Taking Money Out of a SIPP – The Options, Tax Implications, Limitations, Age Restrictions and Penalties

Customers often contact us with questions like “can you cash in a SIPP early?”, “can I release money from my SIPP now?” and “when can I take money out of my SIPP?” Others want to know how much they can withdraw from a SIPP.

To answer these queries and more, we have put together this comprehensive SIPP withdrawal guide to help which will cover:

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How do I go about taking money out of a SIPP?

Firstly, knowing when you can withdraw from your SIPP is the starting point.

Getting money out of a SIPP can sometimes be a lengthy process over a few weeks, as is the case with all pensions. If you are approaching 55 and are thinking about withdrawing money from a SIPP then you should speak to a pensions expert sooner rather than later, as you do not have to wait until 55 to start the process – you just have to be 55 before you can have the funds.


Is there Tax on SIPP withdrawals?

When you decide to start taking money from a SIPP tax is charged at your marginal rate (SIPP withdrawal tax) depending on your income from that tax year. Thankfully when withdrawing from a SIPP the first 25% withdrawn is tax free.

How is tax taken on SIPP withdrawals?

SIPP withdrawal taxation is done at source by the pension administrator. In some cases they have a flat taxation depending on the value withdrawn, so you may have to contact the tax office to reclaim any overpaid tax.


What is the SIPP withdrawal age?

One of the most frequently asked questions we hear  is “when can I withdraw money from my SIPP?”  The withdrawal age set out by HMRC for full tax relief is age 55.

SIPP withdrawal before 55

Providers generally will allow an early withdrawal from your SIPP due to early retirement on medical grounds. If you just want to get access to your funds early before the age of 55 you could be hit with a SIPP early withdrawal penalty from the provider but not only that a hefty tax bill of 55% of the amount taken to withdraw from your SIPP early.


What are the SIPP withdrawal limits?

There are no specific withdrawal limits in place. Certain pension administrators may have specific rules or time frames, but in reality, once turned 55 you are able to withdraw as much or as little of your pot as you want.


What are my SIPP withdrawal options?

You have multiple options once you have made the decision to make SIPP withdrawals.

As long as you are over 55 then you get full tax relief without incurring additional hefty costs.

Full SIPP withdrawals

This option, tempting as it may be to have a big lump sum in one go can often be the most costly way of withdrawing money from a SIPP. It is likely that by taking your self invested personal pension withdrawal in one go that it will push you into the higher rate tax bracket meaning you will pay a much larger amount of tax than if you were to take smaller chunks every tax year, this being said everyone’s circumstances are different so it would be best to speak to a pensions expert to get the best advice.

SIPP tax free lump sum withdrawal

Once you hit the magic 55 age you have the option of withdrawing money from a SIPP tax free. Everybody that holds a SIPP has the option of taking 25% of the value without having to pay any tax.

Staggered lump sum SIPP withdrawals

You are able to (once 55) take multiple lump sum withdrawals, taking a 25% portion tax free and then paying tax on the other 75%.

For example: If you took out £10,000 you would have £2500 free of tax but then pay tax on the remaining £7500.

There are pros and cons to all the withdrawal options and It is worth noting that in whichever way you choose to do your SIPP pension withdrawal you will have to pay tax on 75% of the value.


Can you withdraw money from a SIPP if living overseas?

Absolutely, some providers can be cautious when it comes to transferring money into an overseas bank account, so you may have to have it paid into a UK bank and transfer it overseas yourself.


Speak to an expert pension advisor about SIPP withdrawals

If you have questions about a SIPP withdrawal or SIPPs  in general and want to speak to an expert for the right advice, call us today on 0808 189 0463 or make an enquiry here.

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70% of customers who have a pension review find a better deal

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70% of customers who have a pension review find a better deal

Author:
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.

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