Retiring Early SIPP access advice

dustymil59

My wife has retired early and has no income at all, she wants to access her SIPP (£380k) to provide a modest income and also make use of her unused tax allowance. I cannot fathom whether she's better off with flexible access drawdown or an annual lump sum of £16,670 each year. Any advice would be most welcome. TIA

molerat

FAD means the tax is sorted for you, taking a lump sum will take some management to ensure no tax is taken or a reclaim will be needed. Both effectively have the same outcome in the end.

dustymil59

We plan to enact the £1 trick ahead of a larger withdrawal which should generate a tax code from HMRC to the provider and negate the need to reclaim any emergency income tax.

I just can't understand which is best FAD or UFPLS. She won't be contributing further to her SIPP, so we're not worried about any restrictions. Maybe neither will have an advantage given her circumstances

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6670272/retiring-early-sipp-access-advice

I presume you mean £16,760 (£12,570 taxable pension income + £4,190 TFLS) but if she has applied for Marriage Allowance then £16,760 becomes £15,080 (£11,310 + £3,770).

DRS1

One question would be how old she is. Currently she could access her pension at 55 but soon that will rise to 57. If she is in the age bracket where access to her pension may suddenly stop then it may be better to use FAD than UFPLS. I believe that if structured right the FAD could continue during the problem years but UFPLS would have to stop.

dustymil59

She's 59 this year and currently giving me the marriage allowance to offset my income tax, we intend to stop that when she starts receiving income. I'm retired and get DWP pension, plus a couple of low value annuities.

Currently, she won't get state pension until 2035 with 42 years full NI contributions.

DRS1 excuse my ignorance but why would UFPLS have to stop?

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82016093#Comment_82016093

If she is 59 then she doesn't need to worry about the 55 - 57 gap.

From what I have read on the gap issue they are saying that if you have started your pension at 55 and then get to the date when the age changes to 57 you can continue to take the pension. I believe that covers the scenario where you have started FAD and have a crystallised pot in the pension - ie you can continue to draw against the crystallised pot. With UFPLS you won't have a crystallised pot because you draw both the tax free lump sum and the taxable pension in one go at the same time. Everything left behind is uncrystallised and from what I have read in the gap you won't be able to touch what is uncrystallised. Of course this may all change.

DRS1

There is some discussion of this on page 8 of this thread if you are interested

What happens if you straddle pension age increase? - Page 8 — MoneySavingExpert Forum

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82016093#Comment_82016093

Pretty sure she needs to cancel Marriage Allowance before the start of the tax year she wants her full Personal Allowance back.

And as she's under transitional rules for the new State Pension having 42 years doesn't mean much. She needs to check what she has already accrued (read the forecast in full, not just the headline figure).

She is probably already at £241.30/week but always worth checking in her situation.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82016197#Comment_82016197

Definitely worth checking the state pension forecast.

But I suspect the OP was thinking about how many years she will have to utilise the personal allowance before the state pension kicks in and uses it up. If the SIPP is at £380k and she only takes c£16k pa she is still going to have quite a lot left when the SP kicks in.

Maybe she could take a bit more each year? Before someone has the bright idea of increasing the tax rate on pensions by 2% on the basis that there are no NICs on pensions.

dustymil59

Thanks for the heads up on the marriage allowance.

Her forecast states "£241.30 is the most you can get", which I assume to mean that she has enough full NI years already.

Obviously we want to leave as much as possible in for future growth.

I'm getting the impression that UFPLS may be the best way forward for her.

Thank you both for your time and advice this evening, it is much appreciated.