The Lemon Fool

My SIPP has now reached my LTA, I am holding 25% of the sum in cash within my SIPP, consequently I don’t have to sell any more stock to realise my PCLS.
I’ve completed the appropriate form but if I now mail it to my provider Hargreaves Lansdown, by the time it reaches them and gets processed the market is likely to have moved.
Across those few days, If my SIPP drops below my LTA, I don’t receive my full PCLS and if it rises above the LTA I get hit with the penalty charge. Any market move has the potential to be extreme.
Is there anyway of locking my SIPP value at my LTA, or at least very close. (Short of selling all stocks and repurchasing, which is going to be very expensive).
Appreciate any views or experience on this.
MAD

Answer to my own question!
Insert covering letter with completed form instructing provider to hold execution until further telephone instruction received.
Hargreaves Lansdown Pensions Helpdesk supremely informed, as always.

Minesadouble wrote:Across those few days, If my SIPP drops below my LTA, I don’t receive my full PCLS and if it rises above the LTA I get hit with the penalty charge. Any market move has the potential to be extreme.

Regardless of LTA, isn't it always the case that the maximum PCLS of 25% is dependent on the market values of the day you are deemed to have taken it?

But if no sale of shares is needed, would you be allowed to back date the benefit crystallisation?

Alaric wrote:

Minesadouble wrote:Across those few days, If my SIPP drops below my LTA, I don’t receive my full PCLS and if it rises above the LTA I get hit with the penalty charge. Any market move has the potential to be extreme.

Regardless of LTA, isn't it always the case that the maximum PCLS of 25% is dependent on the market values of the day you are deemed to have taken it?

Yes the maximum PCLS is 25% regardless, my point is that 25% of a smaller number is a lower Cash sum than you could achieve.

Minesadouble wrote:
Yes the maximum PCLS is 25% regardless, my point is that 25% of a smaller number is a lower Cash sum than you could achieve.

If you aren't allowed to backdate, then sending in the form and market timing by giving the final instruction seems the way to go.

Alaric wrote:

Minesadouble wrote:
Yes the maximum PCLS is 25% regardless, my point is that 25% of a smaller number is a lower Cash sum than you could achieve.

If you aren't allowed to backdate, then sending in the form and market timing by giving the final instruction seems the way to go.

I agree Alaric, that appears to be the only realistic option (short of selling everything and repurchasing).
I’m off to post the forms now, having written a covering letter confirming that I will give final instructions by telephone.
Of course I understand that there may well be a violent correction after my call and before execution, but at least this way I’m managing and reducing the risk.

Minesadouble wrote:Is there anyway of locking my SIPP value at my LTA, or at least very close. (Short of selling all stocks and repurchasing, which is going to be very expensive).
Appreciate any views or experience on this.
MAD

<devils advocate>
It's a nice problem to have, but a "first world one" - not many retirees are at their LTA I would imagine...
</devils advocate>

You could try some sort of option trade/spread bet as a hedge against one of the major indices FTSE or S&P moving extremely during that time period, although you'd have to do that outside of your SIPP wrapper and be willing to spend premium on it.

moorfield wrote:

Minesadouble wrote:Is there anyway of locking my SIPP value at my LTA, or at least very close. (Short of selling all stocks and repurchasing, which is going to be very expensive).
Appreciate any views or experience on this.
MAD

<devils advocate>
It's a nice problem to have, but a "first world one" - not many retirees are at their LTA I would imagine...
</devils advocate>

You could try some sort of option trade/spread bet as a hedge against one of the major indices FTSE or S&P moving extremely during that time period, although you'd have to do that outside of your SIPP wrapper and be willing to spend premium on it.

HargL give you the ability to crystalize part of your SIPP (i.e. put it into drawdown).
I did this to free up a chunk of cash via the tax free lump sum, but you don't have to do this.
I think you can effectively do this by an online instruction.
The main complication is that this severely limits what you can still contribute to a pension - but if you are worried about LTA, this is unlikely to be a problem. You don't have to sell the stocks within the SIPP to do this

A J Bell were similarly helpful. I filled in the forms but kept them at home until I was ready to action things when I phoned them and told them that I wanted to use the current valuation and I’d send the scanned (completed) forms by e-mail which they accepted. (I think they wanted the originals as a follow-up hard copy letter). All easy and smoothly done. Having taken the 25% PCLS I’m watching the SIPP continue to grow knowing that the growth will all be taxable when and if I take it - but as someone indicated above, it’s a nice problem to have

