The Lemon Fool

Hi, thinking ahead to my eventual retirement.

What are the mechanics of crystalising part of a SIPP pension? Do you select which shares which you wish to transfer across to a crystalised pot? And can you select less than the full holding of a particular share? Also, I presume there are no trading costs associated with this?

I'm with AJ Bell if that helps anyone. I suppose I could play around and see what options I'm given, but I'm kind of nervous of actually triggering this action accidentally. DAK if you get a stern warning before clicking the final OK button?

Also, I'm trying to understand the benefits of a partial crystalisation. Is it that the growth of the non-crystalised portion can give you potentially greater tax free lump sums in the future? Because the sums are calculated at the instant of crystalisation?

And when you take the lump sum, is this a specific action you take, i.e. "withdraw £xxx pounds tax free" ?

Thanks.

MrFoolish wrote:Hi, thinking ahead to my eventual retirement.

What are the mechanics of crystalising part of a SIPP pension? Do you select which shares which you wish to transfer across to a crystalised pot? And can you select less than the full holding of a particular share? Also, I presume there are no trading costs associated with this?

I'm with AJ Bell if that helps anyone. I suppose I could play around and see what options I'm given, but I'm kind of nervous of actually triggering this action accidentally. DAK if you get a stern warning before clicking the final OK button?

Also, I'm trying to understand the benefits of a partial crystalisation. Is it that the growth of the non-crystalised portion can give you potentially greater tax free lump sums in the future? Because the sums are calculated at the instant of crystalisation?

And when you take the lump sum, is this a specific action you take, i.e. "withdraw £xxx pounds tax free" ?

It's up to you to sell shares to make enough cash available to withdraw as your tax-free lump sum.

Once the 25% has been withdrawn, the 75% remainder is notionally in a crystallised pot, but for practical, trading purposes it's not shown separately in your account.

The proportion that you've crystallised only becomes relevant again when you want to crystallise some more.

Scott.

Don't overlook accidentally triggering the MPAA which severely restricts any further contributions. That may or may not be important to the OP.

Monevator.com is financial blog with good articles on this subject
Worth a read
xxd09

swill453 wrote:Once the 25% has been withdrawn, the 75% remainder is notionally in a crystallised pot, but for practical, trading purposes it's not shown separately in your account.

The proportion that you've crystallised only becomes relevant again when you want to crystallise some more.

Scott.

So that 75% crystallised figure is displayed in your account? And all your subsequent taxable withdrawals must total up to be less than this figure? (Until you crystallise some more). Actually I'm confused because the crystallised pot will fluctuate in value. So how do you know how much you can withdraw if it's not itemised separately?

(Who came up with this system?!)

MrFoolish wrote:So that 75% crystallised figure is displayed in your account?

Not normally. It can be found when you select the "Manage My SIPP" option on the menu. For all other intents and purposes you only have a single pot which you can monitor and trade with.

And all your subsequent taxable withdrawals must total up to be less than this figure? (Until you crystallise some more). Actually I'm confused because the crystallised pot will fluctuate in value. So how do you know how much you can withdraw if it's not itemised separately?

It's not a fixed figure you've crystallised, it's a proportion. Percentage, if you like. That actual amount is recalculated every time you make a taxable withdrawal or crystallise some more.

(Who came up with this system?!)

It works very well in practice. I've been making partial crystallisations with AJBell since I turned 55 6 years ago.

Scott.

I'm now thinking the situation is this:

- crystallisation doesn't split the assets (shares)

- but it splits off an amount which can be taken tax free, and an amount which is available taxable

- the remaining amount can be accessed at a later crystallisation

MrFoolish wrote:Hi, thinking ahead to my eventual retirement.

What are the mechanics of crystalising part of a SIPP pension? Do you select which shares which you wish to transfer across to a crystalised pot? And can you select less than the full holding of a particular share? Also, I presume there are no trading costs associated with this?

I'm with AJ Bell if that helps anyone. I suppose I could play around and see what options I'm given, but I'm kind of nervous of actually triggering this action accidentally. DAK if you get a stern warning before clicking the final OK button?

Also, I'm trying to understand the benefits of a partial crystalisation. Is it that the growth of the non-crystalised portion can give you potentially greater tax free lump sums in the future? Because the sums are calculated at the instant of crystalisation?

And when you take the lump sum, is this a specific action you take, i.e. "withdraw £xxx pounds tax free" ?

