Another SIPP question I'm afraid

oscarthecollie2019

Apologies for just joining and asking for help, but here goes...

I'm 75, In 2016 an IFA transfered a small pension (then about £28,000) into a SIPP.  In 2019 the IFA retired and closed the office leaving me to manage the SIPP myself (now with AJ Bell).  I haven't accessed this or any other pension (apart from the state pension).

I'd like to draw out all of the money [eventually] say over the next 5 years, and unsure the best way of doing so tax efficiently and bearing in mind AJ Bell's fees also.

Would I be best using all my 25% tax free cash all in one go, or not, or is Drawdown or UFPLS the better option?

Ideally I'd like to take £10,000 this tax year.  The pot is valued at: £5,701 in shares/ funds (which Id like to hold on to short term) and £35,535 in cash.

Can I just draw the £10,000 say from the cash element?

Any tips I'd be most grateful for, many thanks indeed.

Neversurrender

Yes  you would always drawdown from cash  and if you didn't have enough cash for the drawdown you wanted then you would need to sell down some funds to give you that cash.

To stay tax efficient you would need to make sure you stayed below your tax threshold for that financial year, which if you're on state pension will be difficult, and more difficult if you have extra pensions.

You need to take your 25% tax free amount each time you drawdown, so you would have some Taxable and some tax free in your total drawdown.

I am with AJ Bell also and this is what I have to do.

The guys at AJ Bell are very helpful, when you phone.

Albermarle

You can take the 25% tax free in one go, or in tranches. Then when you take the rest later it will be taxable income and will be added to your other taxable income ( like the state pension) when your tax is calculated.

Or you can take UFPLS payments were exactly 25% of each payment is tax free and 75% taxable. Normally it is simpler to take one a year but you can take more.

Also something inbetween could be possible but they are the two basic options.

kempiejon

Would I be best using all my 25% tax free cash all in one go, or not, or is Drawdown or UFPLS the better option?

Dunno. At first glance there's not much in it considering the sums, tax thresholds and age. 
I think you see the options, crystalise the whole pot £40k odd, then £10k could be taken out as the 25% tax free lump sum leaving £30k and £10k taken each year for the next 3 paying tax at the marginal rate on that amount. There'd be a residual amount taken in the 5th year.
Or one could take a few UFPLSs, £10k each year of which 25% £2500 is tax free the balance £7500 taxed at the marginal rate. There'd be a residual in the 5th year.

Or take £40k in one hit, £10k tax free and £30k taxed at the marginal rate. And variations on those numbers. I have flip flopped between taking the maximum lump sum at the start and spreading the tax free across multiple years. At the OPs age and with that pot size I'd have an eye on the tax limits and take it all as quickly as possible and staying below the 40% tax threshold.
If the only other income is SP I think the whole lot in one hit would stay below paying 40% or spread over a couple of years if tax looms. If I remember correctly AJBell have an annual fee. With all the money extracted it's time for indulgence and philanthropy or stick some into an ISA.

If it's the first go accessing pension from AJ Bell it'll be tight to squeeze it in this tax year.

Roger175

kempiejon said:

If it's the first go accessing pension from AJ Bell it'll be tight to squeeze it in this tax year.

I instigated my first ever UFPLS draw from A J Bell a few weeks ago and the money was in my account within a few days. Given that you already have it in cash at AJB, you should be OK, but I would get you're skates on in case there are any issues and AJB may be quite busy at this time of year

LHW99

Would this be helpful?

https://www.ajbell.co.uk/pensions/sipp-withdrawals

squirrelpie

I'd put the whole pension into drawdown and take the 25% tax free immediately. As already mentioned, do this quickly! That will be about £10,000 (£10,309 if the value is accurate) . Then I'd arrange for the drawdown to be paid at £645 gross per month until the money is exhausted.

That way the money should last for another four years approximately. You will be taxed on those payments, depending on what your other income is. You can vary the frequency of payments or the amounts if you want to achieve something different. Payments come out of cash in the account, so at some point you will have to sell the shares/funds.