Suggestions for what to do with £10k sum in SIPP

[iambic]

I'd be grateful for your opinions/suggestions on how best to deal with a smallish sum of money currently in a SIPP please.

A relative is soon turning 65 (the age she originally told her pension provider she'd be retiring) & has asked if I could help her understand her options for what to do with a small pot of money she has in a SIPP (around £10k).

She isn't fully retired yet, so is still earning an income & fortunately isn't highly dependent on the money (as in, she has other savings elsewhere), but I'd like to come up with some options for her that could generate some returns from the money that will be better than the paltry interest rate on a cash savings account. She isn't keen to lock this money (or any other savings) into an annuity but is open to exploring other options. I'm wondering whether taking it out as a lump sum & investing it in an income-generating investment trust for example would be sensible, but I'm not sure whether the tax implications (i.e. paying tax on 75% of the total) would make that not such a great idea.

Just to be clear, I'm not asking for advice directly (nor will I be offering any to my relative!) & I realise individual situations, attitudes to risk etc. all play a big part in any decision, but I'm getting confused by how much conflicting advice there is around for the best way to manage pensions (also most of the advice applies to larger sums - i.e. someone's lifetime savings), so I'm keen to hear the thoughts from the experienced community here.

Many thanks.

[Chrysalis]

Has she had her Pensionwise appointment, or at least looked through the Pensionwise website? That will gain an understanding of what her options are.
If she doesn’t need the money and is still earning, then why not just leave it invested? What is her tax status and will that change on retirement? When does she want to retire and will she have adequate income, including full state pension?
There might be ways of withdrawing it without paying tax, but there might not.

[OLTB]

I'd be grateful for your opinions/suggestions on how best to deal with a smallish sum of money currently in a SIPP please.

A relative is soon turning 65 (the age she originally told her pension provider she'd be retiring) & has asked if I could help her understand her options for what to do with a small pot of money she has in a SIPP (around £10k).

She isn't fully retired yet, so is still earning an income & fortunately isn't highly dependent on the money (as in, she has other savings elsewhere), but I'd like to come up with some options for her that could generate some returns from the money that will be better than the paltry interest rate on a cash savings account. She isn't keen to lock this money (or any other savings) into an annuity but is open to exploring other options. I'm wondering whether taking it out as a lump sum & investing it in an income-generating investment trust for example would be sensible, but I'm not sure whether the tax implications (i.e. paying tax on 75% of the total) would make that not such a great idea.

Just to be clear, I'm not asking for advice directly (nor will I be offering any to my relative!) & I realise individual situations, attitudes to risk etc. all play a big part in any decision, but I'm getting confused by how much conflicting advice there is around for the best way to manage pensions (also most of the advice applies to larger sums - i.e. someone's lifetime savings), so I'm keen to hear the thoughts from the experienced community here.

Many thanks.

Hi iambic

Your relative could always take out the 25% tax free cash (the SIPP company may refer to this as Pension Commencement Lump Sum (PCLS)) and invest this £2,500 into an ISA using the IT fund you choose. In addition, as your relative has a SIPP, she should be able to access the same IT fund within her SIPP with the remaining 75%. When she stops working, depending on her income level, she may be able to withdraw the income that the IT fund generates from her SIPP with little tax payable - from April 6th, annual income has to be in excess of £12,500 a year before it's taxed.

Cheers, OLTB.

[iambic]

Has she had her Pensionwise appointment, or at least looked through the Pensionwise website? That will gain an understanding of what her options are.

No she hasn't yet, although she's aware of the option to have an appointment with an adviser. She feels that due to the small amount she has in her SIPP, it may not be worth chatting to someone, but as it's available, it may be useful just to understand all the options. The Pensionwise website seems to be a really good source of info so I'll point her at that as well.

If she doesn’t need the money and is still earning, then why not just leave it invested?

That is an option, but I think she'd like to have a better understanding of where the money is & how to access it etc. The SIPP was set up by a financial adviser several years ago but she didn't continue paying into it as found it a bit complicated. I'll certainly look at whether it can be easily managed where it is though.

What is her tax status and will that change on retirement?

Standard rate tax payer & self-employed at the moment. She is cutting down her hours gradually but I would imagine she'll need more than the tax-free allowance to live on after retirement, so will probably remain on standard rate tax.

When does she want to retire and will she have adequate income, including full state pension?
There might be ways of withdrawing it without paying tax, but there might not.

I think she'd like to already be retired but doesn't have quite enough savings (or at least they don't generate her sufficient income at the moment) to give up entirely. She will be entitled to the full state pension but can only access it next year I believe.

