Pension Drawdown

JohnnyFlame

Hi

apologies if this is covered elsewhere.

My wife is 56 and has a small SIPP (~£100K).

She would like to start taking a regular £800 per month from her SIPP but does not want a tax free lump sum. Is this possible to do and how does this work with a drawdown or is this option only available via a UFPLS?

We got a bit confused when talking to her SIPP provider when they said that this can be done but it sounded like a tax free lump sum would be required and paid into her account.

Basically what we want to do is convert all of her SIPP to a drawdown pension and start taking cash from it but without taking a tax free lump sum.

Thanks for any help..

MallyGirl

tax free lump sum has to be taken - either with the taxable ( UFPLS) or on its own (FAD).

What is the reason for wanting to leave the tax free bit in?

molerat

She won't have to take a "tax free lump sum" as such but will have to take 25% of each withdrawal tax free so £200 tax free and £600 taxable to get the £800 each month.

El_Torro

You have 2 choices:

1. Take 25% of the pension tax free up front, so about £25k. Then start drawing from the crystallised pension.
2. Take no tax free money up front and instead take 25% of the withdrawal tax free every time you make a withdrawal. So if you withdraw £800 then £200 of that would be tax free and £600 would be taxable.

Taking no tax free money at all isn't an option. Not sure there's much benefit in doing that either. Remember that putting some of the withdrawal in an ISA is an option too.

DRS1

Is your wife currently working and contributing to a pension scheme? Taking taxable income from the SIPP like this may restrict what she can contribute - it triggers the money purchase annual allowance. But just taking a tax free lump sum would not do that. So she could take £9600 as a tax free lump sum, park it in a cash ISA (or savings account if she has used up her ISA allowance) and then draw £800 pm from there.

JohnnyFlame

https://forums.moneysavingexpert.com/discussion/comment/82136488#Comment_82136488

She's OK with taking the tax free element, but does not want a huge initial lump sum. I think we are misunderstanding what the process is.

All she wants to do is drawdown £800 / month from her SIPP but when we walk through the online form, it says "which bank do you want to deposit your tax free cash to?" ans as I say, this is not what she wants to do.

JohnnyFlame

https://forums.moneysavingexpert.com/discussion/comment/82136503#Comment_82136503

Yes it is option 2. If she wanted to do this every month, does this mean that she basically needs to create a new drawdown pot every month?

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82136515#Comment_82136515

It sounds like she has a form for FAD and she wants to do UFPLS. One thing you hear is that many SIPP providers don't like doing UFPLS on a monthly basis. It may be easier to take it once a year (but then you need to watch when you take it in a year - March is probably best from a tax point of view).

molerat

The "big picture" should also be looked at. Does she have any other income ? If not then taking the maximum possible tax free each year should be looked at - £16760 - and putting £2880 back in which is topped up to £3600 with any un-needed amount being put into an ISA.

NoMore

You should get a pensionwise appointment, they will explain the options available to you, not advice.

Pension Wise: free pension guidance | MoneyHelper

JohnnyFlame

https://forums.moneysavingexpert.com/discussion/comment/82136531#Comment_82136531

Yes we did earlier this year and it all made sense. Now it comes to actually taking money from the SIPP, it does not seem straight forward.