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Miniscule SIPP drawdown - disproportionate fees?

Including Financial Independence and Retiring Early (FIRE)
HughUK
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Miniscule SIPP drawdown - disproportionate fees?

#449372

Postby HughUK » October 11th, 2021, 7:15 pm

Hello. Can anyone help? In post-work liberation (6 months away) I plan to avoid higher tax rates by a whisker. An occupational pension, a further pension and the SRP leaves me with only c£1500pa to take from a SIPP. The fees for draw down seem high, given this small sum. Has anyone else faced a similar situation, or have advice? (As is clear, I am new to this). Thanks for any help.

swill453
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Re: Miniscule SIPP drawdown - disproportionate fees?

#449379

Postby swill453 » October 11th, 2021, 7:44 pm

It'll depend on your SIPP provider. AJ Bell, for example, don't charge anything for drawdown. Though their standard monthly fees for holding the SIPP may not be the lowest.

Scott.

Lootman
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Re: Miniscule SIPP drawdown - disproportionate fees?

#449384

Postby Lootman » October 11th, 2021, 7:59 pm

HughUK wrote:Hello. Can anyone help? In post-work liberation (6 months away) I plan to avoid higher tax rates by a whisker. An occupational pension, a further pension and the SRP leaves me with only c £1500pa to take from a SIPP. The fees for draw down seem high, given this small sum. Has anyone else faced a similar situation, or have advice? (As is clear, I am new to this). Thanks for any help.

For this tax year you can earn £50,270 before hitting higher rate (40%) tax. Throw in capital gains (£12,300), interest (£5,000) and dividends (£2,000), and it is possible to earn up to £69,570 a year without paying higher rate tax, with more in an ISA of course. That is actually a decent deal if the government doesn't mess with it.

So first, make sure you are that close to 40% tax. Secondly, most pensions can be deferred. I am currently deferring all three of my pension drawdowns because I don't want an extra £45,000 a year in income whilst I already have other unavoidable income that will push me into higher tax territory.

All that said, if I really could not avoid 40% tax then I might regard a hefty drawdown fee as just another kind of tax and, if a flat rate, draw down more anyway and stick it all in an ISA.

Dod101
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Re: Miniscule SIPP drawdown - disproportionate fees?

#449410

Postby Dod101 » October 11th, 2021, 9:39 pm

£1500 in drawdown from a SIPP is surely not worth the candle. Reduce your expenses by this figure and you are saving £125 per month. Anyone can do that.

Dod

Fluke
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Re: Miniscule SIPP drawdown - disproportionate fees?

#449499

Postby Fluke » October 12th, 2021, 11:49 am

I've just made a one-off single payment withdrawal for the year (as opposed to setting up a monthly thing) from my AJ Bell SIPP with no charge over and above the custody fee. You might want to check again with your provider.

An additional hoop is tax withholding, as this was the first time I'd done this they withheld tax using some sort of emergency code as there was no prior relationship between me, them and HMRC, I can claim this back by filling out the P55 form online and thereafter I'll be on the right tax code for future withdrawals.

swill453
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Re: Miniscule SIPP drawdown - disproportionate fees?

#449506

Postby swill453 » October 12th, 2021, 12:21 pm

Fluke wrote:An additional hoop is tax withholding, as this was the first time I'd done this they withheld tax using some sort of emergency code as there was no prior relationship between me, them and HMRC, I can claim this back by filling out the P55 form online and thereafter I'll be on the right tax code for future withdrawals.

Having the correct tax code doesn't help, I'm afraid. If you make a single large withdrawal early in the year they'll always over-tax it, as the way payroll works it assumes you'll take that amount per month.

As you say though, you can easily claim it back.

Scott.

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Re: Miniscule SIPP drawdown - disproportionate fees?

#449538

Postby Fluke » October 12th, 2021, 2:35 pm

swill453 wrote:
Fluke wrote:An additional hoop is tax withholding, as this was the first time I'd done this they withheld tax using some sort of emergency code as there was no prior relationship between me, them and HMRC, I can claim this back by filling out the P55 form online and thereafter I'll be on the right tax code for future withdrawals.

Having the correct tax code doesn't help, I'm afraid. If you make a single large withdrawal early in the year they'll always over-tax it, as the way payroll works it assumes you'll take that amount per month.

As you say though, you can easily claim it back.

Scott.


But isn't the clue in the name? it's a 'one-off' withdrawal not a 'regular monthly' withdrawal. Or doesn't HMRC get that from the provider?

swill453
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Re: Miniscule SIPP drawdown - disproportionate fees?

