AJ Bell lump sum confusion

[Gilgongo]

I'd like to start taking the cash from accrued dividends out of my AJ Bell SIPP account instead of re-investing them. AJB have two options, but I can't seem to work out the pros and cons. Here's what they say:

1. Tax-free lump sum and drawdown
Receive a tax-free lump sum (usually 25%) from all or some of your SIPP. You also have the choice of taking taxable income either in one-off or regular payments. Read more on drawdown

2. Pension lump sum (UFPLS)
Take a lump sum from your pension, with 25% tax-free and 75% taxed as income. The rest of your pension remains invested in your SIPP. Read more on pension lump sums

Am I right in thinking they're effectively the same, but option 1. would allow me to set up regular payments? Ideally I'd like the payments automatic. I'm reading their docs and they seem to both make sense, but not both together, if you see what I mean.

EDIT: Just reading this. I think UFPLS might be what I want as I'm only interested in dividend income dripping into my spending account. But holy wow it's confusing.

[Urbandreamer]

As I understand it there is actually a very significant difference between the two.

Technically the term "tax free lump sum" has no real meaning.

You can,
1) Take 25% of your pot as a "Pension commencement lump sum" without paying tax upon that.
2) You can adopt a more flexible approach, moving chunks into draw down and taking some of the chunk (25%) tax free. Effectively over time taking 25% of your pot "tax free". If the pot grows, in theory you may wind up with a larger tax free amount.

Unfortunately you can get it wrong and move a chunk into drawdown and take your "25% tax free lump sum" based upon that chunk. Having taken your PCLS, you can't take it again. It's only available at the start. Hence the PCLS term. Or to put it another way, you only get one lump sum.

The pension system is a unholy mix of different ideas, all lumped together. Easy it isn't.

[Gilgongo]

Ah OK, so the "chunks into drawdown" with ULFPS seems a better idea for me then as I'm not wanting a big lump of tax-free cash at the start. And it might mean that when my SP comes in, my dividend income from my SIPP is 25% less taxable too.

Sod's Law I'm sure means that AJ Bell will arbitrarily disallow automated ULFPS withdrawals though. So I'll just have to remember my AJB login details at regular intervals throughout the year until I'm dead. What a world.

[kempiejon]

Ah OK, so the "chunks into drawdown" with ULFPS seems a better idea for me then as I'm not wanting a big lump of tax-free cash at the start. And it might mean that when my SP comes in, my dividend income from my SIPP is 25% less taxable too.

Sod's Law I'm sure means that AJ Bell will arbitrarily disallow automated ULFPS withdrawals though. So I'll just have to remember my AJB login details at regular intervals throughout the year until I'm dead. What a world.

I believe you can set AJ bell to handle dividends to pay away. I was looking at it recently. I have to print out and send off a form. I have an ISA to check on your account. I can set it up to pay dividends immediately, 6 monthly, annually. I expect you can hold in the account and withdraw ad hoc. I guess the tax treatment is applied

[Gilgongo]

I believe you can set AJ bell to handle dividends to pay away. I was looking at it recently. I have to print out and send off a form. I have an ISA to check on your account. I can set it up to pay dividends immediately, 6 monthly, annually. I expect you can hold in the account and withdraw ad hoc. I guess the tax treatment is applied

Pay away on a SIPP? They don't have any info on that but I guess I can ask...

[kempiejon]

Pay away on a SIPP? They don't have any info on that but I guess I can ask...

I've checked the form, you're right

form allows you to set up a regular cash withdrawal from your Stocks and shares ISA or Dealing account to your nominated bank or building society ...

[Gilgongo]

I see they have this, which seems hopeful on the automatic payments bit:

https://www.ajbell.co.uk/sites/default/ ... ension.pdf

5 Receiving your pension

[snip ...]

5.2 How often can I take my pension?
Income drawdown
If you want to receive a regular pension from your SIPP, it can be paid monthly, quarterly, half yearly or annually. All regular pension payments will be sent on a fixed date of the 10th of each month. If this falls on a weekend, well send the payment the first working day following the 10th. In all cases, payments should reach your account three working days from the payment being sent.

[SebsCat]

I see they have this, which seems hopeful on the automatic payments bit:

https://www.ajbell.co.uk/sites/default/ ... ension.pdf

5 Receiving your pension

[snip ...]

5.2 How often can I take my pension?
Income drawdown
If you want to receive a regular pension from your SIPP, it can be paid monthly, quarterly, half yearly or annually. All regular pension payments will be sent on a fixed date of the 10th of each month. If this falls on a weekend, well send the payment the first working day following the 10th. In all cases, payments should reach your account three working days from the payment being sent.

That's for taking an income from the element of a SIPP that has already been moved into drawdown. It is also for a set amount each period (eg £1000), not whatever dividends happen to have been received during that period.

[chris]

I have my pension pot with AJ Bell and I got confused when I wanted to take an income under UFPLS. It seemed from the website that you could only take individual amounts out by filling in a form each time you wanted to do it. I wanted to set up a regular payment each month and so I emailed them telling them what I wanted. A nice chap phoned me back and said that this would be fine to set up. However, I was after a fixed amount each month. I think that a varying amount based on dividends received would be more problematic and certainly would seem to be more work than the small amount in percentage terms that I pay them for my shareholdings.

I would work out roughly how much you get each year in dividends and divide that by 12 and keep 1-2 months' worth of dividends in cash and that may be the better option.

[Alaric]

I think that a varying amount based on dividends received would be more problematic and certainly would seem to be more work than the small amount in percentage terms that I pay them for my shareholdings.

I would work out roughly how much you get each year in dividends and divide that by 12 and keep 1-2 months' worth of dividends in cash and that may be the better option.

