Drawdown and open market option

Laughing_Boy

I have a section 32 plan with tax-free cash greater than 25% of value. I would like to transfer to a SIPP and move to income drawdown/unsecured pension. If I transfer, however, I will lose the extra tax-free cash as my entitlement will reduce to 25%. Is it possible to exercise the open market option to move to income drawdown in a SIPP? This would be ideal because I think I'm right in saying that with OMO the tax-free cash is paid from the originating plan, thus enabling me to get my full lump sum entitlement.

If it's not possible, is there anything else I should consider in order to get full lump sum & SIPP flexibility?

Any help would be greatly appreciated.

EdInvestor

Some providers will allow income drawdown directly for S32s, I believe.It may be worth employing an IFA to do some checking.

If the protected rights (GMP) element is an obstacle, this may disappear after October when there is a plan to change the rules.

Laughing_Boy

Thanks for the reply EdInvestor.

Yes, my current section 32 plan (with Scottish Widows) allows drawdown but SW will not let me move into it without using an IFA :eek:. They also require over £100,000 to be left in after PCLS - the irony being that if I paid an IFA out of the plan (which is tax-effective) it would leave me with less than the 100K minimum for drawdown! The current PCLS entitlement is about £44,000 so well over the normal 25% and thus worth keeping.

I do have a separate protected rights policy which I could transfer to SW and as you say in October I will almost certainly be able to move that to drawdown within the SW plan (SW say the combined value of policies after PCLS must be more than £100,000 so I would be OK), but SW do not have a great investment choice and I am reluctant to pay 3%+ to an IFA to do it, so my idea was to take the cash and simultaneously use the open market option to move to income drawdown in a SIPP (sippdeal is my current choice). So that takes me back to my original question - is it possible to use open market option to move to income drawdown with another provider?

I suspect the answer is "No, you must purchase an annuity if you use omo" ...

If that's the case I either need to transfer to a SIPP thereby sacrificing the generous cash entitlement or use an IFA or preferably an execution-only broker to do the deal for a reasonable fee - anyone out there?!

jamesd

See an IFA, take the cash and move to drawdown (or stay invested and take no income if SW will allow that and not require over 100k), move drawdown (or still invested)account elsewhere to get better investments. Some IFAs would undoubtedly willing to assist with this on an execution only basis, while others would insist on more expensive advised service, so shop around.

EdInvestor

Have you investigated transferring in the PR fund, then using the IFA to go into drawdown with both the S32 and the PR money, which can be done in insured funds. You´ll have to check they will accept the two plans as the equivalent of one 100k+ drawdwon.

Then after October, move the whole thing to Sippdeal - you can´t put the S32 into drawdown at Sippdeal now anyway, because of the GMP in it (aka the protected rights element).

Laughing_Boy

Yes, I've been considering transferring the PR pension to SW but thought I'd have to wait until October before being able to move it to drawdown. SW take the combined values of PR & Section32 when applying the 100K minimum so that should be OK. Then as you say I could move the whole lot out to Sippdeal, althouth I think SW make me wait a year after moving into drawdown. Still, if I have to wait until October anyway, that's not a big deal.

The issue remains trying to find a reasonably-priced IFA!

Thanks again to you and jamesd for the advice.

gordon.craig_2

Wht don't you ask an IFA to arrange the tax free cash and USP from the current Scottish Widows plan without fee in order to maintain the £100,000 minimum then, after you have received your cash, transfer to a SIPP USP for additional investment funds?

gordon.craig_2

Why don't you ask an IFA to arrange the USP inder the Scottish Widows contract, without taking a fee so that you atay within their £100,000 minimum then, after you have received the tax free cash, transfer your Scottish Widows USP to a SIPP USP to benefit from greater investment fund choice. At that stage, you could also consider transferring in your Protected Rights for the additional 25% tax free cash

dunstonh

There is no minimum 100k for drawdown any more. SW have that on some of their plans but there are other providers that dont have that limit.

You say your S32 has an enhanced lump sum protection. Does it have any GMP or guaranteed annuity rates attached to it? many do.

SW will not let me move into it without using an IFA

SW, like many others, will not let you transact a high risk transaction where they think you may be doing the wrong thing or where statistically what you are doing is more likely to be wrong than right.

but SW do not have a great investment choice

Yes they do. Their retirement account has over 1000 funds.

is it possible to use open market option to move to income drawdown with another provider?

No. It would have to be a transfer.

Some IFAs would undoubtedly willing to assist with this on an execution only basis

Section 32s are classed as occupational pensions prior to retirement. So many IFAs wouldnt be able to transact execution only in this case as its too high risk. Much the same reason why SW arent doing it.

jamesd

Thanks for the correct on the section 32 aspect.

Laughing_Boy

Thanks for your replies

gordon.craig : yes I was thinking of taking cash & moving into USP with SW and subsequently transferring, but under terms of my SW plan you have to wait a year after moving to USP before you can transfer out. Neverthless this may prove the best way forward.

dunstonh: There is no GMP or GAR specifiied on my section 32 policy document, but I will check again with SW - seeing as they made several mistakes (not noticed by the IFA) when I transferred the plan to them e.g. maximum death benefit was set £180,000 less than it should have been, it will be worth making sure!

SW do have a limited choice of funds available under my S32 plan (much less than their retirement account) - if I move into USP/drawdown with them the fund choice apparently remains limited. One thing SW have been unable to clarify is whether moving to drawdown with them actually involves a transfer (albeit internal) and a new AMC charging structure (I am currently only paying 0.4% total AMC which I am loth to lose), or whether I can drawdown direct from my S32 plan.

To get back to the original question: Would it be possible to take the enhanced tax-free cash and simultaneously transfer the remaining pension from SW to drawdown under HL SIPP? Then come October I can transfer my protected rights policy to the SIPP. If so, I circumvent the £100,000 minimum required for SW drawdown. If not, I would need to transfer in my protected rights pension (so the £100,000 limit is not an issue) take the lump sum, move to drawdown with SW and wait a year before being able to transfer out.

I am obviously keen to minimise the amount of switches because they all cost money and I am not sure anyone will do them on execution-only basis.