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25% Lump Sum and more than one SIPP

Posted: October 12th, 2020, 6:44 pm
by yopyop
Hi,
I've tried to search for this answer on the web and while I found the answer to be positive, there were so few sources to know if it is 100% correct. So the question is:

If I have more than one SIPP, each with different providers, can I start the drawdown process with one only, taking a 25% tax free lump sum from it. Then, sometime in the future, start with another one, and still take the 25% tax free lump sump from this second one, and so on?

These are SIPPs. I think when one of the pensions is a defined benefit, it's restricted, but that's not my case.

Anyone tried it? Have advice?
Thanks in advance
Carl

Re: 25% Lump Sum and more than one SIPP

Posted: October 12th, 2020, 6:49 pm
by swill453
yopyop wrote:Hi,
I've tried to search for this answer on the web and while I found the answer to be positive, there were so few sources to know if it is 100% correct. So the question is:

If I have more than one SIPP, each with different providers, can I start the drawdown process with one only, taking a 25% tax free lump sum from it. Then, sometime in the future, start with another one, and still take the 25% tax free lump sump from this second one, and so on?

These are SIPPs. I think when one of the pensions is a defined benefit, it's restricted, but that's not my case.

Anyone tried it? Have advice?
Thanks in advance
Carl

Yes you're right. In fact it's even more flexible than that, you can even just take 25% tax free from a part of one SIPP, and leave the rest to be done at a later date, in stages if you prefer.

Scott.

Re: 25% Lump Sum and more than one SIPP

Posted: October 12th, 2020, 6:52 pm
by Snorvey
Yes, but the reality is that with modern contracts (should you want to move to one) you can be far more flexible than that.

For example, if you don't need the whole tax free lump sum in one go, why remove it from a fairly friendly environment? Or if you only want to take taxable income to, say, mop up a personal allowance before the state pension kicks in for example.

Re: 25% Lump Sum and more than one SIPP

Posted: October 12th, 2020, 7:56 pm
by yopyop
swill453 wrote:
yopyop wrote:Hi,
I've tried to search for this answer on the web and while I found the answer to be positive, there were so few sources to know if it is 100% correct. So the question is:

If I have more than one SIPP, each with different providers, can I start the drawdown process with one only, taking a 25% tax free lump sum from it. Then, sometime in the future, start with another one, and still take the 25% tax free lump sump from this second one, and so on?

These are SIPPs. I think when one of the pensions is a defined benefit, it's restricted, but that's not my case.

Anyone tried it? Have advice?
Thanks in advance
Carl

Yes you're right. In fact it's even more flexible than that, you can even just take 25% tax free from a part of one SIPP, and leave the rest to be done at a later date, in stages if you prefer.

Scott.


That's interesting Scott, thanks. So I can stay with one provider. Let's say I have 100,000, at the time of asking for a lump sum. I take 10.000 and not the whole 25K. So, I guess I have started to process 40k of the total. If, one year later, I want another lump sum tax free , I can take the other "15K" tax free ?

Let's say the fund grows (hopefully) in that year. The value is now higher of course. Does the SIPP provider account for this automatically, in calculating the new "Lump Sum Tax Free value"?
I hope I'm being clear :)
Carl

Re: 25% Lump Sum and more than one SIPP

Posted: October 12th, 2020, 8:11 pm
by swill453
yopyop wrote:That's interesting Scott, thanks. So I can stay with one provider. Let's say I have 100,000, at the time of asking for a lump sum. I take 10.000 and not the whole 25K. So, I guess I have started to process 40k of the total. If, one year later, I want another lump sum tax free , I can take the other "15K" tax free ?

Yes, exactly. It may require a cooperative SIPP provider. Mine (AJBell Youinvest) definitely does this, I have heard of others that do too. I haven't specifically heard of any that don't but they may exist.

Let's say the fund grows (hopefully) in that year. The value is now higher of course. Does the SIPP provider account for this automatically, in calculating the new "Lump Sum Tax Free value"?
I hope I'm being clear :)

Yes it's taken into account. Different providers may do this different ways. AJBell keeps a tally behind the scenes of what proportion of your pot has been crystallised. I believe others may split it into separate pots when you partially crystallise.

Scott.

Re: 25% Lump Sum and more than one SIPP

Posted: October 12th, 2020, 8:34 pm
by JohnB
For each SIPP pot, your funds start as "uncrystallised". You can then take money out in 2 ways

1) Take a "uncrystallised funds pension lump sum" UFPLS. You withdraw part of the pension, and 25% is tax free 75% is taxed at your marginal rate.

