Stupid question about SIPP drawdown

[Gilgongo]

I've got a SIPP (mainly as a HYP but with a couple of ITs) with ii, which will probably comprise about 50% of my assets on retirement. I'm 55 this year, and so I'm reading the link below - but I'm too thick to understand it:

https://www.ii.co.uk/ii-accounts/sipp/income-drawdown

What I WANT to do on retirement is just drip-feed dividends (which might be around £20K a year, the rest I'm going to take from my ISA) into a cash savings account. No tax-free lump sum, no automated selling from a "drawdown account" (if that's what they mean - I can't tell).

Is that possible?

It feels like they're saying I would have to sell up all my holdings in my SIPP, then buy them again in the drawdown account, which would then mean any cash from dividends could be withdrawn - is that right?

[Dod101]

I think that is perfectly possible although you will need to pay tax of course on the dividends withdrawn from the SIPP. The advice from II is for people who know nothing at all about SIPPs. In fact I allow my dividends in my SIPP to accumulate as cash and withdraw them in one go most years. I pay tax on the withdrawal at my marginal rate. The difference is though that I have long since taken my 25%tax free and you may be able to use that to withdraw the dividends tax free until that is used up.

Dod

[kempiejon]

I've got a SIPP (mainly as a HYP but with a couple of ITs) with ii, which will probably comprise about 50% of my assets on retirement. I'm 55 this year, and so I'm reading the link below - but I'm too thick to understand it:

https://www.ii.co.uk/ii-accounts/sipp/income-drawdown

What I WANT to do on retirement is just drip-feed dividends (which might be around £20K a year, the rest I'm going to take from my ISA) into a cash savings account. No tax-free lump sum, no automated selling from a "drawdown account" (if that's what they mean - I can't tell).

Is that possible?

It feels like they're saying I would have to sell up all my holdings in my SIPP, then buy them again in the drawdown account, which would then mean any cash from dividends could be withdrawn - is that right?

Perhaps this page from ii is more what you're looking for? https://www.ii.co.uk/ii-accounts/sipp/ufpls

[Alaric]

What I WANT to do on retirement is just drip-feed dividends (which might be around £20K a year, the rest I'm going to take from my ISA) into a cash savings account.

Unlike an ISA or taxable account, withdrawals from a SIPP have to go through PAYE. or at the very least have taxation deducted. Brokers thus have to have systems in place to enable them to compute and deduct tax, thus they prefer defined monthly amounts or once a year lump sums.

[BullDog]

I find it convenient to accrue the dividends and draw them out in March in one lump. Then there's no issue with tax codes for the year.

[Dod101]

What I WANT to do on retirement is just drip-feed dividends (which might be around £20K a year, the rest I'm going to take from my ISA) into a cash savings account.

Unlike an ISA or taxable account, withdrawals from a SIPP have to go through PAYE. or at the very least have taxation deducted. Brokers thus have to have systems in place to enable them to compute and deduct tax, thus they prefer defined monthly amounts or once a year lump sums.

Actually they do not 'have to go through PAYE'. Mine don't. If you do not have a PAYE code, you are paid gross and then declare the income to HMRC. Like Bulldog, I extract any income once a year in March when I have a good idea of what my taxable income for the year will be, usually as a result of CGT.
And, for the benefit of Gilgongo, there are no silly questions; just sometimes silly answers.


Dod

[martinc]

The simple answer to you question is 'no' - you cannot take anything from an uncrystallised pension without a TFLS. There will be no 'automated selling', you must be sure there is enough cash in your SIPP to fund the TFLS. I you choose not to take the taxed portion it will stay in your pension in a drawdown account, or simply as 'crystallised funds' if that's how II do it. You can take dividends from the drawdown, 100% taxable without further ado.

UFPLS is just a special drawdown where everything is taken in cash and there is nothing retained in a drawdown account.

[mc2fool]

What I WANT to do on retirement is just drip-feed dividends (which might be around £20K a year, the rest I'm going to take from my ISA) into a cash savings account. No tax-free lump sum, no automated selling from a "drawdown account" (if that's what they mean - I can't tell).

Is that possible?

On just that specific point, no, II doesn't have an automatic "pay away" option for dividends, for any of its accounts.

They do have a recurring withdrawal option by which you could request a certain amount be withdraw every day/week/fortnight/month/quarter.

Their help says, rather obviously, that "your withdrawal will not be actioned if: There are insufficient funds in the account on the date selected for withdrawal" but they don't say if it'll also stop a recurring withdrawal altogether, or if it will just continue to the next occurrence.

