Closing down my pension

PaulInLa

Hi Guys

Not sure if you'll be interested in answering this questions - it's a bit different to the others on here.

I have about £45K in a SIPP.

I also have several types of cancer so although quite well at the moment, I'm

unlikely to make it through Summer.

I'd like to simplify my affairs and get as much as possible into a single bank account to make life easier for my children "afterwards".

Is it a good idea to just close the SIPP, pay whatever tax (on the 75% presumably) and transfer the balance to the bank account, or is there some kind of tax gotcha for me or them lurking somewhere in the background?

Paul 

Emmia

Have you looked to see if your SIPP provider has clauses for ill health etc. that you could use?

Brie

sorry to hear the prognosis.  But it's great to see you're being proactive about getting things sorted.

check to see if the SIPP would be included as part of your estate or if you can just name your children as beneficiaries. 

Also check how taking money out of it this tax year versus next tax year will be affected by tax.  To be blunt - if you have little or no income in the next tax year you may find that the withdrawal from the SIPP doesn't get taxed very much.  Obviously this will depend on what other income you have.

Depending on how many children you have perhaps you can set up joint accounts with them?  It means they will have access to money after your death rather than having to wait through whatever processes like probate or banks being slow.

And just a thought - have you applied for Attendance Allowance?  You may be able to get a fast track application due to your health.  It might be a bit extra to ensure you are comfy, looked after and be able to treat yourself a bit over the coming months.  

Marcon

PaulInLa said:

Hi Guys

Not sure if you'll be interested in answering this questions - it's a bit different to the others on here.

I have about £45K in a SIPP.

I also have several types of cancer so although quite well at the moment, I'm

unlikely to make it through Summer.

I'd like to simplify my affairs and get as much as possible into a single bank account to make life easier for my children "afterwards".

Is it a good idea to just close the SIPP, pay whatever tax (on the 75% presumably) and transfer the balance to the bank account, or is there some kind of tax gotcha for me or them lurking somewhere in the background?

Paul 

Paul - I'm so sorry to read this. It always feels heartless to write this, but you've asked, so here goes.

If you have written evidence from a medical practitioner confirming your life expectancy is no more than 12 months, you can normally take the whole of your pension pot free of tax provided that the whole of your SIPP is 'uncrystallised' (ie you've not yet taken any tax free cash from it), whatever your age. The technical jargon for this is 'total commutation on grounds of serious ill health'.

If you have taken any tax free cash/taxable withdrawals from your SIPP, the position is slightly more complicated in terms of what is tax free and what isn't.  Have you taken anything from it?

Be aware that anything you've withdrawn from your SIPP but not 'spent' before you die will form part of your estate. If you are leaving everything to a spouse (so no IHT), that may not matter.

If on the other hand you are leaving everything to your children, and your estate is large enough to be in IHT territory, it may be better to leave the SIPP where it is, ensure you have a bang up to date Expression of Wish form (available from your SIPP provider - you can usually download and often complete online) confirming what you'd like to happen to your SIPP, and under current legislation the SIPP can be paid out free of tax if you are under 75 when you die. 

You really do sound a lovely dad.

Keep_pedalling

This would be a very bad idea. Currently your SiPP sits outside your estate and if you are under 75 will be inherited tax free. Drawing the lot will reduce the £75k significantly by the amount of income tax you will pay, and the remaining amount becomes part of your estate, and if it is large enough will see another 40% vanish in IHT. 

All you really need to do is make sure your expression of wishes is up to date.

Marcon

Keep_pedalling said:

This would be a very bad idea. Currently your SiPP sits outside your estate and if you are under 75 will be inherited tax free. Drawing the lot will reduce the £75k significantly by the amount of income tax you will pay, and the remaining amount becomes part of your estate, and if it is large enough will see another 40% vanish in IHT. 

All you really need to do is make sure your expression of wishes is up to date.

The pot is only £45K. Sadly it sounds as if OP would qualify for serious ill health commutation, which means it would be paid out tax free providing none of it has been crystallised.

Keep_pedalling

Marcon said:

Keep_pedalling said:

This would be a very bad idea. Currently your SiPP sits outside your estate and if you are under 75 will be inherited tax free. Drawing the lot will reduce the £75k significantly by the amount of income tax you will pay, and the remaining amount becomes part of your estate, and if it is large enough will see another 40% vanish in IHT. 

All you really need to do is make sure your expression of wishes is up to date.

The pot is only £45K. Sadly it sounds as if OP would qualify for serious ill health commutation, which means it would be paid out tax free providing none of it has been crystallised.

Sorry, senior moment. 

PaulInLa

Hi Guys

Thanks for the replies. I'll have to have a proper read and think about it.

A few random facts:

I haven't drawn anything from the SIPP so far.

I'm 75 - maybe 76 in August - and I'm getting Attendance Allowance, much to my surprise !

I get a state Pension and another small one so I do pay a few hundred pounds tax each year. It's my only income so I guess next tax year will be the same as this year (although I suppose it will shorter - and in this case, I guess that matters).

I have no spouse now, but 4 children and a bunch grand/great grand children. I have made a will to allocate it among them. 

I don't think I'll be paying IHT - total is about £230k + Property of about £200. All being left to the kids.

I haven't spoken to the SIPP provider (Charles Stanley) - so I guess that should be the next step and I can check the Expression of Wish while I'm at it.

This is the first time I've actually thought about it and I really appreciate your input. Thank you.

Paul

Marcon

PaulInLa said:

Hi Guys

Thanks for the replies. I'll have to have a proper read and think about it.

A few random facts:

I haven't drawn anything from the SIPP so far.

I'm 75 - maybe 76 in August - and I'm getting Attendance Allowance, much to my surprise !

I get a state Pension and another small one so I do pay a few hundred pounds tax each year. It's my only income so I guess next tax year will be the same as this year (although I suppose it will shorter - and in this case, I guess that matters).

I have no spouse now, but 4 children and a bunch grand/great grand children. I have made a will to allocate it among them. 

I don't think I'll be paying IHT - total is about £230k + Property of about £200. All being left to the kids.

I haven't spoken to the SIPP provider (Charles Stanley) - so I guess that should be the next step and I can check the Expression of Wish while I'm at it.

This is the first time I've actually thought about it and I really appreciate your input. Thank you.

Paul

Paul - your age is important. As you will be aged at least 75 when you die, that changes the tax treatment of your SIPP. If your children inherit from it they will pay tax at their marginal rate on anything they withdraw from their 'inherited' pension. I've tweaked my previous post to clarify the point.

For the avoidance of doubt, the income tax charge applies now (not from 2027, when various changes are proposed for the treatment of pensions on death).

DRS1

Your age changes things a bit.  Your beneficiaries for the pension would be paying income tax on the money they get out of the inherited pension at their marginal rates (which may be more than yours even if you do have to pay some income tax on what you draw out).. As IHT does not seem to be an issue if you can draw out the pension money tax free that seems to be the way to go.

LHW99

If your provider doesn't allow payment under an ill-health clause, one way to pay less tax would be to take 50% (as a UFPLS) before April 5th, and the remainder afterwards. Then your income could be less for tax than if you took it all out in one go. Would depend whether taking the whole amount pushes you into the 40% tax bracket or not.

Serious ill health commutation would be the way to go if possible.