How much pension to move into drawdown

15Manor

On behalf of my husband.
He has a SIPP of £1,200,000 (it was of course more a couple of weeks thank you Donald and Elon!) He retires today before state pension age. We do want the £268K to pay down our mortgage.
My question is, does he move the whole amount into drawdown or just the £1,073K to generate the £268K?
Are there any reasons that either would be better?
I have googled but I am stuck. Many thanks for any help you can give.

dunstonh

He has a SIPP of £1,200,000 (it was of course more a couple of weeks thank you Donald and Elon!) 

Things are only back to where they were in November and its worth noting that both of them are partly responsible for the gains that were made prior to the recent losses that they are responsible for.

My question is, does he move the whole amount into drawdown or just the £1,073K to generate the £268K?

What is his objective?
Solutions fit objectives.   Without knowing the objective, it's difficult to comment on the solution.

ali_bear

Those are large amounts, some tax planning at the minimum would be advisable. Maybe talk to an IFA for guidance? 

Sam_666

If it was me, I wouldnt touch it now, until market recovers. Otherwise you would be potentially cashing-in £26k loss.
Also, its important to know how his sipp is structured, which funds and percentage.
Ideally, if his sipp has cash/bond fund = £268K, then yes, he can put sipp in drawdown and cash-in tax free amount from cash/bond fund and keep rest invested in existing funds until market recovers.

I also question if using this money to pay mortgage is good idea. If your loan is on rate way below 4%, then better return will be to put money in high rate saving accounts. But also, taking out such large amount from tax-free wrapper is bad idea, without good financial plan. Just because you can, you shouldnt just cash in whole 25%.

Cobbler_tone

Sam_666 said:

then better return will be to put money in high rate saving accounts. 

Good luck finding those over the coming months. Coupled with the £85k limit for protection and the interest you would get taxed on. Chances are that mortgage rates won't be spectacularly low and clearing a hefty mortgage if approaching retirement and access to money will never be the worst idea in the world.

The one thing the OP does have is options and plenty to think about.

handful

Sam_666 said:

If it was me, I wouldnt touch it now, until market recovers. Otherwise you would be potentially cashing-in £26k loss.
Also, its important to know how his sipp is structured, which funds and percentage.
Ideally, if his sipp has cash/bond fund = £268K, then yes, he can put sipp in drawdown and cash-in tax free amount from cash/bond fund and keep rest invested in existing funds until market recovers.

I also question if using this money to pay mortgage is good idea. If your loan is on rate way below 4%, then better return will be to put money in high rate saving accounts. But also, taking out such large amount from tax-free wrapper is bad idea, without good financial plan. Just because you can, you shouldnt just cash in whole 25%.

No necessarily, this could just be the start of a much bigger market correction!

15Manor

dunstonh said:

He has a SIPP of £1,200,000 (it was of course more a couple of weeks thank you Donald and Elon!) 

Things are only back to where they were in November and its worth noting that both of them are partly responsible for the gains that were made prior to the recent losses that they are responsible for.

My question is, does he move the whole amount into drawdown or just the £1,073K to generate the £268K?

What is his objective?
Solutions fit objectives.   Without knowing the objective, it's difficult to comment on the solution.

It was sort of a joke about Donald and Elon. Despite being a Democrat supporter, he loved the gains when the election first happened!

15Manor

Sam_666 said:

If it was me, I wouldnt touch it now, until market recovers. Otherwise you would be potentially cashing-in £26k loss.
Also, its important to know how his sipp is structured, which funds and percentage.
Ideally, if his sipp has cash/bond fund = £268K, then yes, he can put sipp in drawdown and cash-in tax free amount from cash/bond fund and keep rest invested in existing funds until market recovers.

I also question if using this money to pay mortgage is good idea. If your loan is on rate way below 4%, then better return will be to put money in high rate saving accounts. But also, taking out such large amount from tax-free wrapper is bad idea, without good financial plan. Just because you can, you shouldnt just cash in whole 25%.

Sam_666 said:

If it was me, I wouldnt touch it now, until market recovers. Otherwise you would be potentially cashing-in £26k loss.
Also, its important to know how his sipp is structured, which funds and percentage.
Ideally, if his sipp has cash/bond fund = £268K, then yes, he can put sipp in drawdown and cash-in tax free amount from cash/bond fund and keep rest invested in existing funds until market recovers.

I also question if using this money to pay mortgage is good idea. If your loan is on rate way below 4%, then better return will be to put money in high rate saving accounts. But also, taking out such large amount from tax-free wrapper is bad idea, without good financial plan. Just because you can, you shouldnt just cash in whole 25%.

Sorry to quote you twice Sam.
We owe £600k on our mortgage so we need to pay it down at some point in retirement.
We currently have a great rate so will be putting the money elsewhere until time to remortgage.
As I understand it, in order to take an income (he will be paid for the last time on 31st March) we have to take the PCLS first.
He works (worked I guess because apparently he's in the pub right now) in financial service, I also have a SIPP and we have money in ISA's.
My question really is about whether to put £1073K into drawdown or his whole amount and if there is a benefit to doing one of those rather than the other?

Thank you (and everyone else) for helping.

QrizB

15Manor said:

As I understand it, in order to take an income (he will be paid for the last time on 31st March) we have to take the PCLS first.

Assuming a relatively modern pension, you don't have to take the whole PCLS up-front.

You could take a UFPLS ("uncrystallised funds pension lump sum") payment, of which 25% will be tax-free and the remaining 75% taxable.

Eg. take £50k out, $12.5k is tax-free and £37.5k is taxable.

Repeat as needed.

Albermarle

QrizB said:

15Manor said:

As I understand it, in order to take an income (he will be paid for the last time on 31st March) we have to take the PCLS first.

Assuming a relatively modern pension, you don't have to take the whole PCLS up-front.

You could take a UFPLS ("uncrystallised funds pension lump sum") payment, of which 25% will be tax-free and the remaining 75% taxable.

Eg. take £50k out, $12.5k is tax-free and £37.5k is taxable.

Repeat as needed.

Or you can take the tax free lump sum in stages, without drawing any taxable income at all, as an alternative strategy.

15Manor

Thanks for comments, but, we have been discussing this for years. We want the large tax free lump sum to pay down our mortgage and we need an income. UPFLS us not right for this (although it is the way I am accessing my much smaller SIPP)
So, can anyone answer my question please?
How much should we put into drawdown? £1,073K or the whole pot and are there any advantages/disadvantages of one over the other?
Thank you again