Accessing Your Pension
CLIENTFACTSHEET
FEATURES
This fact sheet is designed to give an overview
of the ways of taking benefits from your SIPP.
Although this fact sheet concentrates on income
drawdown and uncrystallised funds pension lump
sum, it should be noted that the option to purchase
an annuity from an insurance company is available
at any time as an alternative.
•
Introduction
•
Income Drawdown
•
Uncrystallised Funds Pension Lump Sum
•
Money Purchase Annual Allowance
•
Annuities
Accessing the Government’s free and impartial guidance service
Guidance Guarantee – Pension Wise
The Government is removing the restrictions on what you can do with your pension savings. This means that you will be able to choose the option that’s right for you. Pension Wise is a new Government service that will offer people approaching retirement free, impartial guidance about their choices. You can receive Pension Wise guidance online, over the phone or face to face.
To access your pension, you have two
main choices:
1) you can put your pension into income drawdown, from which you can drawdown any amount over whatever period you choose through income withdrawal; or 2) you can take a single or series of lump sums from your
uncrystallised funds, known as an uncrystallised funds pension lump sum.
Any payments from an income drawdown fund will be taxable as income at your marginal rate of tax, however you can take a tax free lump sum of up to 25% of your pension fund when you put funds into income drawdown.
Any payment of an uncrystallised funds pension lump sum will be 25% tax free, with the remainder taxable at your marginal rate of income tax.
Certain flexible access payments on or after 6 April 2015 will trigger the Money Purchase Annual Allowance rules. This will limit the amount of tax relief you can get on future savings to any money purchase pension to contributions of £10,000 per annum.
Introduction
When can income drawdown be taken?
Income drawdown can normally only be taken from the age of 55, however, there are exceptions where benefits can be taken earlier:
a) Where you have a specific occupation and were already a member of a pension scheme for that employment prior to 6 April 2006, you can commence benefits at an earlier age; often 35. In these circumstances, the retirement age is referred to as being “protected”. This protection is scheme specific and may be lost if you transfer to another scheme post 5 April 2006, unless you adhere to certain conditions.
b) Anyone permanently incapacitated, and who cannot carry on their normal occupation, or an occupation of a similar nature. This is a matter of fact, and medical evidence is required.
The option of stopping taking income drawdown and purchasing an annuity from an insurance company is always available.
Can a lump sum be taken?
When you commence income drawdown, excluding if you have transitional protection, up to 25% of your fund, or 25% of the standard lifetime allowance (if lower) can be taken as a pension commencement lump sum.
Is there a limit on the income that can
be taken?
From 6 April 2015, there is no limit on the amount of income you can take from your pension as income drawdown. This is known as flexi-access drawdown. If you commenced income drawdown before 6 April 2015 through capped drawdown, you will have a maximum income limit. If you make withdrawals within this limit, you will remain in capped drawdown unless you elect to convert to flexi-access drawdown. If you choose to take a higher income than your capped drawdown limit, you will automatically be converted to flexi-access drawdown. Once in flexi-access drawdown, the money purchase annual allowance rules will apply.
The minimum income is nil.
What are the mechanics for paying income?
Any required capped drawdown income must be paid to you in each successive 12 month period that commences from when benefits start. In the case of flexi-access drawdown there is no such requirement.
Within certain constraints, you can choose the frequency of when you receive income, i.e. monthly, quarterly, half yearly or annually and either in advance or arrears as appropriate. At James Hay Partnership all the income is paid under the PAYE system. It is therefore important that you provide your latest tax coding to ensure we can deduct the correct amount of tax. In the absence of such information, we will use the official emergency code until we receive confirmation of an alternative tax code from HM Revenue & Customs (HMRC).
We will provide you with an annual review document which gives you the opportunity to review your chosen income level, but you can vary this at any time you choose.
When are the income limits reviewed?
If you take flexi-access drawdown after 5 April 2015 or convert your pre-5 April 2015 capped drawdown fund to flexi-access drawdown, there is no income limit.
If you remain in capped drawdown after 5 April 2015, then your capped drawdown income limit will be reviewed on every third anniversary of the date you first designated funds to provide income drawdown, up until you are aged 75. This three year period is referred to as the “reference period”.
The reference period in which you reach the age of 75 will end on the anniversary of the reference period immediately following this, where upon reviews will be carried out on an annual basis.
Prior to reaching age 75, you can ask for the income limit to be recalculated at the next income anniversary. If we agree, the maximum income will be recalculated and a new reference period will start on the anniversary date. Having asked for the recalculation, the new limit will apply, even if the maximum income level has decreased.
