drain SIPP in to ISA - quickly, slowly or not at all?

bucklb

I'm going round in circles working out what to do with my SIPP and I'm now hoping that someone can suggest a way forward, please. For context I'm 61, stopped working a year back and taking defined benefits pensions with cash set aside to get through to state pension.

I started off thinking that I would drain my SIPP in to my ISA as quickly as possible (paying no more than 20% tax on it). This line of thought was somewhat triggered by the changes to include SIPPs in the estate. It could make things easier down the line - one fewer thing to manage.

I then realised that what is in the SIPP could be passed on to my wife/children tax free if I die before reaching 75 (the chances of triggering IHT are slim) so would be worth 25% more than if I drain the SIPP and pay tax in the process. If I live beyond 75 then someone will pay income tax on it, either me or my inheritors. So there's at least one scenario where leaving the SIPP intact might be the best option, but I'm not sure I want to trigger it :(

I've since read a post that made me think that money in the SIPP is considerably less accessible than it would be in an ISA. That could then impact my ability to help the kids with house deposits etc. Improving access to funds certainly has its attractions.

So I need to choose from the following:

option	pros/cons
do nothing	Potentially the most lucrative option (if I die pre 75) but money not accessible
drain quickly (by 67ish)	Best money accessibility, but almost all will be taxed, assuming I live beyond 67
drain slowly (by 75ish or later)	Some money accessibility, but better scope for at least some of the SIPP to be passed tax free

I think that in the process of writing this post I'm favouring the drain slowly option, but I'd be interested to hear other peoples' thoughts please.

Cheers

Bob

kermchem

When you reach 67 you will receive state pension (have you checked how much?). SP will grow between now and 67 by triple lock. Income at 67 will be SP plus DB. Is there any inflationary increase built into your DB pension?

The 40% tax threshold is frozen at £50270 until at least April 2028, and my guess is that whoever wins the next election is not going to have increasing this threshold by more than inflation as their number one priority.

If your DB plus SP are going to be close to £50270 at age 67, then you will forever after be withdrawing from SIPP at 40%, or at least £50270 is going to be the upper limit of what you can get from DB, SP and SIPP without paying some 40%.

As pointed out in another post today, if wife is a lower taxpayer than you, then withdraw from SIPP (paying 20%), gift to her, she pays £2880 into her SIPP and the taxman tops up with the 20% that you paid. At the very least this is a transfer from your SIPP to hers. She still get 25% tax free on the way back out. If wife is earning then the limit is her salary, not £2880.

At a similar age to you, and very close to £50270 at age 67, my current plan is to empty SIPP by 67.

leosayer

It would help your thought process if you had a goal in mind ie. how much you would give your kids and when. You can then plan your drawdowns based on that.

Unless you expect to die before 75 then I wouldn't get too hung up on that.

Bear in mind that your scope for drawing down from your SIPP at the basic rate will reduce once you start receiving state pension.

incus432

If youre 61, odds of dying before 75 are probably less than 20%, in absence of ill health.

If you have enough, enjoy it, don't put off spending it for too long.

tacpot12

I also struggled with this, and decided that I would leave most in the SIPP, but take some out to ISA for reasons of flexiblity of access and to increase the amount of tax free income I have. When my State Pensoon and DB Pensions kick in, I will be paying a lot more income tax, so having more tax free income makes sense even if I have to pay income tax on 75% of what I withdraw from the SIPP. So I'm withdrawing a little more than I need for my living expenses and paying it onto my ISA.

Albermarle

Don't forget that if you die after 75, not only will your beneficiaries be potentially liable for income tax, but the ability to take the 25% tax free is also lost.

So normally it is recommended to at least take out all your 25% tax free, before reaching 75.

I've since read a post that made me think that money in the SIPP is considerably less accessible than it would be in an ISA

When you withdraw from a SIPP, there is usually a process to follow, and there can be a few days wait for money to appear in your bank account. I helped my daughter with a house deposit by taking out some tax free cash. As it was the first ever withdrawal and there was a particular issue, I had to fix an appt for a phone call, before the process was started so it did take a couple of weeks. The next time I did it online and it took 7 working days.

Occasionally a provider may have delays due to system problems, lack of staff etc.

If the pension is an older one there maybe more restrictions.

badger09

https://forums.moneysavingexpert.com/discussion/comment/81856588#Comment_81856588

I’m 75 and have just taken my 25% tax free sum from my (less than £100k) SIPP. I hadn’t intended taking any income from the rest as I don’t need it, but might withdraw monthly to use up 20% band.

bucklb

thanks all for your input.

To answer some of the questions

• I will get the full state pension when I hit 67 & my DB benefits are inflation linked
• I will still be able to drain money from the SIPP when I get state pension, but at about half the rate I can drain it pre-state pension
• I've already taken the TFC from the SIPP (and given half of it to the kids). I was under the impression it had to be taken before 75, but I've since seen many suggestions there's no such time limit
• we're already gifting the kids £3k each per year. I'm keen to give them more as I'd prefer them to have money now rather than once we're dead. My wife is rather more cautious about possible care costs though
• one child is still at home and the other only fully moved out a year back so I'm not expecting requests for deposits in the immediate future but I do expect them within a decade

Cheers

Bob

MallyGirl

the TF bit is still available to you after 75 but can't be inherited as tax free

ader42

If you do want to help your kids with future property purchases I would get them to open LISAs and put the £3k from your SIPP in each year, if this was taken from your SIPP as taxable at 20%, then they will effectively get that back; same as if it is put in their SIPPs.