If so then you could just put in a recurring daily withdrawal of, say, £20K/250 = £80 (assuming the daily withdrawal applies only to weekdays) and if there's not that much in the account it'll fail and (hopefully) repeat each following day until there is. Of course, if you get a big dividend or several in short order it'll take a while for it to drain the repeated £80s to your bank account....

[Gilgongo]

Can we please set aside the issue of tax, PAYE and whatnot as that's not what I'm asking about (although I realise it's germaine)

If so then you could just put in a recurring daily withdrawal of, say, £20K/250 = £80 (assuming the daily withdrawal applies only to weekdays) and if there's not that much in the account it'll fail and (hopefully) repeat each following day until there is.

OK that makes sense (do you have the link that talks about recurring withdrawal option, BTW?), although what I don't quite get from their literature is whether the act of putting presumably the whole SIPP into drawdown ALSO means selling it all up then buying the same stocks again. Maybe that doesn't matter as long as I can get the SIPP into a state that lets me do what you describe?

I'm talking about Step 9 in their instructions on putting the SIPP into drawdown here I think:

https://www.ii.co.uk/ii-accounts/sipp/i ... wdown#step

[mc2fool]

If so then you could just put in a recurring daily withdrawal of, say, £20K/250 = £80 (assuming the daily withdrawal applies only to weekdays) and if there's not that much in the account it'll fail and (hopefully) repeat each following day until there is.

OK that makes sense (do you have the link that talks about recurring withdrawal option, BTW?)

Well, there's: https://www.ii.co.uk/help/adding-and-withdrawing-cash/cash-withdrawals/withdrawing-money-from-your-account and then there's a popup from the form itself, https://secure.ii.co.uk/webbroker2/static/payment_input_info.html but in truth they say very little. Best thing is to login and enter the withdrawal form and look at the options. There's a couple of stages to go through before it actually tries to move any money, so you can look at it pretty safely. However, looking at step 8 it may be different from a SIPP ...

I can't answer your main question, and while I have a dealing a/c and an ISA with II, my SIPP is with IWeb so I can't poke further into II's offering.

However, I'd suggest you do the same as with the withdrawal form and start the process to see what it says and asks, backing out at some appropriate point. Maybe reading the six documents under ‘Taking your pension benefits’ (six!) in step 4 will provide some enlightenment!

[Gilgongo]

Best thing is to login and enter the withdrawal form and look at the options. There's a couple of stages to go through before it actually tries to move any money, so you can look at it pretty safely.

Yes, just tried that and withdrawal is only applicable to non-SIPP accounts. I have my ISA with them too and I can do the regular withdrawal thing with that (it's in the "from account..." dropdown), but not the SIPP. Ugh.

I think I'll just call them on Monday and ask them how to do it

Thanks for your help though becuase that daily withdrawal wheeze will do nicely for my ISA!

[Gilgongo]

The simple answer to you question is 'no' - you cannot take anything from an uncrystallised pension without a TFLS.

Just so I know, what is "TFLS"? Google isn't helping.

[mc2fool]

Best thing is to login and enter the withdrawal form and look at the options. There's a couple of stages to go through before it actually tries to move any money, so you can look at it pretty safely.

Yes, just tried that and withdrawal is only applicable to non-SIPP accounts. I have my ISA with them too and I can do the regular withdrawal thing with that (it's in the "from account..." dropdown), but not the SIPP. Ugh.

I think I'll just call them on Monday and ask them how to do it

Thanks for your help though becuase that daily withdrawal wheeze will do nicely for my ISA!

Well, we're still not sure what happens if there isn't the money there to do the recurring withdrawal. Obviously that one will fail but will it "turn off" subsequent ones? Or just fail that one and carry on to the next? If you try it, let us know!

On doing it from the SIPP, yes, I feared that, but step 8 appears to possibly have similar options, "If you are taking a regular income, you can select the frequency and amount you would like to take.", so, again, worth starting the process to see what's available, and backing out at an appropriate point....

The simple answer to you question is 'no' - you cannot take anything from an uncrystallised pension without a TFLS.

Just so I know, what is "TFLS"? Google isn't helping.

Tax Free Lump Sum.

[martinc]

the whole SIPP into drawdown ALSO means selling it all up then buying the same stocks again

If you drawdown everything you must have 25% in cash, the rest can be transferred as stocks ('in specie') to the drawdown account.
You can then take dividends as taxed income from the drawdown. I don't think you could do any of these things on a daily basis - do II charge for drawdowns?