[iambic]

Your relative could always take out the 25% tax free cash (the SIPP company may refer to this as Pension Commencement Lump Sum (PCLS)) and invest this £2,500 into an ISA using the IT fund you choose. In addition, as your relative has a SIPP, she should be able to access the same IT fund within her SIPP with the remaining 75%. When she stops working, depending on her income level, she may be able to withdraw the income that the IT fund generates from her SIPP with little tax payable - from April 6th, annual income has to be in excess of £12,500 a year before it's taxed.

Cheers, OLTB.

Thanks OLTB, that sounds like it could be a sensible option. Her SIPP is with Aegon, so I'll look into what funds are available via that platform & investigate possible suitable IT's.

I'm fairly new to investing myself (& still working out what to do with my own money!), so thinking about someone else's feels a bit daunting - it's helpful to get some outside perspectives.

[ursaminortaur]

Your relative could always take out the 25% tax free cash (the SIPP company may refer to this as Pension Commencement Lump Sum (PCLS)) and invest this £2,500 into an ISA using the IT fund you choose. In addition, as your relative has a SIPP, she should be able to access the same IT fund within her SIPP with the remaining 75%. When she stops working, depending on her income level, she may be able to withdraw the income that the IT fund generates from her SIPP with little tax payable - from April 6th, annual income has to be in excess of £12,500 a year before it's taxed.

Cheers, OLTB.

Thanks OLTB, that sounds like it could be a sensible option. Her SIPP is with Aegon, so I'll look into what funds are available via that platform & investigate possible suitable IT's.

I'm fairly new to investing myself (& still working out what to do with my own money!), so thinking about someone else's feels a bit daunting - it's helpful to get some outside perspectives.

A £10,000 pot is probably too small for it to be worth using it to purchase an annuity so you are looking at three options

1) As suggested above use flexi-access drawdown by taking the 25% tax free lump sum and then later drawdown the rest which will be taxed at your marginal rate at the time.
2) Use UFPLS in this case you would be able to drawdown either the whole lot or smaller amounts at different times - each withdrawal will have 25% tax free with the rest taxed at your marginal rate.
3) If the pot is smaller than £10,000 then you could take the lot under the small pots legislation (which allows you to take upto 3 such small pots). This is pretty much equivalent to taking the whole pot out with UFPLS with 25% being tax free and the rest being taxed at your marginal rate. There is though one advantage such a withdrawal doesn't trigger the MPAA - hence if your relative were later to want to contribute more money to a pension (which they can do upto the age of 75) then assuming they had relevant earnings, eg from a part-time or full time job, then instead of being restricted to only putting £4000 into a pension they would be able to contribute upto the annual allowance limit which is currently £40,000. (This of course assumes the relative isn't drawing down money from another pension which triggers the MPAA).

https://retiready.co.uk/retirement-inco ... -pots.html

[DrBunsenHoneydew]

I'd be looking hard at the charges on a very small SIPP.
Personally I'd cash it in completely, pay the 20% income tax on the £7.5k part (assuming that amount doesn't make her a higher-rate taxpayer, i.e. a total income of £50k), and reinvest the £10k in an ISA.

[iambic]

A £10,000 pot is probably too small for it to be worth using it to purchase an annuity so you are looking at three options

1) As suggested above use flexi-access drawdown by taking the 25% tax free lump sum and then later drawdown the rest which will be taxed at your marginal rate at the time.
2) Use UFPLS in this case you would be able to drawdown either the whole lot or smaller amounts at different times - each withdrawal will have 25% tax free with the rest taxed at your marginal rate.
3) If the pot is smaller than £10,000 then you could take the lot under the small pots legislation (which allows you to take upto 3 such small pots). This is pretty much equivalent to taking the whole pot out with UFPLS with 25% being tax free and the rest being taxed at your marginal rate. There is though one advantage such a withdrawal doesn't trigger the MPAA - hence if your relative were later to want to contribute more money to a pension (which they can do upto the age of 75) then assuming they had relevant earnings, eg from a part-time or full time job, then instead of being restricted to only putting £4000 into a pension they would be able to contribute upto the annual allowance limit which is currently £40,000. (This of course assumes the relative isn't drawing down money from another pension which triggers the MPAA).

https://retiready.co.uk/retirement-inco ... -pots.html

Thank you, that's really helpful as I didn't know about the small pots legislation. I think her pot is roughly £9.7k at the moment, so the legislation may well apply (& could be useful if she'd like to keep paying into another pension-not sure if that's her plan at the moment, but great to know about as another option).

[iambic]

I'd be looking hard at the charges on a very small SIPP.
Personally I'd cash it in completely, pay the 20% income tax on the £7.5k part (assuming that amount doesn't make her a higher-rate taxpayer, i.e. a total income of £50k), and reinvest the £10k in an ISA.

That's a good shout about looking at the charges, I'll sit down with her & have a good look through the current arrangement. Her financial advisor who set it up was pretty thorough, so hopefully the charges aren't excessive but it's definitely worth looking at to see if we could manage it in an ISA for less.