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If you wish to take control of your pension, we offer a tax-efficient SIPP to help you build your retirement savings. When you choose to retire, we offer the ability to encash these investments as and when you choose through our flexi-access drawdown service, whilst keeping the balance working in the markets.
For each pension contribution you make, 20% basic rate tax relief is automatically added into your Trustnet Direct SIPP account by the government. For instance, if you invest £10,000, the government adds £2,500 (20%) tax relief, increasing your total contribution to £12,500.
If you pay tax at 40% or 45%, you can claim back even more through your tax return. Remember tax rules can change over time and the benefits will depend upon your circumstances; see our case studies.
Setting up a Trustnet Direct SIPP allows you to build a tax-free retirement fund and use our class-leading information and tools to manage your investments through to retirement and beyond. View our SIPP account benefits here
Under the HMRC pension legislation you can take your benefits from age 55, or younger on ill health grounds. Please note that you do not have to leave employment to draw your benefits from your Trustnet Direct SIPP.
You can draw benefits as part of full or phased drawdown. Phased drawdown is where you select part of your fund value to be used for payment of benefits (crystallised fund) leaving the rest to be used at a later stage (uncrystallised fund): this is known as ‘phased drawdown’.
All pension benefits (lump sums and income) must be paid to you personally.
When it comes to taking your pension benefits you can choose whether or not to:
You can also combine some of these options, for example, take your tax-free cash, purchase an annuity with part of the remainder and continue to invest the balance whilst drawing an income from it, if required.
Where you choose to take regular income payments, we will pay these on either the 14th of 28th day of the month (see Pension Income payments).
Pension Commencement Lump Sum (PCLS)
Before drawing any income from the pension scheme under Flexi Access (see below), you have the option to draw a pension commencement lump sum of up to 25% of your fund value.
This lump sum is currently tax-free and must be paid at the commencement of the chosen benefits otherwise the option is lost. You can however choose not to take the maximum tax-free sum: in this case only part of your pension fund is crystallised, the remaining part can then be crystallised at a later date and a further tax-free sum drawn at that time. This is known as ‘phased drawdown’,
Where you choose not to draw your PCLS you can take lump sums by way of Uncrystallised Funds Pension Lump Sum (UFPLS).
Uncrystallised Funds Pension Lump Sum (UFPLS)
Under this option you can take individual, one-off payments from funds that have not been crystallised. Usually the first 25% of each payment will be tax-free and the rest taxed at your marginal rate.
This option allows you to take your benefits, as and when you like. You can take an initial tax-free payment – up to a maximum of 25% of your fund (see PCLS above).
The remainder can be used to draw a regular income and/or further lump sums as required: these will be taxed as income at your marginal rate. You can start and stop your income payments as desired.
Full Fund Payment
You can take your whole pension fund under Flexi-Access arrangement or, where your pension fund is less than £10,000 under the ‘small pot’ rules. In doing so, the full value of the fund will be transferred to you personally and the SIPP will be closed.
As with PCLS, when taking the full fund, the first 25% is tax-free and the remainder taxed at your marginal rate. Should you have already taken your tax-free cash (for example, having taken PCLS under Flexi Access you then decide at a later date to draw the remainder of your pension fund in full) that entire amount will be fully taxed at your marginal rate.
The ‘small pots’ rules enable you to take all of the funds from up to three separate personal pension arrangements, provided that each is worth less than £10,000.
An annuity is a financial product which turns some or all of the money in your pension fund into an ongoing income in retirement.
The Trustnet Direct SIPP does not offer annuities. If you wish to purchase an annuity, you should speak with your chosen annuity provider to establish the sum needed to purchase your annuity and we will transfer the funds to them. You can transfer all, or just a portion of your pension fund to an annuity provider to take this option. The transfer to an annuity provider is tax-free, however the payment of annuity income will be subject to income tax.
There are many different types of annuity, each designed to suit your own personal circumstances.
You can shop around, (this is known as the open market option), to find the Annuity Provider that will give you the best annuity product to meet your needs.
Capped Drawdown only applies where you have crystallised all or part of your pension fund before 6 April 2015. For partial crystallisations, further funds from your original pension pot (the total fund pre-6 April 2015) can be added to Capped Drawdown by crystallising additional funds.
Any new funds contributed to your pension after 5th April 2015 cannot be added to your Capped Drawdown funds.
Under this option, pension income is calculated using your age and the Gilt Yields and Government Actuary Department (GAD) rates as at the date your benefits are calculated. Once the pension levels have been calculated and any chosen lump sum has been paid, you can draw a pension income from the scheme at any level between zero and the maximum calculated. All pension income is taxed via PAYE. The maximum income figure is valid for the first 3 years and is then recalculated on each anniversary of the original calculation.