[Gilgongo]

the whole SIPP into drawdown ALSO means selling it all up then buying the same stocks again

If you drawdown everything you must have 25% in cash, the rest can be transferred as stocks ('in specie') to the drawdown account.
You can then take dividends as taxed income from the drawdown. I don't think you could do any of these things on a daily basis - do II charge for drawdowns?

So when you said "you cannot take anything from an uncrystallised pension without a TFLS" and I have, say, £100 in cash and £500,000 in stocks, I have to sell up 25% of those stocks before I can get the SIPP into drawdown? What about the option the drawdown form appears to have of "0% TFLS"? I'm confused...

[Alaric]

although what I don't quite get from their literature is whether the act of putting presumably the whole SIPP into drawdown ALSO means selling it all up then buying the same stocks again.

Why should you think it does? With SIPPs, drawdown should just be a flag - nothing about the investment changes.

[kempiejon]

Best thing is to login and enter the withdrawal form and look at the options. There's a couple of stages to go through before it actually tries to move any money, so you can look at it pretty safely.

Yes, just tried that and withdrawal is only applicable to non-SIPP accounts. I have my ISA with them too and I can do the regular withdrawal thing with that (it's in the "from account..." dropdown), but not the SIPP. Ugh.

I think I'll just call them on Monday and ask them how to do it

Thanks for your help though becuase that daily withdrawal wheeze will do nicely for my ISA!

from ii website https://www.ii.co.uk/ii-accounts/sipp/ufpls/take-ufpls

Step 1.
From the 'SIPP' menu in your online account, select 'Taking benefits / withdrawing money'.
If you haven't done so already, you will need to add a bank account before you can continue.
Then select 'set up or amend withdrawals'.

[ursaminortaur]

the whole SIPP into drawdown ALSO means selling it all up then buying the same stocks again

If you drawdown everything you must have 25% in cash, the rest can be transferred as stocks ('in specie') to the drawdown account.
You can then take dividends as taxed income from the drawdown. I don't think you could do any of these things on a daily basis - do II charge for drawdowns?

So when you said "you cannot take anything from an uncrystallised pension without a TFLS" and I have, say, £100 in cash and £500,000 in stocks, I have to sell up 25% of those stocks before I can get the SIPP into drawdown? What about the option the drawdown form appears to have of "0% TFLS"? I'm confused...

There are two ways of doing drawdown

1) UFPLS - The pension pot is left uncrystallised and you specify how much you want to drawdown at a particular time. 25% of what the amount you drawdown is tax free with the other 75% being taxed at your marginal rate. You then just repeat this process on a regular or irregular basis.

or

2) Flexible drawdown - The pension pot is crystallised and you take upto 25% of the pot tax free. Whatever you subsequently drawdown is then is taxed at your marginal rate but importantly you are not required to drawdown anything taxable. This means that if you only take the tax free lump sum you don't invoke the MPAA and hence if you are still contributing to a pension don't have your annual allowance reduced to £4000. There are also advantages to using Flexible drawdown rather than UFPLS if you are getting close to the LTA limit.

With UFPLS the way it works forces you to take 25% of each drawdown as a tax free lump sum. With Flexible drawdown you would normally want to take a 25% tax fee lump sum however you can opt to take less if you wish including taking zero tax free lump sum. The catch though is that taking the tax free lump sum is a one off take it or leave it option with Flexible drawdown - you either take it when you crystallise the pot or you lose it. With drawdown and a DC pot such as a SIPP it is pretty much a no brainer to take the 25% tax free lump sum rather than lose it. With DB pensions things are more complicated and there can be circumstances where it is more advantageous not to take the tax free lump sum.

[Gilgongo]

I can see that if I want to take about £15K a year in dividends from my SIPP, it's going to be far more complicated than I thought it was going to be...

I'll have to keep thinking but I think a call to ii might help with the specifics on things like regular payments and stuff.

[TUK020]

I can see that if I want to take about £15K a year in dividends from my SIPP, it's going to be far more complicated than I thought it was going to be...

I'll have to keep thinking but I think a call to ii might help with the specifics on things like regular payments and stuff.

Not sure why.
At its simplest, you just
- make sure there is sufficient cash float to cover dividend variability (aka "de-risking")
- select UFPLS
- withdraw amount to be paid into bank account of £1200/month (or whatever)

25% of the 1200 will be tax free, remainder taxed at marginal rate.