SIPP pension question

[ExBoringVolvoDriver]

I thought that I would ask the question here before speaking with my IFA (getting a meeting can take a while) to check my understanding.

I have a small ( for PH anyway ) SIPP that I have taken the full 25% tax free amount and currently stands at £125,000.

I could do with taking some more out to bridge the gap to getting my state pension in a years time and my wife getting hers a few years after me - probably about £7500 net per annum for 3 years.

I have a FS pension paying £15,000 pa plus about £2500 pa of sundry taxable income paid across 3 or 4 months only when I work at a school.

Now am I best taking it as a lump sum of £22,500 now, £7500 each year or £625 monthly?

What are the tax implications of each given that I a currently paying tax.

Many thanks for any pointers.

[craig1912]

Not sure if it makes any difference as you are currently paying tax. I’d take it monthly leaving more in your fund to grow.

[LeoSayer]

As long as your total taxable income for the tax year is less than £50,270 then you won't pay more than 20% tax (except Scotland).

However pension drawdowns are paid via PAYE which means that if you take your income in a big lump in one month then you'll pay a higher rate of tax and have to claim the extra tax back at a later date. Much easier to take monthly income if that works.

[Countdown]

If you're getting £15k a year then your tax free allowance is being fully utilised. So whatever you withdraw from the SIPP you're going to be paying 20% tax on it. Therefore I'd withdraw as much as I could but make sure I stayed under the 40% threshold.

[ExBoringVolvoDriver]

LeoSayer said:

As long as your total taxable income for the tax year is less than £50,270 then you won't pay more than 20% tax (except Scotland).

However pension drawdowns are paid via PAYE which means that if you take your income in a big lump in one month then you'll pay a higher rate of tax and have to claim the extra tax back at a later date. Much easier to take monthly income if that works.

Thanks - that was my thought as well from memory. Monthly income it will be then - I always get the impression from the IFA that he has to jump through a fair few hoops to justify what I want to do! Clearly, taking my money out means they get less commission so maybe that is why!

[ExBoringVolvoDriver]

craig1912 said:

Not sure if it makes any difference as you are currently paying tax. I d take it monthly leaving more in your fund to grow.

Cheers - that makes perfect sense and will keep the IFA happier since they will get more commission!

[craig1912]

ExBoringVolvoDriver said:

Thanks - that was my thought as well from memory. Monthly income it will be then - I always get the impression from the IFA that he has to jump through a fair few hoops to justify what I want to do! Clearly, taking my money out means they get less commission so maybe that is why!

They don’t get commission- they charge a fee which may or may not be a percentage of the fund

[ExBoringVolvoDriver]

Countdown said:

If you're getting £15k a year then your tax free allowance is being fully utilised. So whatever you withdraw from the SIPP you're going to be paying 20% tax on it. Therefore I'd withdraw as much as I could but make sure I stayed under the 40% threshold.

I don’t need all the money at the moment , just a small amount to cover a gap in income for a few years following the booking of a few holidays and changing Mrs EBVD car earlier than we had initially intended.

[PistonHead007]

ExBoringVolvoDriver said:

I always get the impression from the IFA that he has to jump through a fair few hoops to justify what I want to do! Clearly, taking my money out means they get less commission so maybe that is why!

It's because they are responsible for any action you take. If you ran out of money and they didn't make it clear that you would, there's a valid complaint to be had.

[ExBoringVolvoDriver]

PistonHead007 said:

ExBoringVolvoDriver said:

I always get the impression from the IFA that he has to jump through a fair few hoops to justify what I want to do! Clearly, taking my money out means they get less commission so maybe that is why!

It's because they are responsible for any action you take. If you ran out of money and they didn't make it clear that you would, there's a valid complaint to be had.

Thanks, that does make sense although whatever happened to personal responsibility?

I run my own spreadsheet and the IFA always says that I am far too conservative with my growth expectations - I don’t want to run out of money but equally want to enjoy life. I never understand those retired people who don’t spend much money because they are keeping it to give to their children!

