drawdown a DC work pension or transfer to SIPP or ISA

Brie

looking for a sense check on my understanding.....

I've got a small (under £30k) DC scheme that I'm looking at taking as drawdown directly from the scheme.  I'm allowed to do this in 1 or 2 payments.  There's a 25% tfls that would be included in any payment made.  I can decide to have it in one payment or otherwise say how much I want to be paid in the first payment and the second payment will automatically be paid out in April of the following tax year.

So for simplicity let's say the pot is £24k.  And I decide I want half this tax year and half next.  In both cases the first £3k would be tax free and the other £9k would be taxed at the lowest tax rate.

So that seems nice and easy for me.  I could then whack the money into my ISA to sit until required. 

But then I wondered if there was a tax advantage to either taking drawdown and putting the money in a SIPP or transferring it to a SIPP and then taking drawdown from there. 

My brain is telling me that I should only get taxed once no matter what I do so going for the first is best and then popping into the ISA. 

fyi - I have other pension/income but am no way close to the line for paying higher taxes.  I've got marriage allowance as however low my income is it's not as low as the OH's.  

and fyi - I do have another pension I'm trying to sort but am not in urgent need of it so have that on the back burner for now.  I may eventually transfer that out to my SIPP or similar but won't be doing so this tax year and possibly not next.  

Thoughts, comments, questions?

Albermarle

A SIPP is just a type of DC pension. From a tax point of view there are no differences.

I've got a small (under £30k) DC scheme that I'm looking at taking as drawdown directly from the scheme.  I'm allowed to do this in 1 or 2 payments.

It seems odd that you only have the choice to take it in one or two payments. Probably because it is an old pension?
If you transferred it to a modern DC  pension/SIPP, you would have a lot more flexibility on how to take it, if that would be an advantage for you.

Brie

Albermarle said:

A SIPP is just a type of DC pension. From a tax point of view there are no differences.

I've got a small (under £30k) DC scheme that I'm looking at taking as drawdown directly from the scheme.  I'm allowed to do this in 1 or 2 payments.

It seems odd that you only have the choice to take it in one or two payments. Probably because it is an old pension?
If you transferred it to a modern DC  pension/SIPP, you would have a lot more flexibility on how to take it, if that would be an advantage for you.

So if I transferred it to the SIPP no tax would be deducted until I did drawdown from the SIPP?

So if that's correct then there is relatively no difference between me taking the drawdown, paying tax and putting the money into an ISA or transferring to my SIPP, investing and then paying tax when I take drawdown.  Except that I'd be paying tax on increases in the fund value when drawing from a SIPP.  I think I have the right?

I thought there used to be the opportunity to take it in 3 payments but that was something I was looking at with this about 7 years back.  Given the low value overall of the fund and my low income it's not like I need to spread this over a number of years to avoid a higher tax.  I think I could actually take the whole thing this year and still be under the £50k or whatever it is.  I left the scheme in 2008 so it's not that old really, certainly no way near as old as I am!!

QrizB

Brie said:

So if that's correct then there is relatively no difference between me taking the drawdown, paying tax and putting the money into an ISA or transferring to my SIPP, investing and then paying tax when I take drawdown.  Except that I'd be paying tax on increases in the fund value when drawing from a SIPP.  I think I have the right?

In principle, if you took the drawdown then paid it back into your other SIPP you'd get tax relief on it again, which would gain you 6.25% vs. putting it in an ISA.

But taking drawdown would invoke the MPAA, so you'd be limited to adding £10k pa to your other SIPP.

Marcon

Brie said:

Albermarle said:

A SIPP is just a type of DC pension. From a tax point of view there are no differences.

I've got a small (under £30k) DC scheme that I'm looking at taking as drawdown directly from the scheme.  I'm allowed to do this in 1 or 2 payments.

It seems odd that you only have the choice to take it in one or two payments. Probably because it is an old pension?
If you transferred it to a modern DC  pension/SIPP, you would have a lot more flexibility on how to take it, if that would be an advantage for you.

