Taking my tax free lump sum and converting to a drawdown

houndluff

Hello,

I'm thinking about converting a SIPP I've got to a drawdown pension and taking 25% tax free, in order to pay off a mortgage.

But I intend to continue to contribute to another SIPP I have with my current employer.  If I've read the rules correctly, I can still do this.  Plus, as long as I don't take any taxable income from the drawdown pension I can still contribute more than £10,000 a year to the SIPP (which I currently do).

I just want to check my understanding is correct, and I'm not missing anything obvious before I do this.

Thanks

Mark

SVaz

Yes, that’s correct. 

RogerPensionGuy

houndluff said:

Hello,

I'm thinking about converting a SIPP I've got to a drawdown pension and taking 25% tax free, in order to pay off a mortgage.

But I intend to continue to contribute to another SIPP I have with my current employer.  If I've read the rules correctly, I can still do this.  Plus, as long as I don't take any taxable income from the drawdown pension I can still contribute more than £10,000 a year to the SIPP (which I currently do).

I just want to check my understanding is correct, and I'm not missing anything obvious before I do this.

Thanks

Mark

The link below maybe helpful to read. 

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Money purchase annual allowance (MPAA) | MoneyHelper https://share.google/MNQH4cP5tvlrgJHaW

poseidon1

houndluff said:

Hello,

I'm thinking about converting a SIPP I've got to a drawdown pension and taking 25% tax free, in order to pay off a mortgage.

But I intend to continue to contribute to another SIPP I have with my current employer.  If I've read the rules correctly, I can still do this.  Plus, as long as I don't take any taxable income from the drawdown pension I can still contribute more than £10,000 a year to the SIPP (which I currently do).

I just want to check my understanding is correct, and I'm not missing anything obvious before I do this.

Thanks

Mark

I suspect that I am going to be a lone voice here, but if you are comfortably paying your current  mortgage, think very carefully about increasing your non income  producing home equity, in exchange for a diminished pension pot that is expected to help support you for the rest of your life.

My own approach both whilst working and in retirement is to retain a mortgage I can  afford whilst amassing income producing pension pots, ISAs , GIAs etc.  My own view is the accumulation of sizeable home equity as a childless singleton makes little fiscal sense, and a  invitation to HMRC to be a primary beneficiary of ones' estate on death. I note from past posts that you are now  a singleton?

As a matter of interest, are you actually finding the mortgage a strain, or is it just the  usual mainstream obsession to be rid of a mortgage ASAP?

houndluff

Thanks everyone for the advice.

So, it's a bit complicated :-).  I have around £20K in accessible savings, which I am gradually eating into, but that's because I'm currently sacrificing 40% of my salary into a pension (I have been for years).  My guess is this strategy will need to be re-evaluated after the budget in a week's time.

Also, 90% of my pension, is sat as cash funds in my SIPPs as I moved out of funds invested in stocks and shares in September/October.  I'm conscious this is paying a lower interest rate than my mortgage, or any money I could put in ISA's, so I plan to reduce my mortgage.

You're right in terms of my circumstances.  My aim is to reduce my outgoings (my mortgage being my largest), as well as creating pots to generate income, I suppose the key is getting the right balance.

ali_bear

I agree with the above poster about keeping the mortgage going for now. 

And you probably want to have your pensions funds better invested (not in cash). 

dunstonh

I'm thinking about converting a SIPP I've got to a drawdown pension and taking 25% tax free, in order to pay off a mortgage.

Generally, its not a good idea to rob your retirement years to pay for something you should be paying off in your working years.  There can be exceptions, but if the interest rate is low, then it may not make financial sense.

If affordability is an issue, then an adjustment in contributions may be the correct thing to do.

But I intend to continue to contribute to another SIPP I have with my current employer.  If I've read the rules correctly, I can still do this.  Plus, as long as I don't take any taxable income from the drawdown pension I can still contribute more than £10,000 a year to the SIPP (which I currently do).

Correct.   And it's interesting to read that your employer offers a SIPP.      Most do not. Your employer must think highly of its employees to give them such a choice.    Most offer auto-enrolment schemes or group personal pensions.