#449564

Postby swill453 » October 12th, 2021, 4:21 pm

Fluke wrote:But isn't the clue in the name? it's a 'one-off' withdrawal not a 'regular monthly' withdrawal. Or doesn't HMRC get that from the provider?

As far as I know, no they don't pass that information to HMRC.

I drew down the £12,570 personal allowance in September and my tax code is the normal 1257L, which AJ Bell knew about. They still took off about £1300 in tax which I have reclaimed (but not yet received) using the online P55.

Scott.

scotia
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Re: Miniscule SIPP drawdown - disproportionate fees?

#449653

Postby scotia » October 12th, 2021, 8:43 pm

Lootman wrote:For this tax year you can earn £50,270 before hitting higher rate (40%) tax.

In Scotland its £43,663 and 41%

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Re: Miniscule SIPP drawdown - disproportionate fees?

#449660

Postby Urbandreamer » October 12th, 2021, 9:17 pm

Can I point out that we don't know how HughUK took his small amount or even his provider.

A J Bell have changed how they charge, but they use to charge £100 for taking an odd payment rather than a regular payment.
They don't seem to any more.
They do charge £25 if you want a payment by CHAPS rather than BACS.
Charges are a minefield.

HughUK
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Re: Miniscule SIPP drawdown - disproportionate fees?

#450781

Postby HughUK » October 17th, 2021, 1:38 pm

May I just thank you all for your help and views. I appreciate it. BW Hugh

GeoffF100
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Re: Miniscule SIPP drawdown - disproportionate fees?

#454921

Postby GeoffF100 » November 1st, 2021, 7:00 pm

Lootman wrote:For this tax year you can earn £50,270 before hitting higher rate (40%) tax. Throw in capital gains (£12,300), interest (£5,000) and dividends (£2,000), and it is possible to earn up to £69,570 a year without paying higher rate tax, with more in an ISA of course.

My understanding is that the interest and dividend allowances do not increase the higher rate threshold:

https://www.gov.uk/government/publicati ... allowances

genou
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Re: Miniscule SIPP drawdown - disproportionate fees?

#454928

Postby genou » November 1st, 2021, 7:18 pm

GeoffF100 wrote:
Lootman wrote:For this tax year you can earn £50,270 before hitting higher rate (40%) tax. Throw in capital gains (£12,300), interest (£5,000) and dividends (£2,000), and it is possible to earn up to £69,570 a year without paying higher rate tax, with more in an ISA of course.

My understanding is that the interest and dividend allowances do not increase the higher rate threshold:

https://www.gov.uk/government/publicati ... allowances

It's worse than that - the Starting Rate for Savings ( the 5K above ) tapers away; long gone before you get to higher rate tax.

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Re: Miniscule SIPP drawdown - disproportionate fees?

#454931

Postby Lootman » November 1st, 2021, 7:23 pm

genou wrote:
GeoffF100 wrote:
Lootman wrote:For this tax year you can earn £50,270 before hitting higher rate (40%) tax. Throw in capital gains (£12,300), interest (£5,000) and dividends (£2,000), and it is possible to earn up to £69,570 a year without paying higher rate tax, with more in an ISA of course.

My understanding is that the interest and dividend allowances do not increase the higher rate threshold:

https://www.gov.uk/government/publicati ... allowances

It's worse than that - the Starting Rate for Savings ( the 5K above ) tapers away; long gone before you get to higher rate tax.

Fair point, although given that my bank is currently offering 0.05% on its savings account, the amount required to receive £5,000 a year in interest is £1,000,000!

GeoffF100
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Re: Miniscule SIPP drawdown - disproportionate fees?

#454943

Postby GeoffF100 » November 1st, 2021, 7:37 pm

Lootman wrote:Fair point, although given that my bank is currently offering 0.05% on its savings account, the amount required to receive £5,000 a year in interest is £1,000,000!

When I last looked the best rate was 2% for a five year bond guaranteed by the FSCS. I have got a five year ladder, with roughly six monthly rungs.

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Re: Miniscule SIPP drawdown - disproportionate fees?

#458729

Postby Charlottesquare » November 17th, 2021, 11:44 am

I would take a step back- your occupational pensions /state pensions are likely going to be there until you drop dead, so no sliver of available basic rate band looks likely within your life. Accordingly you likely either loot it whilst alive and take higher rate IT charge but at least get 25% tax free amount or you effectively leave it alone for family to inherit post your death.


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