Any reason not to aim to empty SIPP ASAP in retirement?

bluegreendeployment

Looking ahead to when I retire (within the next year or so), and setting the strategy.

The situation is fairly simple:

• retire at 60 years old
• ~£700k in a SIPP
• Cash ISAs as cash buffer
• no need for a large lump sum at retirement

It seems to me that the SIPP needs to be emptied as fast as possible (25% tax free, rest kept within the 0%/20% income tax bands each year), to avoid me ever having to pay 40% or more on SIPP withdrawals. There seems no point in aiming to keep anything in a SIPP for possible inheritance (may be subject to IHT, and/or taxed at marginal rate when inheritor makes withdrawals).

Instead, withdraw as much as possible each year, aiming to use £20k ISA allowance each year (S&S ISAs, same funds as SIPP) to move money into tax free status, for use later, once pension emptied. If any of this is left in my estate, it's usable by the inheritor free of income tax.

Any obvious mistakes here? 😁

Anyone else following this strategy? 🤐

Thanks all.

GrumpyDil

Which is likely to be my approach when I start drawing down and in my view sounds reasonable, others may have different opinions.

kermchem

I am about to start to follow a similar strategy. I retire in 2 months aged 60, with a DB pension and a SIPP. When I get to 67 and SP kicks in I will be a 40% tax payer on DB + SP, and I object to paying 40% tax on pension withdrawal when I received only 20% tax relief on the way in for most of my career. So I will aim to empty SIPP in my bridge to 67.

For the OP

1 check whether you get a full state pension at 67

2 work out how much you need to live on

3 work out the most tax efficient way to withdraw from SIPP to 67 and then from SIPP plus SP from 67 - it is probably a 2-part problem

Withdrawing tax efficiently from SIPP and then investing in same funds in ISA is sensible. If married then 2 x ISA. If married and OH still working with a lower pension then make contributions to their pension / SIPP.

bjorn_toby_wilde

Same here. I take UFPLS up to the top of the 20% band and reinvest in S&S ISAs.

It makes sense to use your allowances up to SP age.

Baldytyke88

I will be drawing from my West Yorkshire Pension Fund and putting as much as I can into my SIPP.

My West Yorkshire Pension Fund will only increase by CPI, so last week that was correct. But the FTSE is likely to out perform CPI.

I have also increased my pension contributions in the run up to claiming it, to take advantage of pension tax relief and NI relief.

Grumpy_chap

https://forums.moneysavingexpert.com/discussion/6659967/any-reason-not-to-aim-to-empty-sipp-asap-in-retirement

There is one consideration I can think of that would warrant leaving additional funds within the SIPP and that is the tax treatment of investment growth within the SIPP being favourable to tax treatment of growth outwith a SIPP (although some may be mitigated if you can make good use of ISA allowances).

Albermarle

It is normally recommended to take all tax free cash before age 75, in case you die soon afterwards

tacpot12

https://forums.moneysavingexpert.com/discussion/comment/81925555#Comment_81925555

And if you are going to do that, it makes sense to withdraw the tax free cash in lumps of £20K so you can invest them into a S&S ISA.

Triumph13

Only thing I can think of is if any of your heirs aren't using their full personal allowance (eg grandchildren) and could therefore draw tax free from an inherited SIPP. If you are in IHT territory then 40% + nil beats 20% plus 40%.

ali_bear

The tax rules may change in the future. Just three and a bit years from now we may get a new party in power that favours the rich. The TFLS limit could be increased a lot or even abolished altogether.

bluegreendeployment

Thanks for all the thoughtful and useful replies. 👍