SIPP & Pension guidance - IM Private Clients

[Intelligent Money]

Carbon Sasquatch said:

What's the most efficient way to withdraw from a SIPP ?

My wife has one, transferred in already crystallised (inherited) and from April, would like to start drawing from it. So is it better to go for an annual lump sum, or is there a monthly 'payroll' type option ?

We'd like to minimise the tax hassle & just get a nice easy net amount - don't really care if its monthly, annually or some other frequency.

Thanks

Hi Carbon Sasquatch

You can draw benefits as lump sums as and when needed or as a regular income. The provider will run regular payments on a "payroll" basis.

When you draw a large lump sum from a crystallised pot, HMRC will typically assume that this is going to be a monthly amount and tax it accordingly, This can take a 2-3 months to get back on track so if you are looking for the least hassle a regular monthly amount is a good starting point. You can always top this up with additional payments if needed at a later date.

Cheers

Nik

[pingu393]

Intelligent Money said:

Carbon Sasquatch said:

What's the most efficient way to withdraw from a SIPP ?

My wife has one, transferred in already crystallised (inherited) and from April, would like to start drawing from it. So is it better to go for an annual lump sum, or is there a monthly 'payroll' type option ?

We'd like to minimise the tax hassle & just get a nice easy net amount - don't really care if its monthly, annually or some other frequency.

Thanks

Hi Carbon Sasquatch

You can draw benefits as lump sums as and when needed or as a regular income. The provider will run regular payments on a "payroll" basis.

When you draw a large lump sum from a crystallised pot, HMRC will typically assume that this is going to be a monthly amount and tax it accordingly, This can take a 2-3 months to get back on track so if you are looking for the least hassle a regular monthly amount is a good starting point. You can always top this up with additional payments if needed at a later date.

Cheers

Nik

Nik,

If you have a £100,000 pot and want to withdraw a lump sum of £25,000, how would you go about it?

From my understanding of the above, there would be a £20,000 lump sum out of the pot and a £5,000 reclaim from HMRC which could take 2-3 months.

[Mazinbrum]

pingu393 said:

Intelligent Money said:

Carbon Sasquatch said:

What's the most efficient way to withdraw from a SIPP ?

My wife has one, transferred in already crystallised (inherited) and from April, would like to start drawing from it. So is it better to go for an annual lump sum, or is there a monthly 'payroll' type option ?

We'd like to minimise the tax hassle & just get a nice easy net amount - don't really care if its monthly, annually or some other frequency.

Thanks

Hi Carbon Sasquatch

You can draw benefits as lump sums as and when needed or as a regular income. The provider will run regular payments on a "payroll" basis.

When you draw a large lump sum from a crystallised pot, HMRC will typically assume that this is going to be a monthly amount and tax it accordingly, This can take a 2-3 months to get back on track so if you are looking for the least hassle a regular monthly amount is a good starting point. You can always top this up with additional payments if needed at a later date.

Cheers

Nik

Nik,

If you have a £100,000 pot and want to withdraw a lump sum of £25,000, how would you go about it?

From my understanding of the above, there would be a £20,000 lump sum out of the pot and a £5,000 reclaim from HMRC which could take 2-3 months.

Nothing to reclaim from HMRC, nothing to do with them as you're entitled (currently) to just get the 25% tax free cash from your pot.
You get the tax free amount from HMRC when paying in.

[pingu393]

Mazinbrum said:

Nothing to reclaim from HMRC, nothing to do with them as you're entitled (currently) to just get the 25% tax free cash from your pot.
You get the tax free amount from HMRC when paying in.

So If I withdraw £25k, I automatically crystallise £75k - and it will be taxed when withdrawn.

[Jasey_]

pingu393 said:

Mazinbrum said:

Nothing to reclaim from HMRC, nothing to do with them as you're entitled (currently) to just get the 25% tax free cash from your pot.
You get the tax free amount from HMRC when paying in.

So If I withdraw £25k, I automatically crystallise £75k - and it will be taxed when withdrawn.

Depends if you have previously withdrawn from the pot or not.

If you have taken nothing you can take a 25% pension commencement lump sum with would mean you are crystallising the whole pot.

If you have previously taken other payments from the pot it starts to get complicated - After the commencement lump sum you cant just withdraw tax free bits - you would crystallise however much you need to and would pay tax on 75% of whatever you took out.

As far as I understand it

[LeoSayer]

pingu393 said:

So If I withdraw £25k, I automatically crystallise £75k - and it will be taxed when withdrawn.