2) "crystalise" part of the pension. You take take 25% of the sum out tax free as "pension commencement lump sum", PCLS, the remaining 75% is left in "drawdown", where you can let the investments grow inside the pension, but all sums you take out are taxed.

With £100k, you could take a £40k UFPLS one year. £10k would be tax free, £30k would be taxed, at a rate 20% over your annual allowance.

Say the remainder grows to £70k over a year, after which you put £40k in drawdown, take £10k as PCLS, £20k as taxable income and leave the last £10k invested.

In year 3 you had no investment growth, but you crystalise your last £30k, take £7.5k and have now £10k + £22.5k in drawdown funds, and anything further you withdraw will be taxed.

Your provider will keep track as to how much of the SIPP is crystalised, and how much is in drawdown.

Re: 25% Lump Sum and more than one SIPP

Posted: October 12th, 2020, 9:06 pm
by yopyop
Thanks for the answers everyone. "crystal clear!!!" :)

Carl

Re: 25% Lump Sum and more than one SIPP

Posted: October 19th, 2020, 3:49 pm
by MickR
I'm pretty sure there is a rule though that states that as soon as you start to take any part of any pension, you are limited to what you can continue to pay into a pension. Not sure if you are still earning, and accepting employers contributions, but if you are, this will be limited to around 2K a year as soon as you start to take benefits from any pension. Hopefully other people more knowledgeable than me can confirm

Mick

Re: 25% Lump Sum and more than one SIPP

Posted: October 19th, 2020, 4:44 pm
by Snorvey
Take £1 of 'income' (i.e. not tax free cash) and you're contributions are restricted to £4k pe annum.

Re: 25% Lump Sum and more than one SIPP

Posted: October 19th, 2020, 5:18 pm
by ReallyVeryFoolish
MickR wrote:I'm pretty sure there is a rule though that states that as soon as you start to take any part of any pension, you are limited to what you can continue to pay into a pension. Not sure if you are still earning, and accepting employers contributions, but if you are, this will be limited to around 2K a year as soon as you start to take benefits from any pension. Hopefully other people more knowledgeable than me can confirm

Mick

No problem drawing defined benefit pensions, that does not affect future contributions to defined contribution pensions at all. Draw even 1p above the 25 per cent tax free sum from any defined contribution pension and all future defined benefit contributions are then subject to MPAA, money purchase annual allowance. I think presently £4000. Be careful.

RVF

Re: 25% Lump Sum and more than one SIPP

Posted: October 20th, 2020, 6:21 pm
by AWOL
ReallyVeryFoolish wrote:
MickR wrote:I'm pretty sure there is a rule though that states that as soon as you start to take any part of any pension, you are limited to what you can continue to pay into a pension. Not sure if you are still earning, and accepting employers contributions, but if you are, this will be limited to around 2K a year as soon as you start to take benefits from any pension. Hopefully other people more knowledgeable than me can confirm

Mick

No problem drawing defined benefit pensions, that does not affect future contributions to defined contribution pensions at all. Draw even 1p above the 25 per cent tax free sum from any defined contribution pension and all future defined benefit contributions are then subject to MPAA, money purchase annual allowance. I think presently £4000. Be careful.

RVF


This is news to me. Are you saying that if one took a DB income and a tax free lump sum consuming the AVCs you still have the £40k rather than £4k limit for contributions? Assuming $40k of income :)

Re: 25% Lump Sum and more than one SIPP

Posted: October 21st, 2020, 12:07 pm
by ursaminortaur
AWOL wrote:
ReallyVeryFoolish wrote:
MickR wrote:I'm pretty sure there is a rule though that states that as soon as you start to take any part of any pension, you are limited to what you can continue to pay into a pension. Not sure if you are still earning, and accepting employers contributions, but if you are, this will be limited to around 2K a year as soon as you start to take benefits from any pension. Hopefully other people more knowledgeable than me can confirm

Mick

No problem drawing defined benefit pensions, that does not affect future contributions to defined contribution pensions at all. Draw even 1p above the 25 per cent tax free sum from any defined contribution pension and all future defined benefit contributions are then subject to MPAA, money purchase annual allowance. I think presently £4000. Be careful.

RVF


This is news to me. Are you saying that if one took a DB income and a tax free lump sum consuming the AVCs you still have the £40k rather than £4k limit for contributions? Assuming $40k of income :)


Yes, as I understand it that is correct. The AVC is a money purchase pension associated with the DB but so long as you only take the (combined DB + AVC) PCLS from it rather than it providing taxable benefits you should avoid the MPAA.