Retirement drawdown advice required

[kempiejon]

One observation- lot of discussion about sheltered funds/unsheltered funds, I would actually aim at getting funds out of say a SIPP before out of unsheltered funds as I have an intrinsic fear of future politicians and their meddling and think I would wish to say use the 25% tax free figures whilst available. (Also not sure how the funds post 75 will in future get treated re in/out estate and IHT)

Of course my paranoia may be misplaced, but I took the same view staying contracted out as long as possible, despite the IFA view I should contract back in, I wanted control with me rather than with HMG and that did work out okay.

I feel your paranoia. When I was in my 40s and planning my escape I took company pensions contributions but always focused investment to ISAs and unsheltered. My fear was the government would monkey with the rules; push access further out. As I hoped to be FI around 50 I didn't want my money locked away. Then the pesky government changed the rules on taxing dividends, as I neared 55 the SIPP seemed the better deal, I leveraged the income tax too and will continue to benefit from that. Getting the whole 25% out the SIPP promptly became the plan. I can probably stay below tax threshold with my pension income and have plenty in other funds, but if I feel like an income uplift or big spend I can choose take the tax hit from the SIPP or not from the ISA. No spawn o IHT irrelevant to me.
Government could still change the rules and find a way to tax my investment income which would scupper the plans but taxing ISA gains or dividends feels unlikely. Taxing the SIPP at prevailing rates is expected and I have some control over how much I extract.

[xxd09]

I always thought the “40”% tax relief for higher earners etc would go sometime but it never has in spite of its” apparent “ unfairness to Labour and Liberal politicians
xxd09

[SebsCat]

One observation- lot of discussion about sheltered funds/unsheltered funds, I would actually aim at getting funds out of say a SIPP before out of unsheltered funds as I have an intrinsic fear of future politicians and their meddling and think I would wish to say use the 25% tax free figures whilst available. (Also not sure how the funds post 75 will in future get treated re in/out estate and IHT)

Of course my paranoia may be misplaced, but I took the same view staying contracted out as long as possible, despite the IFA view I should contract back in, I wanted control with me rather than with HMG and that did work out okay.

I agree with you that the 25% tax-free element of SIPPs should be maximised sooner rather than later, but also I find it hard to conceive of a scenario in which any currently sheltered assets would be treated worse than unsheltered ones. Whilst it is possible, I don't think any government will reduce the absolute maximum amount (£268,275) that can be taken free from a SIPP, but I also think it is very unlikely to be increased, even in line with inflation. Neither main party is pro moderately well off individuals - Labour are generally anti-wealth whist Tory policies only favour those rich enough not to worry about such trivialities as a mere quarter of a million.

But once the maximum tax-free amount is taken there's no good reason not to take income from unsheltered amounts in preference to others. Even if the IHT and CGT advantages of SIPPs are removed in the future then they are still there now and there is very little chance of any legislation being retroactively applied.

FWIW, our approach (with both of us now in retirement) is:
1) take income from wife's SIPP to utilise personal allowance
2) take income from unsheltered assets
3) take income from wife's SIPP above the PA amount

I have no SIPP, but my DB pension is just about enough to pay all essential bills and the weekly food bill. To date we've not had to get to step 3 but expect to do so within the next year or two.

Assets in ISAs will, if anything, be increased. They will only be accessed if there is a need for an unexpected expense (which, obviously, can be taken tax-free compared to SIPP assets) or we ever get to the point where the SIPP has already been exhausted.

[dpcarey123]

An unwaged couple under 75 can sweat a further few hundred quid each from the tax person by putting £2880 into a SIPP, grossed up to £3600 then tax 25% tax free. Repeat annually until age 75 when the tax claim expires.

You can keep contributing to a SIPP, after retirement and drawdown of another pension fund?

[Dicky99]

An unwaged couple under 75 can sweat a further few hundred quid each from the tax person by putting £2880 into a SIPP, grossed up to £3600 then tax 25% tax free. Repeat annually until age 75 when the tax claim expires.

You can keep contributing to a SIPP, after retirement and drawdown of another pension fund?

If you do not pay Income Tax
You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:

you do not pay Income Tax, for example because you’re on a low income
your pension provider claims tax relief for you at a rate of 20% (relief at source)

https://www.gov.uk/tax-on-your-private- ... tax-relief

[EthicsGradient]

You can keep contributing to a SIPP, after retirement and drawdown of another pension fund?

If you do not pay Income Tax
You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:

you do not pay Income Tax, for example because you’re on a low income
your pension provider claims tax relief for you at a rate of 20% (relief at source)

https://www.gov.uk/tax-on-your-private- ... tax-relief

If you do pay basic rate tax, you still come out slightly ahead by paying into a SIPP and then withdrawing it:
Keep £2880 that you already have
versus
Pay £2880 in, tax relief puts that up to £3600, withdraw 25%=£900 tax free, withdraw £2700 and pay 20% income tax on it, ie get 0.8*2700=£2160 ; in total you get £3060

[Charlottesquare]

One observation- lot of discussion about sheltered funds/unsheltered funds, I would actually aim at getting funds out of say a SIPP before out of unsheltered funds as I have an intrinsic fear of future politicians and their meddling and think I would wish to say use the 25% tax free figures whilst available. (Also not sure how the funds post 75 will in future get treated re in/out estate and IHT)

Of course my paranoia may be misplaced, but I took the same view staying contracted out as long as possible, despite the IFA view I should contract back in, I wanted control with me rather than with HMG and that did work out okay.

I think it unlikely that a SIPP will ever be included in an estate as it exists under the pension rules. Not to say it couldn’t happen but I imagine that there is not a huge amount of IHT being missed. The 25% tax free sum and the treatment of SIPPs if the owner dies before age 75 are different though.

Dod

Not so sure- as the drawdown rules have developed more and more people have used pension schemes as vehicles to pass to family ( had an IFA meeting last year where it featured in the discussions) and those who do a bit of IHT planning tend to have the larger pension funds.

I certainly know one individual using his SIPP as part of his IHT planning, the fund is ahead of £800k and the plan is live on state pensions, wife's teacher's pension and a few ungeared rental properties and stuff their other savings into family investment company so dividends ping into there rather than received personally (not needed) and thereafter leave pension to family.

I am certainly not as sanguine as you as to what future politicians may do re pension taxation.