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Partial Drawdown - understanding the details

HenryWalpole
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Partial Drawdown - understanding the details

#493808

Postby HenryWalpole » April 12th, 2022, 5:59 pm

I'm trying to understand exactly how partial drawdown works. It's probably best illustrated with an example.

For simplicity let's say I have a SIPP with a total value of £400k made up of £200k in cash and £200k in a single equity.
If I have an immediate need for £50k in cash I understand that I can crystallise £200k i.e. 50% of my pension and take the 25% PCLS of £50k leaving the other £200k uncrystallised.

What is not clear to me is how the crystallised/uncrystallised elements are apportioned. For example can I elect to crystallise the £200k cash portion only leaving the £200k in the equity uncrystallised. For illustration purposes If the equity continues to grow and I eventually sell the shares for £400k I would then be able to crystallise the other 50% and this time take £100k PCLS.

Or does the SIPP provider somehow apportion the crystallised and uncrystallised elements across all portfolio members equally, e.g. in the above example placing half the equity and half the cash in each of the crystallised and uncrystallised elements? I'm with HL if that makes a difference.

Thanks in advance for any replies.

ursaminortaur
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Re: Partial Drawdown - understanding the details

#493836

Postby ursaminortaur » April 12th, 2022, 8:33 pm

HenryWalpole wrote:I'm trying to understand exactly how partial drawdown works. It's probably best illustrated with an example.

For simplicity let's say I have a SIPP with a total value of £400k made up of £200k in cash and £200k in a single equity.
If I have an immediate need for £50k in cash I understand that I can crystallise £200k i.e. 50% of my pension and take the 25% PCLS of £50k leaving the other £200k uncrystallised.

What is not clear to me is how the crystallised/uncrystallised elements are apportioned. For example can I elect to crystallise the £200k cash portion only leaving the £200k in the equity uncrystallised. For illustration purposes If the equity continues to grow and I eventually sell the shares for £400k I would then be able to crystallise the other 50% and this time take £100k PCLS.

Or does the SIPP provider somehow apportion the crystallised and uncrystallised elements across all portfolio members equally, e.g. in the above example placing half the equity and half the cash in each of the crystallised and uncrystallised elements? I'm with HL if that makes a difference.

Thanks in advance for any replies.


It depends on the SIPP provider. Some do split the pension into two separate pots (one crystallised and one uncrystallised) and in the past I seem to recall that a few who did that then charged double management fees because you now had two pots. Others though like A J Bell just keep everything in one pot and deal with the split behind the scenes. I'm using A J Bell and have both crystallsed and uncrystallised parts of my pot but unless I go digging (there is an option on the website to allow you to see what proportion is uncrystallised) that fact would be totally invisible. Since I've never used a SIPP provider who does a hard split of the pot I can't unfortunately say how they determine what goes into which part.

swill453
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Re: Partial Drawdown - understanding the details

#493837

Postby swill453 » April 12th, 2022, 8:33 pm

I can tell you how it's handled in an AJ Bell Youinvest SIPP, but I seem to recall that this is not how HL do it.

Everything remains in one pot. In your example you have crystallised £200k out of £400k, taking £50k tax free cash. AJ Bell will record the fact that of the £350k remaining, 42.8571% is crystallised (currently £150k) and the remaining 57.1429% (currently £200k) is uncrystallised. (I don't actually know how many significant figures they use.)

From your point of view you treat the whole pot as a single unit, buying, selling and receiving dividends as you wish.

When you come to do any more crystallisation or drawdown, the saved percentages are simply applied to the current value to determine the un/crystallised amounts.

The percentages will be recalculated based on current values if you add any more money to the pot.

Scott.

martinc
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Re: Partial Drawdown - understanding the details

#493881

Postby martinc » April 12th, 2022, 11:46 pm

With HL you have a SIPP account and a drawdown account. The drawdown account is opened the first time you do a drawdown and has a separate set of charges.

Any PCLS/TFLS must be in cash and you nominate which shares or cash will be used for the drawdown. In your example where you cystallise £200,000 you might take £50,000 in cash and move £150,000 of your equity to the drawdown account. After the drawdown you will have:

Cash £50000
Drawdown £150000 (£150000 equity)
SIPP £200000 (£50000 equity, £150000 cash)

The transfer to the drawdown is in-specie, i.e. no transaction charges. There will always be small cash amount because you can't transfer fractional shares.

Both the SIPP and the drawdown continue to grow tax-free as before and you can trade in both accounts. Any cash withdrawn fron the drawdown is 100% taxable.

If you avoid unit trusts the charge for each account is £200pa, there is no charge for the drawdown.

HenryWalpole
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Re: Partial Drawdown - understanding the details

#494046

Postby HenryWalpole » April 13th, 2022, 4:41 pm

martinc wrote:With HL you have a SIPP account and a drawdown account. The drawdown account is opened the first time you do a drawdown and has a separate set of charges.

Any PCLS/TFLS must be in cash and you nominate which shares or cash will be used for the drawdown. In your example where you cystallise £200,000 you might take £50,000 in cash and move £150,000 of your equity to the drawdown account. After the drawdown you will have:

Cash £50000
Drawdown £150000 (£150000 equity)
SIPP £200000 (£50000 equity, £150000 cash)

The transfer to the drawdown is in-specie, i.e. no transaction charges. There will always be small cash amount because you can't transfer fractional shares.

Both the SIPP and the drawdown continue to grow tax-free as before and you can trade in both accounts. Any cash withdrawn fron the drawdown is 100% taxable.

If you avoid unit trusts the charge for each account is £200pa, there is no charge for the drawdown.


Thank you, that seems to suggest I could move the £200k cash into drawdown (as in the scenario I illustrated). This would allow the equity portion to remain uncrystallised and potentially grow to provide a larger tax free cash sum when it is eventually crystallised.

hiriskpaul
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Re: Partial Drawdown - understanding the details

#495774

Postby hiriskpaul » April 22nd, 2022, 11:48 am

HenryWalpole wrote:
martinc wrote:With HL you have a SIPP account and a drawdown account. The drawdown account is opened the first time you do a drawdown and has a separate set of charges.

Any PCLS/TFLS must be in cash and you nominate which shares or cash will be used for the drawdown. In your example where you cystallise £200,000 you might take £50,000 in cash and move £150,000 of your equity to the drawdown account. After the drawdown you will have:

Cash £50000
Drawdown £150000 (£150000 equity)
SIPP £200000 (£50000 equity, £150000 cash)

The transfer to the drawdown is in-specie, i.e. no transaction charges. There will always be small cash amount because you can't transfer fractional shares.

Both the SIPP and the drawdown continue to grow tax-free as before and you can trade in both accounts. Any cash withdrawn fron the drawdown is 100% taxable.

If you avoid unit trusts the charge for each account is £200pa, there is no charge for the drawdown.


Thank you, that seems to suggest I could move the £200k cash into drawdown (as in the scenario I illustrated). This would allow the equity portion to remain uncrystallised and potentially grow to provide a larger tax free cash sum when it is eventually crystallised.

Yes, you may get a larger PCLS by leaving some of the SIPP uncrystallised, but that does not necessarily mean you would be better off compared with full crystallisation. Aside from taxes, the reinvested PCLS will grow at the same rate outside the SIPP as inside it.


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