[craig1912]

ExBoringVolvoDriver said:

Thanks - that was my thought as well from memory. Monthly income it will be then - I always get the impression from the IFA that he has to jump through a fair few hoops to justify what I want to do! Clearly, taking my money out means they get less commission so maybe that is why!

They don’t get commission- they charge a fee which may or may not be a percentage of the fund

[PistonHead007]

ExBoringVolvoDriver said:

Thanks, that does make sense although whatever happened to personal responsibility?

If your account was execution only then it would indeed just be personal responsibility. The fact you have ongoing advice means they have to check what you're doing and advise you accordingly.

[DT1975]

ExBoringVolvoDriver said:

Thanks, that does make sense although whatever happened to personal responsibility?

I run my own spreadsheet and the IFA always says that I am far too conservative with my growth expectations - I don t want to run out of money but equally want to enjoy life. I never understand those retired people who don t spend much money because they are keeping it to give to their children!

Sorry for Intruding but why do you have an IFA and is he managing the fund ?

[TheK1981]

ExBoringVolvoDriver said:

PistonHead007 said:

ExBoringVolvoDriver said:

I always get the impression from the IFA that he has to jump through a fair few hoops to justify what I want to do! Clearly, taking my money out means they get less commission so maybe that is why!

It's because they are responsible for any action you take. If you ran out of money and they didn't make it clear that you would, there's a valid complaint to be had.

Thanks, that does make sense although whatever happened to personal responsibility?

I run my own spreadsheet and the IFA always says that I am far too conservative with my growth expectations - I don t want to run out of money but equally want to enjoy life. I never understand those retired people who don t spend much money because they are keeping it to give to their children!

My mum was a social worker and heard this all the time, people living in poverty, no heating, barely eating as they are saving for a rainy day and asking the council for help, then the council finds they have massive amounts saved, a decent pension income but just keep saving for a rainy day

[ExBoringVolvoDriver]

DT1975 said:

ExBoringVolvoDriver said:

Thanks, that does make sense although whatever happened to personal responsibility?

I run my own spreadsheet and the IFA always says that I am far too conservative with my growth expectations - I don t want to run out of money but equally want to enjoy life. I never understand those retired people who don t spend much money because they are keeping it to give to their children!

Sorry for Intruding but why do you have an IFA and is he managing the fund ?

I used an IFA when I merged all my private pensions many years ago and the fund was bigger before I took my tax free amounts out. It was beneficial at that time
.

The IFA doesn’t actively manage the fund as far as I understand it and when I meet him, then I will be questioning him on what they now do for their money and whether I could manage it myself.

At the end of the day, using them is a comfort blanket for someone who is risk adverse!

[DT1975]

ExBoringVolvoDriver said:

I used an IFA when I merged all my private pensions many years ago and the fund was bigger before I took my tax free amounts out. It was beneficial at that time
.

The IFA doesn t actively manage the fund as far as I understand it and when I meet him, then I will be questioning him on what they now do for their money and whether I could manage it myself.

At the end of the day, using them is a comfort blanket for someone who is risk adverse!

Thanks. The reason I asked is that I had no choice but to employ an IFA for a DB pension transfer (similar amount to yours) into Royal London as it was over £30k. After a year or so I found he was taking a monthly cut for 'managing it' yet I hadn't heard a thing from him.

I rang Royal London and said I'd manage it myself, any change of drawdown amount is a simple phone call to them.

As it transpired he picked a decent fund, despite drawdown since 2020 I've hardly put a dent in it and should easily surpass my original target of state pension age.

[ExBoringVolvoDriver]

DT1975 said:

Thanks. The reason I asked is that I had no choice but to employ an IFA for a DB pension transfer (similar amount to yours) into Royal London as it was over £30k. After a year or so I found he was taking a monthly cut for 'managing it' yet I hadn't heard a thing from him.

I rang Royal London and said I'd manage it myself, any change of drawdown amount is a simple phone call to them.

As it transpired he picked a decent fund, despite drawdown since 2020 I've hardly put a dent in it and should easily surpass my original target of state pension age.

Interesting- I shall have the discussion since the pension is now an Avivva one rather than the original mix of several funds relative to my risk profile.