Pension commencement lump sum
Pension
Income drawdown
Capped drawdown
Flexible drawdown
Scheme pension
Annuities
You may start to take your benefits at any time from age 55. It may be possible to take benefits earlier if you are in serious ill health.
The use of all or part of your fund to provide benefits is called ‘crystallisation’.
You do not have to retire or stop work in order to take benefits from your SIPP. Benefits may be taken in stages; the full value of your fund does not have to be used to provide benefits at one time.
When you take benefits from your SIPP, and at age 75 if you have not taken your benefits, the total value of the funds held within your SIPP and any other pension arrangements you have, will be tested against the current lifetime allowance. If the lifetime allowance is exceeded, there will be an additional lifetime allowance charge unless you have obtained the necessary pension protection.
When a SIPP member retires, benefits can be taken as follows.
Pension commencement lump sum
Normally, the maximum tax-free lump sum that you can take is 25% of the fund you use to provide pension benefits, up to the lifetime allowance. Therefore, the maximum tax-free lump sum is as follows:
| Tax Years | Maximum Tax-free Lump Sum |
|---|---|
| 6/04/2012 to 5/4/2016 | £375,000 |
You may be entitled to more than this amount if lump sum protection or fixed protection has been obtained. Your financial adviser can explain this further.
Pension
Your Rowanmoor Pensions SIPP offers you the widest choice of options available when taking your benefits. Any pension taken from your fund will be treated as earned income and is therefore liable to income tax.
Income drawdown
You may draw pension income from your fund through capped drawdown or flexible drawdown.
Capped drawdown
The amount of pension that can be drawn down via capped drawdown can vary each year between 0% and 100% of the amount of annuity that could be provided using the Government Actuary’s Department’s annuity rate applicable for you at the time you take benefits. The maximum level of capped drawdown must be reviewed at least every three years and annually after age 75.
Flexible drawdown
Flexible drawdown also enables income to be taken from your fund, provided you meet the minimum income requirement (MIR). There are no restrictions on the level of income that you can take, but no further pension funds can be built up, or accrued, for you in any registered pension scheme. All contributions to all your pension arrangements must cease, permanently, in the tax year before flexible drawdown commences. Any accrual or contributions made in the tax year, or subsequent tax years after flexible drawdown occurs, will be subject to the annual allowance charge.
Minimum income requirement (MIR)
The minimum income requirement is the amount of secured pension income, that you must have for life, to draw an income via flexible drawdown. The minimum income requirement is £20,000 per annum and will be reviewed by the Government in the 2015/2016 tax year.
Income payments that qualify towards the minimum income requirement include the basic State Pension, State Second Pension (S2P), lifetime annuities, and scheme pension if the scheme has twenty or more people receiving a pension. Purchased life annuities, short term annuities, other state benefits and any type of income drawdown do not qualify.
Scheme pension
A Rowanmoor Pensions SIPP provides you with the opportunity to take your benefits as a scheme pension.
A scheme pension is a secured income paid to you for life. Unlike income drawdown, a scheme pension can provide a guaranteed income period of up to ten years. On your death, the pension is normally paid to your nominated beneficiaries for the remainder of the guarantee period.
A scheme pension allows you to receive an income direct from the SIPP. The SIPP provides you with a set level of pension in return for your fund. The level of pension is calculated by Rowanmoor Pensions Actuarial Department and is designed to pay out your fund over your expected lifetime. The amount of scheme pension payable is normally reviewed every three years and may vary, depending on the investment performance of the scheme assets.
If your life expectancy changes, for example due to ill health, the Actuary can review the payment of your scheme pension to reflect any shorter life expectancy.
To enable us to provide this type of pension, Rowanmoor Pensions must register your SIPP as an individual pension scheme with HMRC. Further details can be found in our SIPP literature library.
Please contact us for further details if you are considering the scheme pension option. We recommend that you seek independent financial advice before proceeding with this method of taking benefits.
Lifetime annuity
A lifetime annuity is purchased from a life assurance company. The annuity must be payable up to your death, or the end of any guarantee period should you die within this period. This type of income is secured and qualifies towards the minimum income requirement.
The annuity may be level or incorporate annual increases and may also allow for dependants’ pensions to be paid after death of the annuitant.
Short term annuity
A short-term annuity is purchased from a life assurance company and is payable for a term of no more than five years. It does not count towards the minimum income requirement for flexible drawdown.
This information relates to the Rowanmoor Pensions SIPP. If you have specific queries regarding the information provided on this page, please contact us, email us or send your questions via the enquiry box on the right hand side. Alternatively, please visit our SIPP literature library.
