The Lemon Fool

Dear Fools,

I am not sure if this is right board on which to post this, and apologise if it isn't. Perhaps somebody can redirect me if that is the case.

I turn the grand old age of 55 in a few months and have a SIPP with Hargreaves Lansdown. My wish is to grab the 25% tax-free withdrawal as soon as possible after that - not because I particularly need the money but because I worry that some current or future Chancellor of the Exchequer may withdraw that opportunity.

Does anybody reading this have any experience of withdrawing the 25% from a Hargreaves Lansdown SIPP that they would be kind enough to share? What are the mechanics of it? Does HL make it easy or are they obstructive? Do they demand paying them hundreds of pounds for 'financial advice' before agreeing to the withdrawal? How long does it take?

With thanks and regards,

Gostevie

I did this 4 years ago with HL for the same reasons as you. From memory it was fairly easy, various forms to fill in and sign, and they did not charge me beyond a GAD maximum income calculation fee (£75 I think). NB. I have since moved from capped drawdown to flexible drawdown so I don't think the GAD calculation is relevant any more.

I did the same last year for the same reasons. HL were helpful and I don't think there was any charge for the service.

I'm pretty sure that you won't have any problems with them.

Good luck.

We phoned up HL recently regarding this very item and they were nothing but helpful and informative. Not a lot of point paying the extra to HL then not taking advantage of their superior customer services...
I could add we were told that in particular, it wouldn’t affect rules regarding limits on further contributions.

Did this nearly 3 years ago, with HL, and for much the same reason.

No problems, no fuss. Money now recycled into ISAs

tuk020

TUK020, uspaul666, argoal, langley59,

Many thanks for your helpful replies. I am suitably reassured.

Foolish regards,

Steve

I've done exactly this for my and Mrs MP's SIPPs within the last 12 months. HL were very helpful. The day I sent in the completed form - along with a photocopy of my passport to prove my age - I sold enough assets in the account to generate the cash to cover the 25% value. They paid out the cash to my bank, then moved the remaining assets *** (with a bit of leftover cash) to a new SIPP drawdown account. Make sure that you make NO WITHDRAWALS from the drawdown account if you wish to continue to contribute to a SIPP or other pensions, or you are very restricted to further tax relief on new contributions.

*** They helpfully advised that I left a little (£100) in the original pre-drawdown SIPP account so that Icould continue to make contributions to it.

Hope this helps.

MP

Did this last year. As others have said HL make it all very straightforward. Filled in a form, sent a passport photocopy and my fixed protection certificate and HL did the rest. Best to fill the forms in first and then agree a precise crystallisation date by phone. After that you just have to raise the 25% cash in your SIPP, which must be cleared prior to payment to your bank.

Been contemplating this for a while. My purpose in taking the lump sum would be specifically to buy a house, since the insecurity of the "gig economy" rules me out for a mortgage.

Unlike most of you, I'm reluctant to take the money before I have to, because I see a risk of putting myself the wrong side of a future rule change. The concern is, if I should have a financially "good" year - one where my income takes me to higher rate tax - I want to be able to shelter that extra in the pension. If I take the lump sum, that might limit my right to do so if the rules change again.

UncleEbenezer wrote: If I take the lump sum, that might limit my right to do so if the rules change again.

You may well have little choice. Being able to put money in, get tax relief, take money out without it being taxed, put money in, get tax relief is such an obvious round trip at the expense of other taxpayers that there would be little opposition to it being curtailed, even if it does present problems to those undertaking second careers.

Perhaps there are enough people in your position to make a difference. Taking the lump sum whilst continuing to work could be an advantage to anyone with a mortgage wishing or needing to pay it off. Someone with an interest only mortgage perhaps.

I took my 25% PCLS to mitigate the cost of exceeding the LTA, not because I was concerned about the tax free benefit being withdrawn. I would rate the risk of that happening without warning as very low. Pension rule changes have always been announced in advance of implementation and I would be very surprised if a major change such as abolishing the tax free nature of the PCLS or changing the eligibility criteria would happen without warning.

If there is no financial reasons to withdraw the PCLS I think it is better not to. There are disadvantages to taking it, such as an immediate increase in the value of one's estate and taxes on gains made on investing the PCLS.

UncleEbenezer wrote:Been contemplating this for a while. My purpose in taking the lump sum would be specifically to buy a house, since the insecurity of the "gig economy" rules me out for a mortgage.

Unlike most of you, I'm reluctant to take the money before I have to, because I see a risk of putting myself the wrong side of a future rule change. The concern is, if I should have a financially "good" year - one where my income takes me to higher rate tax - I want to be able to shelter that extra in the pension. If I take the lump sum, that might limit my right to do so if the rules change again.

The are rules against recycling:

https://adviser.royallondon.com/technic ... free-cash/

Gostevie wrote:Dear Fools,

I am not sure if this is right board on which to post this, and apologise if it isn't. Perhaps somebody can redirect me if that is the case.

I turn the grand old age of 55 in a few months and have a SIPP with Hargreaves Lansdown. My wish is to grab the 25% tax-free withdrawal as soon as possible after that - not because I particularly need the money but because I worry that some current or future Chancellor of the Exchequer may withdraw that opportunity.

Does anybody reading this have any experience of withdrawing the 25% from a Hargreaves Lansdown SIPP that they would be kind enough to share? What are the mechanics of it? Does HL make it easy or are they obstructive? Do they demand paying them hundreds of pounds for 'financial advice' before agreeing to the withdrawal? How long does it take?

