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The mechanics of moving parts of a SIPP to drawdown

bucklb
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The mechanics of moving parts of a SIPP to drawdown

#441909

Postby bucklb » September 13th, 2021, 3:24 pm

Hi. I can't find any info on the actual mechanics of moving some/all of a SIPP in to drawdown and wondered if you might be able to help please.

AIUI there's an "uncrystalised" pot and I move stuff from there in to a "drawdown" pot. As part of that movement of "stuff" 25% can be taken as tax free cash. I'm ignoring UFPLS at the minute.

My basic question is - is it only cash that can be put in to drawdown? Must I sell investments to generate the cash that I can then drawdown?

I'm assuming that what's in the drawdown pot can then be managed pretty much like the rest of the SIPP (though the only way of adding money to the drawdown pot is via a further drawdown). If that's the case then presumably I can use the cash that is not tax free to repurchase some of the sold funds in the dradown pot? Do platforms show the funds/cash as distinct portfolios?

If I want to move the entire SIPP in to drawdown is it still the same mechanic (i.e funds need to be sold to generate cash and that cash, after drawdwon, can be used to buy funds?



I'm planning to gradually release & use any tax free cash to top up my S&S ISA's rather than sticking it in a deposit account. That way if I need to draw a large amount at some point I can do so without worrying about tax implications (as I can just empty an ISA)

Hope that makes some kind of sense

Cheers
Bob

seagles
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Re: The mechanics of moving parts of a SIPP to drawdown

#441911

Postby seagles » September 13th, 2021, 3:37 pm

I can only answer for HL (Hargreaves). You can drawdown Investments and you need to have the CASH in your SIPP to pay the 25%. See Applying for drawdown

scrumpyjack
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Re: The mechanics of moving parts of a SIPP to drawdown

#441913

Postby scrumpyjack » September 13th, 2021, 3:39 pm

bucklb wrote:Hi. I can't find any info on the actual mechanics of moving some/all of a SIPP in to drawdown and wondered if you might be able to help please.

AIUI there's an "uncrystalised" pot and I move stuff from there in to a "drawdown" pot. As part of that movement of "stuff" 25% can be taken as tax free cash. I'm ignoring UFPLS at the minute.

My basic question is - is it only cash that can be put in to drawdown? Must I sell investments to generate the cash that I can then drawdown?

I'm assuming that what's in the drawdown pot can then be managed pretty much like the rest of the SIPP (though the only way of adding money to the drawdown pot is via a further drawdown). If that's the case then presumably I can use the cash that is not tax free to repurchase some of the sold funds in the dradown pot? Do platforms show the funds/cash as distinct portfolios?

If I want to move the entire SIPP in to drawdown is it still the same mechanic (i.e funds need to be sold to generate cash and that cash, after drawdwon, can be used to buy funds?



I'm planning to gradually release & use any tax free cash to top up my S&S ISA's rather than sticking it in a deposit account. That way if I need to draw a large amount at some point I can do so without worrying about tax implications (as I can just empty an ISA)

Hope that makes some kind of sense

Cheers
Bob


I had an uncrystallised pot with HL and simply moved it all to drawdown. It was not necessary to sell any holdings other than enough to ensure the cash was there to pay the 25% tax free cash,

swill453
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Re: The mechanics of moving parts of a SIPP to drawdown

#441921

Postby swill453 » September 13th, 2021, 3:55 pm

You don't need to have all cash to crystallise it. If you're crystallising the whole lot, the SIPP (shares + funds + cash + anything else) is valued at a specific point (presumably some time when the markets are closed). This valuation is used to calculate how much tax free cash is applicable (i.e. 25% of the valuation).

You then only need to have enough cash in the SIPP to pay the tax free bit.

Scott.

ursaminortaur
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Re: The mechanics of moving parts of a SIPP to drawdown

#441927

Postby ursaminortaur » September 13th, 2021, 4:18 pm

bucklb wrote:Hi. I can't find any info on the actual mechanics of moving some/all of a SIPP in to drawdown and wondered if you might be able to help please.

AIUI there's an "uncrystalised" pot and I move stuff from there in to a "drawdown" pot. As part of that movement of "stuff" 25% can be taken as tax free cash. I'm ignoring UFPLS at the minute.

My basic question is - is it only cash that can be put in to drawdown? Must I sell investments to generate the cash that I can then drawdown?