To get £25k lump sum from a £100k (uncrystallised) pension pot, you will need to crystallise the whole £100k pot.

£25k will be paid to you as a tax free lump sum
£75k will go into a drawdown pot within the same pension. You can leave it there or take some / all as taxable income whenever you want

[LeoSayer]

Jasey_ said:

Depends if you have previously withdrawn from the pot or not.

If you have taken nothing you can take a 25% pension commencement lump sum with would mean you are crystallising the whole pot.

If you have previously taken other payments from the pot it starts to get complicated - After the commencement lump sum you cant just withdraw tax free bits - you would crystallise however much you need to and would pay tax on 75% of whatever you took out.

As far as I understand it

Pension providers should make that straightforward by segregating your pension into separate uncrystallised and crystallised (ie. in drawdown) pots.

The term "pension commencement lump sum" generally refers to lump sum that are paid at the start of a DB pension.

[pingu393]

LeoSayer said:

pingu393 said:

So If I withdraw £25k, I automatically crystallise £75k - and it will be taxed when withdrawn.

To get £25k lump sum from a £100k (uncrystallised) pension pot, you will need to crystallise the whole £100k pot.

£25k will be paid to you as a tax free lump sum
£75k will go into a drawdown pot within the same pension. You can leave it there or take some / all as taxable income whenever you want

I think I'll get someone at PH Towers to talk me through it on the phone while I press the computer buttons.

It won't be happening for a couple of years yet. Not long to wait, though.

[Intelligent Money]

pingu393 said:

LeoSayer said:

pingu393 said:

So If I withdraw £25k, I automatically crystallise £75k - and it will be taxed when withdrawn.

To get £25k lump sum from a £100k (uncrystallised) pension pot, you will need to crystallise the whole £100k pot.

£25k will be paid to you as a tax free lump sum
£75k will go into a drawdown pot within the same pension. You can leave it there or take some / all as taxable income whenever you want

I think I'll get someone at PH Towers to talk me through it on the phone while I press the computer buttons.

It won't be happening for a couple of years yet. Not long to wait, though.

Hi pingu

The answers have been covered in the posts but as a summary :

If you have a £100k uncrystallised pot (no previous benefits drawn from the pot) and you want to take £25k you could take £25k tax free as a PCLS (pension commencement lump sum). This would crystallise the whole pot and the remaining £75k, and any subsequent growth on it,
will be taxed as income when you draw it.

You could combine the withdrawal as part tax free and part income. As an example if you had no other income and wanted to use your personal allowance you could draw £12,570 as income and £12,430 as a tax free cash. This crystallised £49,720 of the pot.

As you say in your last post we at IM towers are happy to chat through the withdrawal options and help you decide what is the most tax effcient option for you at the time that you need access your funds

Cheers

Nik

[pingu393]

Intelligent Money said:

You could combine the withdrawal as part tax free and part income. As an example if you had no other income and wanted to use your personal allowance you could draw £12,570 as income and £12,430 as a tax free cash. This crystallised £49,720 of the pot

Thanks for the reply. I'm taking a very close look a drawdown plan. I start to get a pension on my 60th birthday that will take me close to the allowance. My state pension at 66 will mean that I am above the allowance threshold, so none of the drawdown will be tax-free after I am 66.

If you don't mind, can I send you a copy of my plan for comment?

Is there any advantage having money in your pension that cannot be drawn down without paying tax on it? I think excess might as well be in ISA or GIA.

[mikeiow]

pingu393 said:

Thanks for the reply. I'm taking a very close look a drawdown plan. I start to get a pension on my 60th birthday that will take me close to the allowance. My state pension at 66 will mean that I am above the allowance threshold, so none of the drawdown will be tax-free after I am 66.

If you don't mind, can I send you a copy of my plan for comment?

Is there any advantage having money in your pension that cannot be drawn down without paying tax on it? I think excess might as well be in ISA or GIA.

I believe the key advantage is that your pension is outside of the IHT limits & can be passed on.....ISA/GIA are part of the calculations of your worth, if (when!?) you demise.....

[pingu393]

mikeiow said:

I believe the key advantage is that your pension is outside of the IHT limits & can be passed on.....ISA/GIA are part of the calculations of your worth, if (when!?) you demise.....

I won't have to worry about IHT - and it looks like I've got too much in my pension pot. I may have to retire early. Oh dear, what a shame, never mind .

[LeoSayer]

pingu393 said:

Is there any advantage having money in your pension that cannot be drawn down without paying tax on it? I think excess might as well be in ISA or GIA.

Absolutely.