With thanks and regards,

Gostevie

I did this with HL last year. There were a few simple forms, I don't recall any charges. Very straightforward, and it took about a week from instruction to payout. HL staff were very helpful and obliging as usual. Certainly no pressure to use an adviser.

Another good experience with HL. I took the 25% on most of my SIPP last autumn, and it was a simple matter of filling in a form. I had only recently transferred my pension funds into the SIPP, and I would have to say that the HL telephone staff were superb throughout the whole process. Including sorting out another pension provider's cock-up, for which they had no responsibility! (Other pension provider had attached a complete stranger's NI number to a policy I'd opened thirty years ago. )

So a positive experience all round.

BJ

hiriskpaul wrote:Pension rule changes have always been announced in advance of implementation

True, but I can think of at least two where implementation was at midnight on the day of the announcement!

gadgetmind wrote:True, but I can think of at least two where implementation was at midnight on the day of the announcement!

I can also think of some where the announcement was ahead of implementation, but where the effects were retroactive and, for some people, could not be mitigated by any course of action that did not require a functioning time-machine!

Just to bring this to a conclusion, today I received the 25% tax-free lump sum as requested, shortly after my 55th birthday.

As others have suggested, the process was easy and the customer service from HL was excellent.

Can hardly believe I am now officially a pensioner - it barely seems like yesterday I was using a Young Person's railcard!

Gostevie

HL aren’t able to give financial advice so can’t charge. I’m surprised they didn’t direct you to an advisor, or at least even suggest it might be an idea to speak to someone. That’s pretty outrageous.

1. You’re voluntarily reducing the growth potential of your crystallised drawdown pot by making a massive withdrawal.

2. You don’t need the cash. Even if you did need some cash a partial crystallisation may have an option.

3. Legislation isn’t going to change overnight, so why panic.

4. Putting the cash into ISAs removes it from an IHT efficient wrapper and puts it back into your estate.

5. Recycling rules and potentially MPAA may come into play when you take income, limitimg any future contributions you wish to make.

@Dondraper
Not sure financial advice is necessary to decide to take or not take the 25% tax free sum, there are many variables, experience of the individual, the proportion of the pension to other assets. For some advice would be a good thing but good advice is not so easy to find.

I took my 25% tax free sum around 4 years ago and did not seek 'advice' and it has all worked out just fine.

In general putting money into ISA's does allow one to build up a source of tax free income, eg the pension income in my SIPP in drawdown will be subject to income tax (beyond a small amount that will take me past the personal allowance), it is much more tax efficient to pay no income tax whatsoever.

Allowing for the state pension when it is due, the headroom to draw my existing pot, within the personal allowance, will require me to live a very long time, whilst I will try hard to achieve this ! There are alternate routes to providing an income, other than pensions, that minimise tax.

Whilst I am happy to minimise tax on the here and now, I cannot be too bothered about IHT, I have benefited hugely from living in the UK and I would much rather make my contribution to the chancellor when myself and Mrs HS are deceased.

I have always found "financial advice" rather uninspired and lacking imagination, I know four advisors on a personal level, they are nice people socially, talk a good talk but hopeless with money. To be fair, the other side of the coin was that to transfer the small final salary pension, I had to take advice and after I had eliminated 6 or 7, I found a local chap who was good, produced a transfer analysis that was very close to my own figures.

What was disappointing, when I was seeking an advisor for the pension transfer, that I was told by two that they would never advise a transfer whatever the figures or the experience of the recipient and two who would definitely provide a report saying yes it was a good idea, nudge , nudge , wink , wink for 3% plus vat...what made this distasteful was that my previous public sector employment was in a sector where most of the pensioners would be unsophisticated and be tempted by the money regardless of the reasons.

So four years on and minus the 25% PCLS, the pension fund transferred was reduced from £98k to £73.5k and is back to around £115k , the money released was very helpful at the time, assisted with the purchase of a property, which I let and was subsequently occupied by a family member and I even moved in for awhile whilst between properties, I was able to get development permission and made a few bob...

Dondraper wrote:HL aren’t able to give financial advice so can’t charge. I’m surprised they didn’t direct you to an advisor, or at least even suggest it might be an idea to speak to someone. That’s pretty outrageous.

1. You’re voluntarily reducing the growth potential of your crystallised drawdown pot by making a massive withdrawal.

2. You don’t need the cash. Even if you did need some cash a partial crystallisation may have an option.

3. Legislation isn’t going to change overnight, so why panic.

4. Putting the cash into ISAs removes it from an IHT efficient wrapper and puts it back into your estate.

5. Recycling rules and potentially MPAA may come into play when you take income, limitimg any future contributions you wish to make.

Crystallising the pension pot by just taking the 25% tax free lump sum does not stop you continuing to contribute the full annual allowance to pensions.
The MPAA limit on future contributions only comes into play if you take taxable income from the pension pot.

https://www.aegon.co.uk/support/faq/pension-technical/MPAA.html

The MPAA will not apply in the following circumstances:

Taking income from an existing capped drawdown arrangement which is within the GAD limit.

Taking a pension commencement lump sum, and
buying a lifetime annuity (i.e. not accessing new flexible annuity options), or
moving to a flexi-access drawdown arrangement and taking NO income.

Taking a small pots lump sum.

Taking income from a beneficiary’s flexi-access drawdown.