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

LHW99

There is this

https://www.gov.uk/government/publications/inheritance-tax-unused-pension-funds-and-death-benefits

"Personal representatives will be liable for reporting and paying any Inheritance Tax due on unused pension funds and pension death benefits. If they reasonably expect Inheritance Tax to be due, they can direct pension scheme administrators to:

• withhold 50% of the taxable benefits for up to 15 months from the date of death
• pay the Inheritance Tax due to HMRC before releasing the rest of those benefits to pension beneficiaries"

Not sure if this has actually been passed yet, or if this is more like the "pensioners with only state pension won't…."

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81926991#Comment_81926991

This concept of the executor having discretion of where to pay the IHT bill from, was definitely being discussed at one point. I remember there was concern that it could be a delicate situation if beneficiaries of the will and the pension were different. Maybe the idea was sunk during the consultations on inplimentation, or maybe it was just speculation in the first place.

phlebas192

https://forums.moneysavingexpert.com/discussion/comment/81927136#Comment_81927136

That's my recollection. I had also thought that the SIPP companies had successfully (?) fought against the possibility of using SIPPs to pay non-pension IHT on the not unreasonable grounds that they are trustees and therefore have a duty to act on behalf of the pension beneficiaries who might be different to those specified in a will. But my memory isn't what it once was so…

fuzzzzy

I wonder if it would be possible if there was only one beneficiary of both estate and pension.

bluegreendeployment

Just to follow up my own post and the replies…

check whether you get a full state pension at 67

Yep, that's the other income I'm expecting, which will of course use up all my income tax personal allowance, once into the first full year of SP.

If married then 2 x ISA.

Actually, that is the situation, so we'll start drawing from our two different sized pensions at the same time, calculating the withdrawal strategy to get us our required joint income, plus £40k for 2 x S&S ISA, ensuring we use all of both personal allowances, but without poking up into 40% territory.

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

Excellent point! My current planner sheet has my SIPP being emptied almost exactly when I turn 75 (coincidence), but that is with a very pessimistic investment growth forecast. So, it could well be a longer process.

This also brings up the fact that even with my pessimistic investment growth forecast, I'm getting fairly close to the total tax free lump sum allowance (LSA) of £268,275.

So, I probably do need to look at accelerating the withdrawal of the tax free portion somewhat, for both reasons, especially if growth is better than I fear. 😉

kempiejon

If the main objective is to stay out of 40% tax at SP age while taking SIPP income to pass to heirs I believe, with current rules one can defer SP for 5.8% uplift plus triple lock, giving a few more years to distribute. Would that empty the SIPP well before 75, move the investment to gilts with a growth focus in ISAs then longevity post 75 would protect heir from double taxation?

cfw1994

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

Feels like a reasonably approach….

Kind of what we have done, albeit I took full TFLS first for a few reasons.

We originally were planning to hold off on too dramatic draw on the DC pot for IHT reasons, but with that blown away we are now looking to max income earlier and actually share more with our offspring sooner….which isn’t a bad thing, tbh.

Make the most of your go-go years, I say 💪 Currently half-way through a month in the Alps, with family joining us for a week later tonight ⛷️🍻

NTFI19081

https://forums.moneysavingexpert.com/discussion/comment/81925498#Comment_81925498

I am in a similar position with a healthy DB pension and SIPP, which causes a nice to have but nonetheless a tricky issue. The IHT and the inevitable HR tax post state pension age is my reason to drain the SIPP at BR tax over time as much as possible. What makes this more pressing is the frozen tax thresholds, i.e. indexed linked DB pensions keep rising, tax thresholds frozen till 2031 so the window to draw the SIPP at BR tax gets smaller over time. All contributed to my reasons for talking redundancy and DB pension at 57.

ali_bear

https://forums.moneysavingexpert.com/discussion/comment/81931109#Comment_81931109

I wish I shared your optimism.

Veloflyer

https://forums.moneysavingexpert.com/discussion/comment/81931824#Comment_81931824

My comment to you surely? :)….In all seriousness, and at the risk of being political, I do not believe pensions are sacrosanct. I realize there are many votes in pensions and taxing them risks losing those votes, but the risk of not keeping the state fed is a far greater vote risk.