Best wishes,

Steve

Steveam wrote:A J Bell were similarly helpful. I filled in the forms but kept them at home until I was ready to action things when I phoned them and told them that I wanted to use the current valuation and I’d send the scanned (completed) forms by e-mail which they accepted. (I think they wanted the originals as a follow-up hard copy letter). All easy and smoothly done. Having taken the 25% PCLS I’m watching the SIPP continue to grow knowing that the growth will all be taxable when and if I take it - but as someone indicated above, it’s a nice problem to have

Best wishes,

Steve

Steve,

I’ve done the same and HL now have the appropriate completed forms.
Oddly enough over the last couple of days, my SIPP value has surged past my LTA!
How close did you manage to get to the LTA?
I’m now at 100.55%

MAD

Minesadouble wrote:

Steveam wrote:A J Bell were similarly helpful. I filled in the forms but kept them at home until I was ready to action things when I phoned them and told them that I wanted to use the current valuation and I’d send the scanned (completed) forms by e-mail which they accepted. (I think they wanted the originals as a follow-up hard copy letter). All easy and smoothly done. Having taken the 25% PCLS I’m watching the SIPP continue to grow knowing that the growth will all be taxable when and if I take it - but as someone indicated above, it’s a nice problem to have

Best wishes,

Steve

Steve,

I’ve done the same and HL now have the appropriate completed forms.
Oddly enough over the last couple of days, my SIPP value has surged past my LTA!
How close did you manage to get to the LTA?
I’m now at 100.55%

MAD

I was doing the same just before the Brexit vote and found the SIPP shot through the LTA when the pound devalued overnight. Took the 'free money' and paid the tax, albeit in devalued pounds.

After a few bumps in the road, all was executed satisfactorily.
Although I had, at times, been over the LTA by £15K, at execution I was only £500 in excess, so will face a fairly trivial tax penalty charge.
All PCLS now reinvested in the market. SIPP Income Drawdown Account set up.
I’ve set up a first withdrawal of £100 to generate a tax code.
A day that I had thought about for a good few months turned into something of an anticlimax in the end.
Thanks to anyone who commented.

MAD

I'm sure people know, but because the charge on > LTA for lump sums is 55% versus 25% for drawdown, there is never any point in taking more than LTA*0.25 as PCLS.

I'm sadly at LTA x 1.1 so will see a big charge when I can crystalised at age 55 next April, and have also exceeded AA this year due to unexpectedly hitting full taper. I guess quality problems but see £20k disappearing from your pension isn't nice.

gadgetmind wrote:I'm sure people know, but because the charge on > LTA for lump sums is 55% versus 25% for drawdown, there is never any point in taking more than LTA*0.25 as PCLS.

I'm sadly at LTA x 1.1 so will see a big charge when I can crystalised at age 55 next April, and have also exceeded AA this year due to unexpectedly hitting full taper. I guess quality problems but see £20k disappearing from your pension isn't nice.

Surely if you are a 40% taxpayer in retirement, the 55% on lumps and 25% followed by 40% of the remaining 75% are the same,
i.e. 25% +(0.4 x 75%) = 55%.

gadgetmind wrote:I'm sadly at LTA x 1.1 so will see a big charge when I can crystalised at age 55 next April, and have also exceeded AA this year due to unexpectedly hitting full taper. I guess quality problems but see £20k disappearing from your pension isn't nice.

Do you absolutely have to crystallise the full £1.1mm next April?

If not, in your shoes I would probably crystallise only up to the LTA, so £1.03mm after April 2018, and leave the rest uncrystallised. That way you delay the payment of any LTA penalty tax for as long as possible, perhaps forever, and yet you are immune to any further reductions in LTA. And who knows, maybe a future government will scrap it in an uncharacteristic fit of commonsense. For further mitigation, rebalance so that your lowest risk and slowest growing assets live in the uncrystallised pension element. Gilts, bonds or cash, say.

This thought occurred to me a little late, but it would be worth keeping a portion of equities uncrystalised - perhaps 0.2 of LTA? - and when the inevitable market crash happens, then using it as a opportunity to swoop under the bar.

DrBunsenHoneydew wrote:Surely if you are a 40% taxpayer in retirement, the 55% on lumps and 25% followed by 40% of the remaining 75% are the same,
i.e. 25% +(0.4 x 75%) = 55%.

I am planning to draw down my pension so that I avoid being a 40% tax payer. For the 12 years before state pension, I'll be withdrawing 5.8%pa, more if I don't fully crystalise, which will "do it some damage" assuming we don't see another decade long bull market.

TUK020 wrote:This thought occurred to me a little late, but it would be worth keeping a portion of equities uncrystalised - perhaps 0.2 of LTA? - and when the inevitable market crash happens, then using it as a opportunity to swoop under the bar.

I am considering it. But who knows, sterling could put on 5% and equities drop 5% (real terms) putting me back under LTA by next April?