Question
I am 65, retired, non-resident, and have a pension pot uncrystallised of about GBP 265k, from a company pension scheme, presently sitting partly in a SIPP and partly in an insurance company personal pension. I would like to consolidate it into one scheme for ease of management.
Looking at SIPPs, most do not like non-residents, most aim their literature (understandably) at contributors and do not explain the mechanism for cashing out to pay the drawdown, and most have very poor facilities for cash storage.
Does the drawdown have to be monthly, or could it be an annual payment?
An annual payment would be easier to manage (and perhaps obtain an advantage in the timing) if I have to convert investments into cash myself before a payment can be made.
Trying to work out the best and most cost effective provider for me is a bit daunting. Your suggestions would be appreciated, including for any alternative to a SIPP.Answer
Let's start by covering the logistics of drawing an income from your pension - commonly called 'drawdown'.
Once you decide to take an income from your pension your benefits will become 'crystallised'. This means you must take up to 25% of the fund as tax-free cash, if you want to, and won't be able to make any further contributions into the pension (except, perhaps, from other pension funds).
Drawdown rules are changing a little from 6 April 2011, so I've assumed the new rules below as these will obviously apply to you.
To calculate how much income you can take you need to perform a 'GAD' calculation - basically a formula laid down by the Government Actuaries Department that guesstimates how much annuity income your pension could produce. You can then draw income between £0 and 100% of the GAD amount each year. You can read more about the calculation on the HMRC website here.
Then it's simply a case of drawing the income, either monthly, quarterly, annually or ad-hoc within the above limits. The income is normally paid by selling underlying pension investments and, yes, a cash account can facilitate this - although interest rates tend to be appalling. You'll obviously need to keep an eye on your fund to avoid running out of cash and the GAD calculation must be carried out every 3 years until age 75, then every year.
I agree that SIPP providers don't generally accept business from non-residents, but there are a few that will provided the money comes from the transfer of an existing UK pension. Of these, the Sippdeal e-sipp offers a pretty cost effective proposition. There are no charges to transfer in, dealing charges (for funds and shares) are £9.95 per deal and you'll pay a £150+VAT drawdown set up charge plus a further £75+VAT drawdown annual charge. I'd suggest checking how these charges stack up against your existing SIPP.
Withdrawing income annually would probably be more convenient and cheaper too, given the £9.95 dealing charge to sell investments.
As you're non-resident you might also consider transferring into a Qualifying Recognised Overseas Pension Scheme (QROPS). In simple terms these are overseas pensions that HMRC permits your pension to be transferred into. The potential benefit is that income will not be subject to UK tax (although a QROPS must report income to HMRC until you've been non-resident for 5 years) and you might be able to hold investments in your local currency to avoid currency risk. However, bear in mind that the income will likely be taxable wherever you are now resident and the pension fund itself may be taxed too. Plus the costs might be higher than a UK SIPP and there are lots of unscrupulous salesmen peddling QROPS at the moment, will little regard for whether they're actually best advice for their customers. By all means look into QROPS if you don't plan to return to the UK, but tread very carefully.
Or a third option, if you want to keep things simple, is to take the tax-free cash and buy an annuity with remainder of your pension(s). Then sit back and enjoy a hassle free income for life.
Finally, if you do decide to transfer, double check whether you'll incur any penalties from your existing pension providers, if so you'll need to factor these into your decision.
Hope this helps.
I am 65, retired, non-resident, and have a pension pot uncrystallised of about GBP 265k, from a company pension scheme, presently sitting partly in a SIPP and partly in an insurance company personal pension. I would like to consolidate it into one scheme for ease of management.
Looking at SIPPs, most do not like non-residents, most aim their literature (understandably) at contributors and do not explain the mechanism for cashing out to pay the drawdown, and most have very poor facilities for cash storage.
Does the drawdown have to be monthly, or could it be an annual payment?
An annual payment would be easier to manage (and perhaps obtain an advantage in the timing) if I have to convert investments into cash myself before a payment can be made.
Trying to work out the best and most cost effective provider for me is a bit daunting. Your suggestions would be appreciated, including for any alternative to a SIPP.Answer
Let's start by covering the logistics of drawing an income from your pension - commonly called 'drawdown'.
Once you decide to take an income from your pension your benefits will become 'crystallised'. This means you must take up to 25% of the fund as tax-free cash, if you want to, and won't be able to make any further contributions into the pension (except, perhaps, from other pension funds).
Drawdown rules are changing a little from 6 April 2011, so I've assumed the new rules below as these will obviously apply to you.
To calculate how much income you can take you need to perform a 'GAD' calculation - basically a formula laid down by the Government Actuaries Department that guesstimates how much annuity income your pension could produce. You can then draw income between £0 and 100% of the GAD amount each year. You can read more about the calculation on the HMRC website here.
Then it's simply a case of drawing the income, either monthly, quarterly, annually or ad-hoc within the above limits. The income is normally paid by selling underlying pension investments and, yes, a cash account can facilitate this - although interest rates tend to be appalling. You'll obviously need to keep an eye on your fund to avoid running out of cash and the GAD calculation must be carried out every 3 years until age 75, then every year.
I agree that SIPP providers don't generally accept business from non-residents, but there are a few that will provided the money comes from the transfer of an existing UK pension. Of these, the Sippdeal e-sipp offers a pretty cost effective proposition. There are no charges to transfer in, dealing charges (for funds and shares) are £9.95 per deal and you'll pay a £150+VAT drawdown set up charge plus a further £75+VAT drawdown annual charge. I'd suggest checking how these charges stack up against your existing SIPP.
Withdrawing income annually would probably be more convenient and cheaper too, given the £9.95 dealing charge to sell investments.
As you're non-resident you might also consider transferring into a Qualifying Recognised Overseas Pension Scheme (QROPS). In simple terms these are overseas pensions that HMRC permits your pension to be transferred into. The potential benefit is that income will not be subject to UK tax (although a QROPS must report income to HMRC until you've been non-resident for 5 years) and you might be able to hold investments in your local currency to avoid currency risk. However, bear in mind that the income will likely be taxable wherever you are now resident and the pension fund itself may be taxed too. Plus the costs might be higher than a UK SIPP and there are lots of unscrupulous salesmen peddling QROPS at the moment, will little regard for whether they're actually best advice for their customers. By all means look into QROPS if you don't plan to return to the UK, but tread very carefully.
Or a third option, if you want to keep things simple, is to take the tax-free cash and buy an annuity with remainder of your pension(s). Then sit back and enjoy a hassle free income for life.
Finally, if you do decide to transfer, double check whether you'll incur any penalties from your existing pension providers, if so you'll need to factor these into your decision.
Hope this helps.
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