Technical question regarding HYP and SIPP

[Gareth Howell]

Since the last set of pension rule changes, I’ve been whacking a lot of money into my company personal pension to take advantage of the 40% relief. I also have a “play” SIPP that I am proposing to use as the starter for a HYP.

My question relates to withdrawing dividend income once I retire (soon).

Assume that I transfer the company pension into my SIPP after retirement and use it to build the HYP. If I withdraw only the dividend income from the shares in the SIPP, have I gone into drawdown? I ask because at that point the amount of capital I can add to the SIPP reduces sharply (I may still do some consultancy work)

Gareth

[Stephen Bland]

This is a personal financial advice question that I am not permitted to answer due to financial services legislation which prohibits my doing so. Other readers may comment though.

[Nigel Roberts]

Gareth,
The answer is that as soon as you start withdrawing funds you are taking money out and so you are in draw down – I believe that you are able to continue to contribute while in drawdown – but I am sure that this would be counterintuitive…. also I think once you withdraw funds the amount you can contribute drops dramatically – you need to take proper advice!
You also need to be careful about transferring company pensions into SIPPS and you most definitely need proper financial advice before doing that.
Nigel

[David Burton]

Hi
I made the decision in 2013 to consolidate all my (small ish) pension funds into a self-managed SIPP and to invest the sums into one HYP-based fund based on SB’s recommendations. I invested a total of £163k. I opted for flexible drawdown to allow me take what and when I wanted from it. 5 years later I have withdrawn my tax free allowance of £10-11k. The idea was that the dividends of c4% would be my income and let the capital fluctuate. The capital value is now £212k making the overall return of about 62% (50k capital and 50k income over £160k over 5 years) or about 12%pa. Better than any annuity. I also enjoy the idea of keepig in touch wih companies news and managing a portfolio. I am also allowed to add £2880pa which is soon after topped up by HMG by £620 tax relief ‘money for nothing’ that I could choose to immediately withdraw. To me, this is not counter-intuitive but good business. Of course, it all depends on your circumstances and advice should be taken, but this has really worked for me.

[Stephen Bland]

Glad the HYP approach has worked for you David.

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