The Lemon Fool

Folks

I have been reading up a little on drawdown but require some clarification if you would be so good.

I have SIPPs - all in equity funds - with both HL and AJBell.

As I understand things - the basic mechanism of drawdown is as follows.

Transfer the funds into drawdown - Does this mean I have to cash them in or can I simply transfer the funds into drawdown status?
Take the 25% tax free - Is this taken as a one off lump sum as soon as the drawdown is effected? Paid into my account direct?
For the 75% remainder - this to be taken as income. If the cash is reinvested into drawdown funds, I assume I will have to sell some to take the income to convert it into cash to draw on? Is this relatively painless with HL/Bell?
Tax - any other implications I should watch out for apart from the income being taxable?

Many thanks

Oggy wrote:Folks

I have been reading up a little on drawdown but require some clarification if you would be so good.

I have SIPPs - all in equity funds - with both HL and AJBell.

As I understand things - the basic mechanism of drawdown is as follows.

Transfer the funds into drawdown - Does this mean I have to cash them in or can I simply transfer the funds into drawdown status?
Take the 25% tax free - Is this taken as a one off lump sum as soon as the drawdown is effected? Paid into my account direct?

You crystallise all or a portion of your SIPP. Of the portion crystallised, 25% will be PCLS - and that will be sent to you as cash to your bank account- which will require you to have turned enough of your SIPP into cash to satisfy the transfer. You do not have to take the PCLS, but if you don't you lose it, so unless your circumstances are very weird, it is barking not to take it.

Oggy wrote:
For the 75% remainder - this to be taken as income. If the cash is reinvested into drawdown funds, I assume I will have to sell some to take the income to convert it into cash to draw on? Is this relatively painless with HL/Bell?

I don't follow " if the cash if reinvested", but see the italics above. It is always your problem to turn holdings into cash to allow withdrawal.

Oggy wrote:Tax - any other implications I should watch out for apart from the income being taxable?

Pulling from a SIPP, the only issue is getting PAYE up and running, which is painless if you go for regular income; but can be work if you want odd one-off withdrawals.
DB pensions are different, and taking benefits can alter your ability to contribute to pensions.

genou wrote:

Oggy wrote:Tax - any other implications I should watch out for apart from the income being taxable?

Pulling from a SIPP, the only issue is getting PAYE up and running, which is painless if you go for regular income; but can be work if you want odd one-off withdrawals.

Do you know why HMRC insists on PAYE for SIPPs? That is a big part of why I have never opted for one.

Lootman wrote:

genou wrote:Pulling from a SIPP, the only issue is getting PAYE up and running, which is painless if you go for regular income; but can be work if you want odd one-off withdrawals.

Do you know why HMRC insists on PAYE for SIPPs? That is a big part of why I have never opted for one.

Because they can?

More likely, the rules go back to the days of annuities, where there was a monthly payment and a monthly tax deduction that is a direct mirror of wages. Now, they don't want to let go of the income stream. Also, if there wasn't PAYE, there would presumably be payments on account, which would be harder to manage on both sides I imagine.

Been there -done it -20 years ago to the present day
Decided to retire and go into Flexi Drawdown-notifying platform is first step of your plans
Then said I wanted 25% tax free withdrawal
Turned 25% of my portfolio to cash inside SIPP -selling appropriate amount of equity and bonds-make sure you cash up enough-if a little to much you can reinvest balance back into equity etc after 25% tax free transaction is done
Remainder of SIPP remains fully invested
Then withdrew 25% tax free cash-paid into my current account
I made no withdrawals then from the SIPP for a few years -lived off my tax free lump sum-SIPP continued to grow
Then after a few years commenced occasional yearly withdrawals -in my case as a one time operation each year during the tax year -usually mid tax year -to top up a 2+ years living expenses cash account
Always charged at a 20% tax rate by HMRC on the withdrawal-reclaimed with an online P55 form -rebate usually after a month
You have to set up a Government Gateway online portal to use P55-simple to do
Tax code not really relevant -just take what you need and then reclaim the required amount of tax-do simple calculation to cross check HMRCs rebate each withdrawal
(If not taking a withdrawal-do remember to still take the tax free amount available of your personal allowance less state pension )
Overall a relatively simple operation but has a slight time lag hence cash buffer of 2 years+ of living expenses required
xxd09

xxd09 wrote:Been there -done it -20 years ago to the present day
Decided to retire and go into Flexi Drawdown-notifying platform is first step of your plans
Then said I wanted 25% tax free withdrawal
Turned 25% of my portfolio to cash inside SIPP -selling appropriate amount of equity and bonds-make sure you cash up enough-if a little to much you can reinvest balance back into equity etc after 25% tax free transaction is done
Remainder of SIPP remains fully invested
Then withdrew 25% tax free cash-paid into my current account
I made no withdrawals then from the SIPP for a few years -lived off my tax free lump sum-SIPP continued to grow
Then after a few years commenced occasional yearly withdrawals -in my case as a one time operation each year during the tax year -usually mid tax year -to top up a 2+ years living expenses cash account
Always charged at a 20% tax rate by HMRC on the withdrawal-reclaimed with an online P55 form -rebate usually after a month
You have to set up a Government Gateway online portal to use P55-simple to do
Tax code not really relevant -just take what you need and then reclaim the required amount of tax-do simple calculation to cross check HMRCs rebate each withdrawal
(If not taking a withdrawal-do remember to still take the tax free amount available of your personal allowance less state pension )
Overall a relatively simple operation but has a slight time lag hence cash buffer of 2 years+ of living expenses required
xxd09

Gents

This is all good stuff - Many thanks. One point please. Ref the above, when withdrawing from the SIPP after taking the 25% tax free is this not classed as income? - in which case if HMRC charged 20% why the need to reclaim with P55? Do they not consider one's personal allowance/tax code?

It is income indeed and treated as such
HMRC or Interactive Investor(my platform)-not sure which one in fact does the tax charge-20%)-possibly almost an emergency tax rate-because my withdrawals are very variable in time and amount
I only ever withdraw once a year but sometimes don’t do major withdrawals for 2 or 3 years though I always take the balance of my tax free allowance-small amount -approximately £3000+- every little helps!
The pensioner really has total control -good system
xxd09