At worst, you get 20% tax relief on contributions and then effectively pay tax at 15% when you withdraw (25% tax free and 75% at 20%). For example an £8k contribution (grossed up to £10k) will leave you with £8.5k net.

If your contributions are via salary sacrifice or at higher rate tax then the benefits are even greater.

Of course, income tax rates may change in the future.

[pingu393]

Not a SIPP thing, but a Pension thing...

Time at college or university don't count for state pension.

I did a pension check on my state pension and noticed that 1983/84 and 1984/85 were "not full". I thought this was a mistake, so I phoned the pension people and they told me that time spent at college or university don't count towards your state pension.

I point this out as it is something that you and your children should be aware of.

[Carbon Sasquatch]

pingu393 said:

Time at college or university don't count for state pension.

Yup - I found that out too, quite a surprise.

Not much kids can do though - it's not worth buying the missing years so early as you might not need them. I'm retiring at 55 and will need to buy 2 years to get a full pension. I'm in a position where that's easy, but I wouldn't have done it in my 20's....

[pingu393]

Carbon Sasquatch said:

Yup - I found that out too, quite a surprise.

Not much kids can do though - it's not worth buying the missing years so early as you might not need them. I'm retiring at 55 and will need to buy 2 years to get a full pension. I'm in a position where that's easy, but I wouldn't have done it in my 20's....

I was quoted about £800 per year. You can only buy to fill future years or 6 years back, so I couldn't buy to fill the 83/84 84/85 gap, but I can buy to fill future years upto 29/30. Luckily, I'm only 3 short. I have 2015/16 under investigation - it could be that I earned too little. At most, it'll be £2,400 which will give me another £15pw. Payback is around 3 years. I just need to make sure I don't start my dangerous sports adventure holidays until I'm 69 .

I do feel for the kids who go to uni who really shouldn't. Three years of earnings missing plus three years of pension credits missing and 9% extra tax if they do manage to earn above £27k.

[alfa aficionado]

I was a member of NHS scheme for the last 20yrs or so, having left in Jan 2022. I presume this will now be frozen but any idea what happens to the added years contract - will this be frozen too or do I have to continue paying this? (It’s hard to find a good, authoritative info source online)

I have moved to an EU country for work but am still resident in the UK - there is no pension scheme with my new employer so I was wondering if I can contribute to a personal pension / SIPP back home from my foreign earned income? There is a double taxation agreement in place which means that I shouldn’t have to pay any additional tax to HMRC so how would this work with pension contributions/? Would I be limited to max £3600 (£2880 net) contributions annually, as otherwise I would be receiving money back from HMRC (higher rate tax payer) despite paying no UK tax?

[The Leaper]

See here if you haven't already.

https://www.nhsbsa.nhs.uk/sites/default/files/2017...

One of the FAQs implies that if you stop paying for the added years then the number of added years you were "buying" will change, which makes sense. Also, looks like you need to contact NHS to advise them that you've stopped contributing.

This should give you a start in getting your issues resolved.

R.

[pingu393]

LeoSayer said:

pingu393 said:

Is there any advantage having money in your pension that cannot be drawn down without paying tax on it? I think excess might as well be in ISA or GIA.

Absolutely.

At worst, you get 20% tax relief on contributions and then effectively pay tax at 15% when you withdraw (25% tax free and 75% at 20%). For example an £8k contribution (grossed up to £10k) will leave you with £8.5k net.

If your contributions are via salary sacrifice or at higher rate tax then the benefits are even greater.

Of course, income tax rates may change in the future.

Thanks.

Your post has probably completely changed my plans for the better.

For info. I've worked out that for every £100 gross in each range you can generate the following net...

Earnings	Net	Earnings + Pension	Net
< £9,500 (*)	£100	< £12,500	£120
< £9,500 (*)	£100	> £12,500	£105
£9,500 < x < £12,500	£86.75	< £12,500	£106.75
£9,500 < x < £12,500	£86.75	> £12,500	£91.75
> £12,500	£66.25	> £12,500	£70.38

It gets even better if you are above state pension age as you will not have to pay NI on earnings.

(*) You will not earn any state pension credit if you earn less than the NI threshold.

Edited by pingu393 on Sunday 6th March 10:55

Edited by pingu393 on Sunday 6th March 10:57

[alfa aficionado]

The Leaper said:

See here if you haven't already.

https://www.nhsbsa.nhs.uk/sites/default/files/2017...

R.

I had come across that document but I didn’t think it was particularly helpful. I worked in NI so the NHSBSA doesn’t apply - there is an equivalent but they’re not particularly useful hence asking on here!