It could well be something to do with having to run PAYE and deduct income tax on each payment. Deciding in advance what the monthly withdrawal is going to be is likely to be necessary.

[Gilgongo]

OK I've just asked them and they say:

Unfortunaterley, there is no way to withdraw natural income from a SIPP (from dividends) automatically, as all payments from a SIPP must be treated as a benefit payment and requested as such using the 'Manage my SIPP' page.

... but they don't say if I can set up regular payments of a fixed amount. Never mind, I think I need ULFPS not flexi-access (as I'm not wanting an initial tax-free lump sum different from my regular withdrawals), so I'll hit that button and see what the options then are for payments after that.

As an aside: is living off dividends some niche pursuit then? I've been on the HYP boards too long!

EDIT: Haha OMG the form! So do I need to do this every time I take some cash out or just the first time? Also, maybe I'll postpone this until after I've got my P45 on retirement as they say they'll do the "month one" thing on my otherwise (mind you it's only a £1,500 withdrawal per quarter).

[kempiejon]

As an aside: is living off dividends some niche pursuit then? I've been on the HYP boards too long!

Interesting aside, I'm not taking my SIPP money yet. My HYP is ISAd with AJB and Halifax and both can be set to give me the natural yield though Halifax pays away immediately or 6monthly, AJB monthly, quarterly, 6 monthly or annually. When I do SIPP I'll take the money annually at the [expletive deleted] end of March as tax manipulation.

[swill453]

OK I've just asked them and they say:

Unfortunaterley, there is no way to withdraw natural income from a SIPP (from dividends) automatically, as all payments from a SIPP must be treated as a benefit payment and requested as such using the 'Manage my SIPP' page.

... but they don't say if I can set up regular payments of a fixed amount. Never mind, I think I need ULFPS not flexi-access (as I'm not wanting an initial tax-free lump sum different from my regular withdrawals), so I'll hit that button and see what the options then are for payments after that.

As an aside: is living off dividends some niche pursuit then? I've been on the HYP boards too long!

EDIT: Haha OMG the form! So do I need to do this every time I take some cash out or just the first time? Also, maybe I'll postpone this until after I've got my P45 on retirement as they say they'll do the "month one" thing on my otherwise (mind you it's only a £1,500 withdrawal per quarter).

I'm pretty sure you can set up regular UFPLS ("Uff-plus") payments with AJBell.

On the "living off dividends" thing, I do that with my SIPP but let it build up a little so I can take fixed withdrawal amounts. It's easier from a budgeting point of view anyway.

Scott.

[Gilgongo]

Interesting aside, I'm not taking my SIPP money yet. My HYP is ISAd with AJB and Halifax and both can be set to give me the natural yield though Halifax pays away

Oh yes, ISAs are fine (the bulk of my income will be form my ISA via Interactive Investor dividend payaway) - it's just SIPPs that seem to be weird and strange (as I'm finding out!).

On the "living off dividends" thing, I do that with my SIPP but let it build up a little so I can take fixed withdrawal amounts. It's easier from a budgeting point of view anyway.

Yes, that's what I'd like to do, so here's hoping. BTW I'm assuming that when I go through with this (they'd have to really try hard to make this any more scary and stressful!) they won't do anything stupid like sell a holding - the amount I'm asking is £1,500 out of £1,850 currently in cash. So they'll take it out of the cash, yes? I feel another support question coming on.

[Dod101]

I am not with AJ Bell but you must have a fair idea of the dividend income from your SIPP. It comes in lumps of course but over the course of each quarter you can work out the expected income. Set that as the amount to be withdrawn but ensure that you have the cash available each quarter, Then tax will be deducted and you will be paid the net amount. You may need to keep a cash float in addition to the dividends to make sure that cash is always available.

I live off my dividends but from my two ISAs and just withdraw cash as required. My SIPP just ticks away and I seldom take anything from it. Don’t like paying tax. Occasionally if I need a lump sum I will take it in March depending on my tax situation.

Dod

[Dod101]

Should have said of course that if you are able to withdraw the cash as from the 25% tax free amount it doess not change the principle of what you are doing, but less hassle.

Dod

[swill453]

BTW I'm assuming that when I go through with this (they'd have to really try hard to make this any more scary and stressful!) they won't do anything stupid like sell a holding - the amount I'm asking is £1,500 out of £1,850 currently in cash. So they'll take it out of the cash, yes? I feel another support question coming on.

Yes they'll take it out of the cash. In fact if there isn't enough cash, the withdrawal will fail. They won't sell holdings.

Scott.

[MrFoolish]

I sure as hell don't follow this either.

AJ Bell should set up some sort of sandbox where you can play around with these instructions and everything gets illustrated but nothing actually happens.

[Urbandreamer]

I sure as hell don't follow this either.

AJ Bell should set up some sort of sandbox where you can play around with these instructions and everything gets illustrated but nothing actually happens.

And there is the problem. Historically (remember events) they would have to repeat the process every six months!
The government keeps changing the rules, and people like A J Bell have to comply.

As I said, it's not quite as bad as having one rule set replaced with another. NO it's worse! You have a mix of different rules applying dependent upon your age and what was common for people of your age (not people a couple of years older or younger).

Seriously it's a can of worms. As witnessed by the OP's original question. There was a time that only option 1 existed. Now that you have a choice, you need to understand that you do have a choice and that what you were told decades ago is no longer the only way things work.

If you want to blame someone, don't point the finger at Aviva, Scottish Widows or A J Bell. Point it at the people who dictate what they do.

[MrFoolish]

It would be much simpler if the rule was everyone can take out X pounds per year tax free and anything more is taxable. This would be more progressive too.