Flexible Drawdown has been replaced by Flexi-Access Drawdown. All customers who were using flexible drawdown pre-6 April 2015 have been moved to Flexi-Access.
When drawing a flexible income it is important that you take into consideration your future financial needs and those of your dependents.
Under this drawdown arrangement, having taken your full tax-free cash (PCLS) you can then choose to draw a regular income or delay taking income under a later date. All income payments (and any additional lump sums you may draw) are paid to your net of income tax (see Pension income payments).
Where you have crystallised only part of your pension, for example when taking less than the full 25% tax-free cash on commencement, you can take a further tax-free cash sum at a future date.
Uncrystallised Funds Pension Lump Sum (UFPLS)
By not taking the initial tax-free cash payment you are leaving your pension uncrystallised and can take payments as and when you wish, Because you did not take your initial tax-free cash, the first 25% of each payment you receive will be tax-free, with the remainder taxed as income at your marginal rate.
These examples are provided to illustrate the various choices you might make. They do not cover all possible combinations, so if you have any questions please contact Pension Wise (www.pensionwise.org), call us, or seek independent financial advice.
Taking tax-free cash and an income via Flexi Access
Tom has a pension fund of £400,000. He wishes to take his full tax-free cash amount and thereafter monthly income of £1,500.
In order to take the maximum 25% tax-free ash, all of his pension will be crystallised.
He continues to manage his SIPP and draws on its value to pay his monthly income. That income, £1,500 p.m., is paid net of income tax at his marginal rate. Assuming he has no other income apart from his state pension of, say, £6,000 p.a., he will be a basic rate tax payer and hence his monthly income payment (based on 2015/16 tax year income tax allowances and rates) will be approx. £933 p.m.
Tom also has the option to take further lump sums. As he has already drawn his full tax-free cash entitlement, any sums he draws will be treated as income and taxed at his marginal tax rate.
Adam has the same pension pot of £400,000. He decides to draw only £50,000 tax-free cash but also requires a monthly income of £1,500.
To enable him to draw tax-free cash of £50,000, he will crystallise £200,000, leaving £200,000 uncrystallised. This is known as ‘phased drawdown’.
The total remaining pension fund of £350,000 remains invested and he continues to manage it. As with John, his monthly income of £1,500 is drawn against the crystallised part and paid net of income tax. He can also draw further lump sums from his crystallised pot, with each payment being taxed in full at his marginal tax rate.
At a later date Adam can now draw a further tax-free cash sum from the uncrystallised part of his pension fund. The actual amount he draws will depend upon the value of that part of his fund – so, for example, if that has grown to £240,000 he could draw £60,000 tax-free. In doing so, this part is now also crystallised. Again, income and any further lump sum withdrawals will be taxed in full at his marginal tax rate.
Taking payments under UFPLS
Tom might choose to not take his initial tax-free cash. In making this choice, he is not crystallising his pension. He wishes to take out £50,000.
His £50,000 withdrawal is taxed as follows:
So, if he was a basic rate tax payer he would pay tax @ 20% on £37,500, a tax deduction of £7,500. He would therefore receive a total payment of £42,500.
He could then choose to take further payments under UFPLS. As before, the first 20% of each payment is tax-free and the remainder taxed at his marginal tax rate.
He could also choose to crystallise all, or part, of his pension under Flexi Access. The amount he could then draw tax-free as a PCLS payment would depend upon the value of his pension at that time. If, for example, his pension grew from 3350,000 to £275,000 he could take a tax-free sum of up to £93,750. Conversely, if it has fallen to £325,000 that maximum sum would be £81,250.
Ill Health Benefits
There are five conditions that must all be met in order for a payment to be treated as a serious ill-health lump sum. These are as follows:
If these conditions are met then your entire fund can be paid out as a tax-free lump sum. If you are 75 or over then an ill health lump sum can be paid if the four other conditions are met; however the lump sum will then be taxed at 45%.
If you die before age 75 - your beneficiaries can take the whole pension fund as a lump sum or draw an income from it tax-free using Flexi-Access drawdown. Dependents can also choose to use the fund to buy an annuity. Dependents’ income is tax-free if it is designated to drawdown within 2 years of the death of the member. If the 2 year deadline is not met then Dependents’ income will be taxed.
If you die after age 75 - your beneficiaries will have three options:
Restrictions to Further Contributions
Pension contributions are subject to a £40,000 annual allowance and specific contribution rules.