I'm assuming that what's in the drawdown pot can then be managed pretty much like the rest of the SIPP (though the only way of adding money to the drawdown pot is via a further drawdown). If that's the case then presumably I can use the cash that is not tax free to repurchase some of the sold funds in the dradown pot? Do platforms show the funds/cash as distinct portfolios?

If I want to move the entire SIPP in to drawdown is it still the same mechanic (i.e funds need to be sold to generate cash and that cash, after drawdwon, can be used to buy funds?



I'm planning to gradually release & use any tax free cash to top up my S&S ISA's rather than sticking it in a deposit account. That way if I need to draw a large amount at some point I can do so without worrying about tax implications (as I can just empty an ISA)

Hope that makes some kind of sense

Cheers
Bob


The process is called crystallisation. At that point you can take upto 25% of the value of the crystallised pot as a tax free lump sum otherwise you lose the opportunity. Since that tax free lump sum needs to be paid out you need to have sold enough to release that cash sum. However you don't need to sell the rest of your holdings until/unless you want to drawdown more from your crystallised pot which will then be taxed at your marginal rate. Note though that drawing down anything other than the tax free lump sum will trigger the MPAA which will limit future contributions to DC pensions to £4000 per year and prevent any future use of carry-forward.

You need to check with your provider as to whether they will allow you to crystallise just part of the complete pension pot - not all do. If they do then how they handle the separate parts can vary between providers. With some they will actually split things so that it shows as two pots - one crystallised and the other uncrystallised (which may even lead to extra charges). Others such as A J Bell's Youinvest will present it to you as one seamless pot and will handle things behind the scenes.

bucklb
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Re: The mechanics of moving parts of a SIPP to drawdown

#441930

Postby bucklb » September 13th, 2021, 4:27 pm

Thanks for the replies thus far.

It's a relief to hear that I needn't be selling (and repurchasing) everything with the hassle and risks that involves. All sounds rather more civilised than I'd feared.


On a different note, I'm toying with transferring the SIPP to interactive investor (from youInvest), not least as the fees for using funds at youInvest are draconian. I have no particular plans to buy any funds as I prefer ITs, but it would be good to feel I could. Is a transfer likely to be a mistake?

ursaminortaur
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Re: The mechanics of moving parts of a SIPP to drawdown

#441959

Postby ursaminortaur » September 13th, 2021, 6:16 pm

bucklb wrote:Thanks for the replies thus far.

It's a relief to hear that I needn't be selling (and repurchasing) everything with the hassle and risks that involves. All sounds rather more civilised than I'd feared.


On a different note, I'm toying with transferring the SIPP to interactive investor (from youInvest), not least as the fees for using funds at youInvest are draconian. I have no particular plans to buy any funds as I prefer ITs, but it would be good to feel I could. Is a transfer likely to be a mistake?


As an alternative to transferring have you looked at replacing the funds you currently invest in with ETFs and ITs ?
Youinvest cap charges on them to £10 per month which happens to be the same as the extra ii SIPP management charge.

https://www.youinvest.co.uk/sipp/charges-and-rates

Annual shares custody charge (including investment trusts, ETFs, gilts and bonds)
0.25% of the value of the shares in your account Maximum £10 per month


https://www.ii.co.uk/ii-accounts/sipp/sipp-charges

With our SIPP you’ll pay a low, flat fee. Most providers charge percentage fees that grow with your pension value.

Your £9.99 service plan fee gives you access to the widest range of investments on the market.
The SIPP fee is just £10 a month extra*, bringing the total cost to £19.99 per month.

bucklb
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Re: The mechanics of moving parts of a SIPP to drawdown

#441962

Postby bucklb » September 13th, 2021, 6:48 pm

Thanks for the update on ii/youInvest.

The only funds I have in an iWeb ISA (for historic reasons). I'm not really interested in buying funds, beyond maybe the Vanguard life strategy ones I feel I ought to be paying more attention to as I approach 60. It irks me that youInvest would make it too expensive to countenance.

I ended up getting transferred to ii from EQi earlier this year and the service seems better (the interface is massively better). They are offering a cashback deal and no fees til Jun 2022 for transfers. SIPP fee is £10 (same as I get at youInvest by avoiding funds) and I get free regular investments and a free trade per month.

In the scheme of things charges are peanuts. I'm really wanting to hear if anyone's got good reasons for not transferring.

I seem to remember that ii would let me buy a "sophisticated" product (just a Private Equity IT I think) by taking a "test", but youInvest just wouldn't offer the option - so that's another tick in the ii box


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