How do I take income drawdown from my self invested personal pension (SIPP)?
We receive lots of enquiries from people who use a self invested personal pension (SIPP) for their retirement savings and would like to know whether they can use income drawdown with the SIPP fund for their pension income.
The brief answer to the above question is - yes. However for more substance to this question and others we’ve produced this guide for SIPP income drawdown which covers the following areas:
What is a SIPP pension drawdown and how does it work?
Pension drawdown allows you to leave your retirement savings invested in your SIPP whilst, at the same time, giving you access to a regular income and a tax-free lump sum. Pension drawdown is also referred to as income drawdown.
A SIPP pension drawdown plan offers a healthy alternative to the traditional method of purchasing either a lifetime or fixed-term annuity allowing you greater control and flexibility over how and when you receive your retirement income.
If you’d like to read more information surrounding pension drawdown take a look at our comprehensive guide here
SIPP income drawdown rules
Once you’re over 55 years of age you’re allowed to drawdown the funds within your SIPP. However, not every SIPP provider is obliged to provide a drawdown option with their plans. If your SIPP does not include this feature, you will need to look at switching your fund to a provider who does offer flexi access drawdown (FAD).
In April 2015 the UK government made a series of changes to how income drawdown can be administered offering much more freedom and accessibility.
SIPP pension flexi-access drawdown
As the name suggests this option offers a great deal of flexibility as to how you access your SIPP pension for drawdown purposes. Flexi-access is sometimes still referred to by its old name (prior to April 2015) - Flexible Drawdown.
You are allowed to take 25% of your fund as a tax-free lump sum at the outset (cannot be deferred). The remaining 75% can be withdrawn at any time with no limits imposed. You can take a regular, traditional, income or simply take ad hoc payments as and when required.
Each regular payment could be subject to income tax at your marginal rate.
What is the maximum income drawdown I can make from a SIPP?
If you felt it necessary, you can take all of your SIPP savings out at the same time with a flexi-access drawdown plan. However, this action may create a significant tax liability depending on the size of the fund as 75% would be taxed at your marginal rate of income.
The wiser approach would be to withdraw the money as and when required using a frequency that suits your own personal circumstances.
Is income from a SIPP drawdown plan guaranteed for life?
No it isn’t. Once the drawdown fund has been used then the income will cease. If you’d prefer an income which is guaranteed for life or for a set period, either a lifetime annuity or a fixed-term annuity may be more suitable for you.
Can my SIPP pension savings lose value in a drawdown account?
The value of your SIPP savings in a drawdown account can fall as well as rise depending upon the performance of the underlying assets within the investment fund.
The key benefit of a SIPP over a traditional personal pension is the wider range of investment options available for a SIPP provider. This approach allows a SIPP investment fund holder to adopt a broader risk strategy and spread funds across a wide range of different asset classes.
If you’d like to know more about how SIPP income drawdown works get in touch and we can arrange for a pensions advisor we work with to contact you directly.
What is a SIPP income drawdown calculator?
A SIPP income drawdown calculator is a tool a SIPP provider would use in order to establish what level of income your specific pension fund could produce and over how many years.
Whilst all SIPP providers will use their own calculator, tailored to their internal requirements and parameters, the good news is, such instruments are not exclusive to these entities.
How are SIPP income drawdown withdrawals treated for tax purposes?
As with all pension income, SIPP income drawdown is treated as earned income for tax purposes.
The first 25% of the value of your fund can be withdrawn tax-free at outset. The remaining 75% could give rise to a liability in the tax year it is received at your marginal rate of income tax.
If you are still earning money from a range of different sources, your SIPP income drawdown withdrawals could push you into a higher-rate tax bracket, therefore, it is recommended to speak with a tax specialist or financial advisor if you have any concerns.
If you get in touch we can arrange for an expert to contact you and discuss this area in more detail.
What SIPP income drawdown charges can I expect to incur?
The charges for SIPP income drawdown will vary greatly depending on the provider you choose. However, typical SIPP pension drawdown fees could include:
Ongoing administration fees
Withdrawal fees (for both regular and lump-sum withdrawals)
Fund management fees
If you’d like to understand more about how these fees could apply to your SIPP fund make an enquiry and we can arrange for a pensions expert to speak directly with you.
Speak to a pensions expert
If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.
Then sit back and let us do all the hard work in finding the pensions advisor with the right expertise for your circumstances. – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.
*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA.Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
Tony has worked in a vastly diverse array of areas in the pensions industry for over 2 decades. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events. Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been "Hope for the best, but PLAN for the worst", and believes that the biggest impact that an adviser can have on a client's life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they WANT their retirement to be.