested means it will grow more, every day your money is in investments it can grow more than it would as cash. Although there will be some years you will regret not taking it all early, on average over 30 years of retirement you should be better off monthly.

If you withdraw a large sum at the start of the year you will face the month 1 tax issues which will sort themselves out but just add a bit of extra admin.

Moving from monthly budgeting to annual budgeting is a mental shift although anyone who has saved for a pension is almost certainly capable of the shift, but why do it if you don't have to.

Overall I lean towards monthly unless it would cost more.

cfw1994

Cobbler_tone said:

Skinnydad said:

Hi there I've a question I'm hoping the forum members can assist with. I'm receiving my State pension and a small other. I want to withdraw from my larger SIPP the equivalent of say 700 per month. is it better drawing this 700 down monthly or taking an annual withdrawal and paying myself say 520 a month after tax. Is there any benefits or drawbacks by doing this? my thinking being if I withdrew 8,400 in a year would there be a better chance of the remaining pot making up this withdrawal prior to the next years withdrawal sum? or is it swings and roundabouts? or is there any other caveats I've not taking into account?

Thanks in advance

In terms of establishing regular income, regular taxation and keeping as much as possible in your pension wrapper I would take it monthly. Far simpler method but I'd always check any associated fees. Ultimately I think you'll be counting in pennies. It might also depend if you have exhausted your tax free element of the SIPP to do it the most efficiently.

I would agree with this. 

Do your bills all go out once a year?
Most people are used to being paid monthly, & pay most bills the same.  Why not take the drawdown monthly too?

An annual withdrawal means you are having to manage the monthly draw, as well as avoid the temptation to buy X/Y/Z because you have the funds on account.

Whilst it is in the pension it remains invested.  Of course you could chose to invest a lump sump, but you are taking it out of a tax efficient wrapper to do so, when there is no need 🤷‍♂️

cfw1994

SouthCoastBoy said:

When I start to draw from my pension, I intend to withdraw once per year towards the end of Feb/early March.

Why do you intend to do that?

Sarahspangles

I’m intending to draw down from my SIPP towards the end of the tax year to replenish an account I will use for spending. I will probably take a small payment to generate a tax code then a larger payment in March to use up my personal allowance.

As ‘next year’s money’ is already in a short term money market fund I don’t expect much investment growth but it’s a consideration that I am likely to pay some tax (at 20%) on savings interest next tax year, so the longer it’s in the SIPP the better.

LHW99

Some of the more well known SIPP platforms (eg II, HL) want you to fill in a form / jump through hoops for each UFPLS withdrawal.

So if this is what you want to do, taking an annual amount becomes less effort than having to remember to get forms done in sufficient time each month to co-incide with their payroll

SouthCoastBoy

cfw1994 said:

SouthCoastBoy said:

When I start to draw from my pension, I intend to withdraw once per year towards the end of Feb/early March.

Why do you intend to do that?

• Less admin required from me
• I will have worked out my income from interest on savings accounts so will know how much to take to ensure I am below the tax threshold.
• I will then have my budget for the next tax year ensuring I don't overspend
• Taking it at the end of the tax will hopefully cause less tax calculation angst with respect to the Inland Revenue

OldScientist

Skinnydad said:

Hi there I've a question I'm hoping the forum members can assist with. I'm receiving my State pension and a small other. I want to withdraw from my larger SIPP the equivalent of say 700 per month. is it better drawing this 700 down monthly or taking an annual withdrawal and paying myself say 520 a month after tax. Is there any benefits or drawbacks by doing this? my thinking being if I withdrew 8,400 in a year would there be a better chance of the remaining pot making up this withdrawal prior to the next years withdrawal sum? or is it swings and roundabouts? or is there any other caveats I've not taking into account?

Thanks in advance

The effect on safe withdrawal rates (so the 'investing' effect) has been calculated at https://thepoorswiss.com/how-often-withdraw-portfolio/ where it suggests that "withdrawing money every month will increase your chances of a successful retirement" (but, IMV, the effect is fairly small).

FWIW, we have monthly income from a DB pension (and in due course the state pension) that we then supplement with semi-annual withdrawals from our portfolio. The semi-annual frequency was chosen because it reduces the number of times I have to look at my portfolio and deal with the admin of arranging a withdrawal (it is not particularly easy to automate withdrawing from multiple accounts, multiple funds and ETFs, and simultaneously rebalance) and is a compromise between annual (which I, subjectively, felt was too long) and monthly (which I felt was too frequent). Since we keep some element of our fixed income in cash, we have two 1-year fixed interest rate accounts set to mature 6 months apart (so withdrawals/rebalancing occurs when the accounts mature). The amount withdrawn is then placed in interest bearing easy access accounts and spent as desired (typically on 'lumpy' spending).

Without a regular monthly income from other sources, I might have considered more frequent withdrawals (perhaps quarterly).