Thanks.

I'm with Interactive Investor, and crystalised half of my pot, taking 25% of that as tax free cash. Before crystalisation I sold enough stock to cover the tax free amount.

At top level the SIPP account shows as one pot, but you can drill down to see uncrystalised / crystalised amounts. I believe you could have several crystalisation events, taking 25% tax free each time. As BullDog says MPAA is not triggered until you start drawdown from crystalised funds.

HTH, Neil

Thanks for walking me through this guys.

So I guess the key thing is to crystallise enough to get the tax free cash you want and/or the taxable income you want.

And you are not forced to withdraw what you don't need - the excess can stay invested tax free. So the proportion you crystallise is not a hyper critical decision.

Is this correct? Thanks.

MrFoolish wrote:Thanks for walking me through this guys.

So I guess the key thing is to crystallise enough to get the tax free cash you want and/or the taxable income you want.

And you are not forced to withdraw what you don't need - the excess can stay invested tax free. So the proportion you crystallise is not a hyper critical decision.

Is this correct? Thanks.

Say your pot is £100K, fully invested. You want £10K tax free cash in you hand so you liquidate £10K worth of shares. You crystallise £40K of your SIPP, and they pay you the £10K. The remaining £90K stays fully invested, but behind the scenes AJBell know that a third of it is crystallised (30K/90K). The actual values will fluctuate over time, but the 33.33% stays the same until you take further action. They also record how much of your LTA you have used up.

Scott.

Thanks, understood.

On a related point, is there anything to be gained from taking out larger than needed tax free lump sums early on in order to top up an ISA? I can only think it's advantageous if you think the government might scrap the tax free lump sum scheme.

MrFoolish wrote:On a related point, is there anything to be gained from taking out larger than needed tax free lump sums early on in order to top up an ISA? I can only think it's advantageous if you think the government might scrap the tax free lump sum scheme.

You might want to crystallise as much as you can as early as possible, for the reason you state and also to have a better chance of remaining under the LTA, if that's a consideration. If the pot is large you won't be able to put it all in ISAs straight away, so will need careful thought.

Scott.

I think it depends who has your pot. Hargreaves Lansdown will move the amount you have taken to drawdown into a separate pot (with its own fees!), whilst I think AJ Bell leave it all in the same pot as described above and keep a record of the percent in drawdown and the percent not in drawdown

One more thing! On approaching (early) retirement, is it a good idea to keep putting into a SIPP in order to grab the tax relief? Perhaps just hold these contributions as cash within the SIPP, knowing the dividends from the shares won't cover my expenses, and that I would have to progressively sell it down? (A DB pension will kick in later, and I have ISAs. Not massive amounts of money but I'm pretty frugal...)

Why not try Pension Wise. Free Independent advice.

They can talk you through the options available to you on crystallisation.

They won't recommend a course of action but provide the pro's and con's of the options available to you.

Crazbe7

MrFoolish wrote:One more thing! On approaching (early) retirement, is it a good idea to keep putting into a SIPP in order to grab the tax relief? Perhaps just hold these contributions as cash within the SIPP, knowing the dividends from the shares won't cover my expenses, and that I would have to progressively sell it down? (A DB pension will kick in later, and I have ISAs. Not massive amounts of money but I'm pretty frugal...)

It is probably worth making those contributions so long as you aren't getting close to the LTA limit - remembering that that is now going to be frozen until at least 2026 whilst your future DB pension will be rising in deferment and that each extra £1 of DB pension uses up £20 of the limit.

swill453 wrote:

MrFoolish wrote:Thanks for walking me through this guys.

So I guess the key thing is to crystallise enough to get the tax free cash you want and/or the taxable income you want.

And you are not forced to withdraw what you don't need - the excess can stay invested tax free. So the proportion you crystallise is not a hyper critical decision.

Is this correct? Thanks.

Say your pot is £100K, fully invested. You want £10K tax free cash in you hand so you liquidate £10K worth of shares. You crystallise £40K of your SIPP, and they pay you the £10K. The remaining £90K stays fully invested, but behind the scenes AJBell know that a third of it is crystallised (30K/90K). The actual values will fluctuate over time, but the 33.33% stays the same until you take further action. They also record how much of your LTA you have used up.

Scott.

thank you MrFoolish for asking the question i've been pondering also. and thank you scott for using actual numbers to explain it. always easier to understand things with an example and numbers like that.