SIPP Withdrawal Amount Options

Julezy101

Hello

Retiring next year at age 58
DB Pension at 60 of 8k
SIPP value at 58 will be about 330k
ISA value £200k
Amount needed per year £20k
Full SP at 67

My initial plan was to take the £16,760 from my SIPP for 58-60 then £8,760 for 60-67 with the aim of not paying any tax until I get the SP and using my ISA to top up to the 20k needed per year. Assuming 4% growth on my SIPP I think there will still be around £300k left at 67 which would mean £60k in tax to pay to empty it (which is the aim)

I'm now considering a 'better' option and paying more tax on the SIPP withdrawals before age 67 and using the extra to put £20k into my ISA each year.
If I take out 41k per year from my SIPP for age 58-60
Then 33k (already getting 8k from DB pension) for age 61-67
I've calculated its around £3.5k tax each year, 31.5k total over the 9 years to SP age.
This would reduce the SIPP pot (41k x 2, 33k x 7) to around 80k assuming 4% growth. So around 16K tax to pay to empty it.

So first option Pay no tax until 67 on the SIPP then a max of 60k to empty it.
Second option Pay 31.5k tax until 67 then around 16k to empty it a total of £47.5k

Overall I'd save around £12k in tax.

Am I missing anything obvious as option 2 seems like a 'no brainer'?

Thanks

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/6686192/sipp-withdrawal-amount-options

Why £8,760 🤔

£16,760 suggests a mix of TFLS and taxable income. As does the £41k element.

But then you seem to be assuming 20% tax on the whole of whatever is left, with no allowance for any TFLS.

Overall, not really following your figures.

Marcon

What happens to your DB pension if you don't take it at 60? If 60 is the scheme Normal Retirement Age, is there a late retirement factor?

Secret2ndAccount

Your £8,760 number is wrong. If the DB pays 8k, that leaves you with £4,570 of taxable before you start to pay 20%. Thus you can withdraw £6,093 of which 25% is tax free, leaving £4,570 taxable, and no tax.

As long as you use up your full £12,570 allowance each year, and don't hit 50k and go into the 40% zone, the total tax will be very similar over your lifetime (much closer than your calculations above). I would suggest you have a good think about how much you actually want in the early years versus the later years, then take that, and don't worry about the last ounce of tax.

Your DB presumably comes with some sort of tax free lump sum? Either a one-off payment at the start (PCLS), or you commute it into a better monthly amount. Each mothly payment is taxable pay - no 25% or other amount tax free.

Julezy101

https://forums.moneysavingexpert.com/discussion/comment/82163353#Comment_82163353

I was working on the basis of £16,760 minus DB pension of 8k to give the £8,760 figure. Yes I've forgotten to factor in the 25% tax free for the remainder of the pot which would reduce the amount of tax to pay a little. I will have a recalculation of my figures. Thanks

Julezy101

It's a CS pension with a NRA of 60. As the modeller doesn't work at the moment I can't see what impact delaying would mean.

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/82163492#Comment_82163492

So that would give you taxable income of £14,570 (+ TFLs of £2,190).

So you could reduce the £8,760 if you wanted to stick to just £12,570.

Julezy101

https://forums.moneysavingexpert.com/discussion/comment/82163521#Comment_82163521

Thanks @Dazed_and_C0nfused and @Secret2ndAccount for your replies.

If I reduce the amount I was going to withdraw from my SIPP as in Option 1 from £8760 to £6093 and pay no tax for ages 60 - 67 this would end up leaving more in the pot at age 67. Which even with the 25% tax free would still mean more at 20% to pay.

I do agree that my focus shouldn't be primarily on saving tax but like most people on here I don't want to pay anymore than I have too as well as having enough to enjoy in retirement. I will revisit my figures again to see how this changes the 2 options.

Thanks again

DRS1

If all your savings are in ISAs then presumably you are not bothered about the starter rate for savings? I only mention it because that might have factored into your calculations if you are taking taxable pension income above the personal allowance.

Julezy101

https://forums.moneysavingexpert.com/discussion/comment/82163647#Comment_82163647

My income from 58 will be from SIPP, ISA, any Prolific work I do and any matched betting that's left. So none from bank / building society interest.

Triumph13

It makes no difference. Thinking about the amount of tax paid on future growth in the pension is a red herring. The amount of post tax cash you have is exactly the same whether you take the money out now, pay tax, and let it grow in an ISA or let it grow in the SIPP then pay tax when you withdraw it. Multiplication is commutative.

The most sensible thing for you to do is to forget trying to judge things exactly and just draw enough to be absolutely certain you fully use your PA each year, without needing to fret about the calculations. As long as you stay squarely in the basic rate band you are fine. Any excess of withdrawals over spending just gets reinvested in your ISAs.