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        Updated: April 16, 2024

        SIPP Income Drawdown

        Want to take an income from your SIPP? Here is everything you need to know about how drawdowns work and all the important rules that apply.

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        If you’re researching ways to take income in retirement, pension drawdown can be a flexible option worth exploring. But, did you know that it’s possible to put a SIPP into income drawdown?

        This guide covers all the essential details you need to know about SIPP drawdown options, and all the rules that will apply. We’ll also explain the HMRC tax implications and where you can get expert support to reach your retirement goals.

        Keep reading for a complete breakdown of the SIPP drawdown rules and options, or click on a link to jump straight to a section…

        What is SIPP drawdown?

        There is no difference between SIPP drawdown and a regular drawdown pension. It’s a flexible method of taking income from your SIPP that offers a useful alternative to buying an annuity.

        You’re able to take some funds from your SIPP as a tax-free lump sum, and with the remainder, you have the ability to take a regular and adjustable pension income that suits your needs and lifestyle during retirement.

        How does a SIPP drawdown work?

        Here’s an overview of SIPP (self-invested personal pension) drawdown rules:

        • You can start a SIPP drawdown once you reach minimum pension age (this is currently 55 but rising to 57 from April 2028).
        • Not all SIPP providers offer a drawdown option.
        • SIPP flexi-access drawdown allows you to take 25% of the whole pot as a tax-free lump sum.
        • The remaining 75% of funds can be withdrawn at any time as a single sum, multiple ad-hoc lump sums, or as smaller regular income payments.
        • Any money taken (apart from tax-free lump sums) is taxable at your marginal rate of income tax.
        • You can only draw an income whilst you have funds left in your SIPP portfolio. It’s not a guaranteed income for life.
        • Your pension portfolio can gain or lose value, depending on the performance of your SIPP investments – even after you start the drawdown process.
        • A flexible drawdown can be subject to ongoing SIPP costs including admin fees, set-up fees, and SIPP withdrawal fees, so it’s important to consider these charges when making a decision on which provider you would like invest your money with.
        • During SIPP drawdown, your account may also be charged fund management fees, exit charges, and transfer fees.
        • You can still make SIPP contributions in drawdown but if you opt to take taxable income in addition to taking tax-free cash, your annual allowance is heavily reduced to the Money Purchase Annual Allowance (MPAA).

        Speak to an expert today

        Drawdown options

        Although SIPP drawdown offers you plenty of flexibility, your options aren’t overwhelming, which can make it easier to manage your pension. However, what can be difficult is matching the right drawdown option with your individual lifestyle and tax position –  the main reason why expert advice is recommended for organising your SIPP.

        Here are the main options you’ll have once you reach minimum pension age:

        • Leave the whole SIPP invested until you need access to it.
        • Take a 25% tax-free lump sum and leave the remaining 75% invested to use as you need.
        • Use the remaining 75% to pay yourself a regular income on a schedule that suits you (e.g. monthly).
        • You can leave your SIPP invested and take smaller lump sums where the first 25% is tax-free, but this could mean less drawdown flexibility.
        • Take pension income on a phased income drawdown basis.

        How to draw down from your SIPP

        Your situation before and after retirement is going to be completely individual.

        But, if you’re looking to make the most of your SIPP drawdown plan, here are some universal steps to follow:

        Make a plan

        You don’t want to wait until you reach retirement before making a plan. It’s well worth taking some time as you approach the SIPP drawdown age to sit down and think about your goals.

        Look at your current lifestyle and spending to figure out what income you might need. Expert advice can help if this feels like too much work or is too complex.

        Speak to a SIPP expert

        Once you’ve an idea about what your retirement will look like financially, it’s best to get some advice from a SIPP drawdown expert.

        They’ll be able to fully explain all the rules and options, and then show you how to arrange your drawdown income in a way that suits your needs.

        They’ll also be able to make sure you’re with the best SIPP provider for your circumstances.

        Draw down an income

        An independent expert will tell you if you need to switch SIPP providers, make sure you have a realistic income plan to suit your lifestyle, and instruct you on the most tax-efficient way to take income from your pension.

        This will make sure that you stick within HMRC SIPP tax rules, reduce your costs, and minimise how much tax you pay.

        Having some expert support to help arrange your SIPP drawdown can be invaluable. A regulated pensions advisor be able to explore the best ways for you to take an income in retirement whilst also taking into account the rest of your finances – and any other pensions you have.

        If you want a free pension review with a SIPP drawdown specialist, just make an enquiry.

        Examples calculations

        There’s no limit to how much you can withdraw from your SIPP once you reach minimum pension age. Your only limits will come down to the size of your overall pot and your tax position, which may dictate whether it makes financial sense to draw down in smaller or larger amounts.

        Without needing to whip out a calculator, here are a few SIPP drawdown examples to give you an idea about how much you could use for income based on different-size pots:

        Total SIPP Value 25% Tax-free Lump Sum 75% Remainder for Income
        £50,000 £12,500 £37,500
        £100,000 £25,000 £75,000
        £250,000 £62,500 £187,500
        £500,000 £125,000 £375,000
        £750,000 £187,500 £562,500
        £1,000,000 £250,000 £750,000

        The exact figure you should take as income will depend on loads of variables such as:

        • Portfolio investment performance.
        • The age you retire.
        • Whether you still do any work or earn any other income.
        • How much your other pensions or State Pension is worth.
        • Rate of inflation and cost of living changes.
        • Life expectancy.
        • If you want to move abroad or stay in the UK.
        • How much you take as a tax-free lump sum (if anything).

        This is why it’s very difficult to make assumptions and the flexibility of a SIPP drawdown means you can always adjust your income to meet immediate financial needs or to wait out any wider economic storms.

        But, it’s best to get in touch with an expert advisor who can provide you with realistic calculations and income projections based on your circumstances and needs.

        HMRC tax rules

        Here are the main HMRC SIPP drawdown tax rules you should be aware of:

        • Up to 25% of your SIPP can be withdrawn tax-free.
        • The remaining 75% will be taxed at your marginal rate of income tax.
        • SIPP drawdown income will be added to your current salary for income tax purposes (if you’re still working or earning).
        • You can take your SIPP pension as several smaller lump sums, known as ‘uncrystallised funds pension lump sum’ (UFPLS), where the first 25% of each lump sum is tax-free.
        • Your current standard pension lifetime allowance (inclusive of your SIPP) is £1,073,100 and is frozen until 2026. Your lifetime allowance may be higher if you have opted for fixed or individual protection.
        • Once you start a taxable income from your SIPP via Flexi-Access Drawdown, your annual allowance for contributions drops to £4,000 (gross).
        • If you die before the age of 75, any remaining funds in your SIPP drawdown pension can be passed on tax-free. After 75, your beneficiary can draw down an income at their marginal tax rate.

        Speak to a pension drawdown specialist

        The best way to arrange SIPP drawdown income will depend on your individual finances. If you want to view all your options and make sure you stay within the rules, expert financial advice is essential to make the most of your pension.

        We offer a free, advisor-matching service. This means we’ll quickly assess your retirement needs and then pair you up with an expert pensions advisor.

        Just call 0808 189 0463 or make an enquiry. We’ll introduce you to a SIPP drawdown specialist for a free, no obligation chat today.

        Ask a quick question

        We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.

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        Tony Stevens

        Tony Stevens

        Finance Expert

        About the author

        Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. 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.

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