SIPP “Notional split”

norton66

https://forums.moneysavingexpert.com/discussion/comment/81863374#Comment_81863374

ii SIPP customer here with some experience of this. It was all confusing to me so I crystallised a small amount to see how the withdrawal method worked first. You need do nothing other than ensure you have the relevant cash available to cover payments. The platform offers recommendations for the crystallised funds but doesn't action anything, your portfolio remains as-is and you can see the remaining drawdown pot value in "Pensions → Benefits → Your SIPP Pots", which will go up/down in proportion to the portfolio. It's all quite efficient and totally completed online, the only small mistake I made was processing two payments in the same tax month (as they were so efficient!)

Justso65

https://forums.moneysavingexpert.com/discussion/comment/81864896#Comment_81864896

I am about to take £20k TFLS from my ii SIPP which means I need to crystallise £80k. So just to be sure my understandings are correct (or not) then….

1. Once I ask for the £20k I will have automatically crystallised £80k but I only need £20k in cash to make my payment.
2. The other £60k of crystallised funds remain where they were in investments.
3. There are no separate crystallised and uncrystallised investments.
4. A "notional" figure is then applied to the crystallised and uncrystallied areas. Let's say I have £240k left uncrystallised. So I will now have 60k crystallised and 240k uncrystallised or a notional split of 20/80% but the overall total may be in one or many investments.
5. For ease of explanation lets say I have 1 investment in Acme Inc. All £300k. What I am not clear about is as this investment goes up (or down) and pays dividends. I am assuming that my crystallised pot is always the monetary value I needed to allocate to pay my TFLS. So my crystallised pot is always £80k of which I have £60k left. Let's say Acme pays a dividend and its stock price has increased such that the overall value of stock and dividend is £320K. My assumption here is I have still only crystallised £80k with £60k left so my notional split is now £60/260k or 18.75% crystallised and 81.25% uncrystallised.

So my question is, in reference to ii and their notional split, is my crystallised fund always the actual value I had to crystallise to get my required TFLS as a proportion of my overall investments?

Alternatively does the value of my first crystallisation always stay at 20% of the fund value meaning I have lost out on some TFLS as the overall fund grows? 20% of the new fund value of £320k being £64k is now considered crystallised.

My concern is I would really like to take a £20k TFLS now and I have enough liquid assets to do so. However, I have some significant bond coupons due next month. I don't want a prportion of those bond coupons to be considered crystallised. I'm assuming when the coupons are paid my crystallised percentage will fall and uncrystallised will rise.

I hope I explained this clearly.

Thank you, JS.

NoMore

no it’s a percentage and as such, it’s actual value varies as your portfolio size rises and falls.

Also you still don’t seem to understand that everything in your sipp is considered The overall value of your portfolio will be used to determine the value of the uncrystallised/ crystallised pots so your bonds will contribute to them it’s not really about whether they are specifically crystallised or not just the whole value of your sipp at the time a calculation of crystallisation is required

Triumph13

I would have thought that the timing of the bond coupon should make no difference at all. On the day the bond goes ex-div, the dirty price of the bond drops by the amount of the coupon - so you might change from a bond worth £100 to a bond worth £98 and a coupon due worth £2.

As NoMore says, the crystallised / uncrystallised split is solely done as a percentage. So you would sell £20k of assets to have the cash, then request it as a TFLS. If your investments, excluding the £20k cash, were valued at £X on the day it goes through, then they will calculate that 60/X is your crystallised percentage and that percentage will remain fixed until you either crsytallise some more, or withdraw some of the crystallised funds.

The only thing you lose by having a notional split vs separate pots is the ability to have different asset allocations between the two - but it is not immediately obvious why you would want to.

michaels

Is it not rationale to hold lower average growth less volatile funds in crystallised pot and higher average growth more volatile in uncrystallised?

Triumph13

https://forums.moneysavingexpert.com/discussion/comment/81894783#Comment_81894783

We are back to the old chestnut of needing to compare post tax values to see that it makes no difference. To take a simple example, let's look at a 20% taxpayer with crsytallised funds C (taxed at 20%) and uncrystallised funds UC (taxed at 15% due to TFLS on a quarter of it), For both funds to be worth the same £100 after tax, you would need £125 in the crystallised fund and £117.65 in the uncrystallised. Say one has growth funds which double in value, the other has 'safer' funds which only increase by 10%.

If you put the growth funds in the UC and safe in C then they grown to £235 and £137 respectively and are worth £200 and £110 after you've paid the tax to get them out. If you do it the other way round, with safe in UC and growth in C, they grow to £129 and £250 and are worth £110 and £200 after you've paid the tax.

Unless tax rates change, both routes come out exactly the same. If anything, you might prefer the growth stock to be in the crystallised portion to decrease your risk of hitting the lifetime limit for TFLS.

NoMore

https://forums.moneysavingexpert.com/discussion/comment/81894783#Comment_81894783

We are talking about notional splits, where your suggestion is irrelevant and impossible to implement.

michaels

https://forums.moneysavingexpert.com/discussion/comment/81894809#Comment_81894809

Suppose I have 100k crystallised and 100k uncrystallised and the crystallised has no growth and the uncrystallised doubles. I can now draw after tax 80k from the crystallised and 170k from the uncrystallised. 250k total.

If instead the crystallised doubles whilst the uncrystallised stays the same I can draw 160k and 85k total 245k

Triumph13

https://forums.moneysavingexpert.com/discussion/comment/81894877#Comment_81894877

But they didn't start off equal in your example, so no surprise that you get more by doubling the one that's worth more than you would by doubling the one that's worth less.

For a fair comparison you have to start from a position of equal post tax value, not equal pre tax value.

Justso65

Thank you all.

I have it clear now. The notional split is done at crystallisation and the percentages remain the same as the value of the fund goes up and down. John's example in the link below makes it clear.

https://www.ii.co.uk/ii-accounts/sipp/income-drawdown/notional-split

Thanks, JS.