Provided the next income anniversary date does not coincide with the start of the next reference period, an automatic review will be carried out when your capped drawdown fund is reduced because of a pension sharing order as a result of divorce, or an annuity is purchased with some of the capped drawdown fund. The new limit will apply from the next income anniversary. However, the existing reference period would be unaltered.
Do all my pension rights have to go into
income drawdown?
No. Partial income drawdown is allowed.
If you have a protected retirement age or scheme specific lump sum, protection is lost if partial income drawdown is taken.
If part of my pension plan is in capped
drawdown, do I have to convert to
flexi-access drawdown to take more benefits?
If you have additional funds within the same pension plan from which you have not yet taken benefits, it may be possible to take these funds into capped drawdown after 5 April 2015 within the same plan and remain in capped drawdown (this is called additional designation).
What is an uncrystallised funds pension
lump sum (or UFPLS for short)?
This is a way of taking money from your pension fund which has not yet been crystallised (i.e. not yet in income drawdown).
You can normally take any amount you choose from your uncrystallised pension funds as a lump sum.
At James Hay Partnership the minimum UFPLS payment that you can take from your pension fund is £1,000.
Who is eligible for a UFPLS?
There are certain criteria you must meet to be eligible to take a UFPLS payment:
- you must have more lifetime allowance remaining than the amount of the lump sum if you are under age 75 when it is paid
- if you are 75 or over when the lump sum is paid, you must have at least some lifetime allowance remaining at that time
- you cannot have enhanced or primary protection with a protected lump sum or a lifetime allowance enhancement where the available proportion of your lump sum allowance is less than 25%, and
- you must have reached normal minimum pension age (55) or alternatively meet the ill-health conditions.
What tax do I pay on a UFPLS?
25% of each UFPLS payment will be free of tax (the tax free element); the remaining 75% of the payment will be subject to income tax at your marginal rate.
UFPLS payments will be tested against your lifetime allowance.
How is a UFPLS paid?
This is paid as a lump sum. However, because part of the UFPLS is tax-free and part is paid after deducting income tax under PAYE, we will pay two separate lump sums to your nominated bank account - first the tax-free element and then a few days later the net amount of the taxable element.
Can I still make contributions to my pension
after taking a UFPLS?
You can make new contributions to your pension once you have taken a UFPLS payment.
Taking a UFPLS payment (whether via your James Hay SIPP or another money purchase pension plan you may hold) means that you will be subject to money purchase annual allowance rules.
What are the money purchase annual
allowance rules?
If you trigger these rules and make contributions in excess of the money purchase annual allowance into your SIPP (or any other money purchase pension you may have) you will be liable for an annual allowance tax charge on the excess amount. This has the effect of cancelling out the tax relief received on the excess amount.
What is the amount of the money purchase
annual allowance?
The money purchase annual allowance is £10,000 for the 2015/16 tax year. This may be amended in future tax years by Treasury Order.
Uncrystallised Funds Pension Lump Sum
When are the money purchase annual
allowance rules triggered?
The money purchase annual allowance will be triggered on the occurrence of one of the events listed below: - an income payment from a fund in flexi-access drawdown - payment of an uncrystallised funds pension lump sum - payment of a stand-alone lump sum under a money
purchase arrangement where the individual has primary protection with a greater than £375,000 protected tax free lump sum right
- payment under a flexible annuity contract (a flexible annuity contract is one set up after 5 April 2015 where
the terms of the contract allow payments to decrease other than in prescribed circumstances set out in regulations)
- payment under a scheme pension, paid directly from scheme funds set up after 5 April 2015, where there are less than eleven other scheme pensions (including dependant’s scheme pensions) in force under the scheme - where before 6 April 2015 a scheme administrator
accepted a valid declaration from you that you met the flexible drawdown conditions.
What if I want to buy a lifetime annuity?
Once you have reached the minimum retirement age (normally 55) you can choose to use all or part of your pension fund to buy a lifetime annuity from an insurance company, whether or not you have crystallised your fund by taking income drawdown.
If you use uncrystallised funds to buy an annuity, you can receive a 25% pension commencement lump sum and then use the remainder of your fund to buy the annuity. If you are buying the annuity from crystallised funds, then you will not receive any further pension commencement lump sum.
James Hay Partnerhsip is not an annuity provider and so you would need to choose the insurance company from which you wish to buy the annuity on the open market. For more information on what to consider when deciding whether to buy an annuity, please read our fact sheet called “Your choices at retirement and the Open Market Option” available on our website www.jameshay.co.uk.
For more information on your options when you decide to take your pension income from your SIPP, or the types of annuities available, please refer to the free printed guide “Your pension – it’s time to choose” produced by the independent Money Advice Service available from
If you are unsure as to the most suitable retirement option for you or if you would like further information or guidance you should contact a regulated financial adviser. If you do not have a financial adviser you can visit