So if I transferred it to the SIPP no tax would be deducted until I did drawdown from the SIPP?

So if that's correct then there is relatively no difference between me taking the drawdown, paying tax and putting the money into an ISA or transferring to my SIPP, investing and then paying tax when I take drawdown.  Except that I'd be paying tax on increases in the fund value when drawing from a SIPP.  I think I have the right?

I thought there used to be the opportunity to take it in 3 payments but that was something I was looking at with this about 7 years back.  Given the low value overall of the fund and my low income it's not like I need to spread this over a number of years to avoid a higher tax.  I think I could actually take the whole thing this year and still be under the £50k or whatever it is.  I left the scheme in 2008 so it's not that old really, certainly no way near as old as I am!!

You seem rather vague and confused - join about 99% of the population! - especially in relation to the difference between transferring from one pension scheme to another, or withdrawing funds. 

You can't transfer from a pension scheme to an ISA; you'd need to withdraw the funds from the pension and then pay them into your ISA. 

Have you considered a free appointment with PensionWise, which might help to clarify the basics for you: https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise 

Albermarle

So if I transferred it to the SIPP no tax would be deducted until I did drawdown from the SIPP?

Correct because your money never leaves the pension wrapper during a transfer.

If you are happy to take the pension in one or two tranches, then not much point transferring it. I only suggested it if you needed more flexibility ( to say withdraw it more smaller tranches).

MallyGirl

Unless it was drawn down as 3 small pots of under £10K each - this would not invoke the MPAA.
You mention income - is this earned income or pension income. If earned then you could 'recycle' small amounts of drawdown (less than £7.5k) back into a pension without breaking any rules.
if you are still working why do you need to take this money out of the pension- do you need it now?

Brie

Marcon said:

Brie said:

Albermarle said:

A SIPP is just a type of DC pension. From a tax point of view there are no differences.

I've got a small (under £30k) DC scheme that I'm looking at taking as drawdown directly from the scheme.  I'm allowed to do this in 1 or 2 payments.

It seems odd that you only have the choice to take it in one or two payments. Probably because it is an old pension?
If you transferred it to a modern DC  pension/SIPP, you would have a lot more flexibility on how to take it, if that would be an advantage for you.

So if I transferred it to the SIPP no tax would be deducted until I did drawdown from the SIPP?

So if that's correct then there is relatively no difference between me taking the drawdown, paying tax and putting the money into an ISA or transferring to my SIPP, investing and then paying tax when I take drawdown.  Except that I'd be paying tax on increases in the fund value when drawing from a SIPP.  I think I have the right?

I thought there used to be the opportunity to take it in 3 payments but that was something I was looking at with this about 7 years back.  Given the low value overall of the fund and my low income it's not like I need to spread this over a number of years to avoid a higher tax.  I think I could actually take the whole thing this year and still be under the £50k or whatever it is.  I left the scheme in 2008 so it's not that old really, certainly no way near as old as I am!!

You seem rather vague and confused - join about 99% of the population! - especially in relation to the difference between transferring from one pension scheme to another, or withdrawing funds. 

You can't transfer from a pension scheme to an ISA; you'd need to withdraw the funds from the pension and then pay them into your ISA. 

Have you considered a free appointment with PensionWise, which might help to clarify the basics for you: https://www.moneyhelper.org.uk/en/pensions-and-retirement/pension-wise 

tee hee - not vague and occasionally confused.....hence me checking what I'm thinking.  I'm not confused about transferring vs withdrawing.  At least I don't think so - other than the tax implications.

I do fully know that I can't transfer from a pension into an ISA - that's why I was saying (i thought) that I would do drawdown and then put the money into an ISA.  

And I've had appointments with PW - I don't think they will be willing to talk to me again and last time their knowledge was little better than my own after about 2 decades of working in occupational pension schemes in various areas.  it's the stuff outside of the OPPs that I am trying better to understand.  

@MallyGirl - not worried about MPAA as any contributions of any pensions of any sort are likely to be so minimal as to be unlikely to buy me a fish supper.