However, from 6 April 2015 should you make any withdrawals from a pension (other than the tax-free cash), your annual allowance will be reduced to £10,000. (Previously, investors in flexible drawdown are not able to make any further contributions.)
There are 3 exceptions to this rule:
Except where these 3 exceptions apply, the £10,000 annual contributions limit applies in all instances where pension income is paid.
Pensions Income payments
All pension income payments are taxed as earned income and paid directly into your bank account, on either 14th or 28th of the month. (You may also choose to have a payment on both dates.)
In order to apply the correct tax code to your income payments, we will need to obtain a tax code from HMRC: this could take 2 – 4 weeks. If you do not wish to wait for us to receive your tax code before receiving your payment, you can elect to have the payment made net of ‘emergency tax’. You would then need to contact HMRC to discuss obtaining a refund on any tax you have overpaid.
Payment of Pension Benefits process
To provide a quotation of benefits we will need you to complete a Pension Benefits Illustration Request, which includes the current value of your SIPP, how you envisage drawing your pension benefits, and details of any other pension arrangements in payment.
We’ll provide you with a quotation pack based on your requirements and a Commencement of Pension Benefits form. We recommend that you take advice on the most appropriate option, or combination of options.
Once the benefits have been paid you will be issued with a Cancellation notice, this provides you with an option to cancel within 30 days of the commencement of benefits. If you choose to cancel your benefits within the 30 days, then any payment received by you from your SIPP must be returned to the SIPP bank account.
We will also issue you a Lifetime Allowance Certificate in respect of the benefits paid. An updated Lifetime Allowance Certificate is provided to you each year and we recommend you retain these for future reference.
The fees payable are detailed on the fee schedule which can be found here: https://www.trustnetdirect.com/account-charges
Please note that neither Trustnet Direct, nor The Lifetime SIPP Company Limited and their appointed third party administrators Hartley SAS Limited are authorised to provide you with financial advice on your SIPP or the benefits payable.
The Pension Advisory Service provide free guidance on retirement options, this service is called Pension Wise. To contact Pension Wise please visit www.pensionwise.gov.uk.
We strongly recommend that further to taking guidance you take Independent Financial Advice from a FCA Regulated financial adviser. If you currently do not have an adviser please visit www.unbiased.co.uk for further information on adviser in your area.
All eligible pension contributions automatically qualify for basic-rate tax relief. However, if you're a higher rate of additional taxpayer, you could qualify for up to 45% tax relief, depending on your circumstances.
Read our case studies to see how tax relief works. The amount of tax relief you will be entitled to will depend on your individual circumstances and, most importantly, whether you are a higher-rate taxpayer or not.
All eligible pension contributions automatically qualify for basic rate tax relief:
you can contribute your entire income into your SIPP (subject to a 2013/2014 cap of £50,000). You will qualify for basic-rate tax relief automatically and for higher-rate and additional rate tax relief on that portion of your income that attracts a higher tax rate. Please note: Higher earners may be subject to limits on the higher-rate tax relief available.
you can still pay a net contribution of £2,800 a year into your SIPP and receive basic-rate tax relief of £720, which will bring your overall investment up to £3,600. You can also set up a SIPP for a child or spouse and pay the contributions on their behalf up to these limits.
The amount of tax relief a you will be entitled to will depend on your individual circumstances and most importantly, whether you are a higher-rate taxpayer or not. Please note that tax rules can change.
An individual with no other allowances would start to pay higher rate tax over an income of £42,385 (calculated as your personal allowance plus the point at which the higher-rate band applies). Income received over this figure would be eligible for higher-rate tax relief if you decided to invest in a pension.
The annual allowance is £40,000 for 2015/2016.
All your pension contributions into the Trustnet Direct SIPP, up to the annual allowance, qualify for basic-rate tax relief. Any contribution is net of basic rate tax. If you were to invest £800, an additional £200 would be collected automatically from HMRC on your behalf, added to your account, and be available to invest 6 to 11 weeks later. Higher-rate and additional rate taxpayers making contributions on their own behalf can reclaim a further tax relief through their self-assessment forms.
Please note: Higher earners may be subject to limits on higher-rate tax relief available.
You can visit the Money Advice Service website www.moneyadviceservice.org.uk for more information about pensions and retirement income products, and use their unbiased comparison tables to help you compare annuity rates. Their advisers can also help you with your pension questions on 0300 500 5000. Before you make any decisions we recommend that you read the Money Advice Service Leaflet ‘Your pension: it’s time to choose’.
Help is always at hand
Organising your retirement finances is very important, so if you need any help or assistance from our knowledgeable contact centre team, please get in touch:
0345 204 88 00 - Please Press Option 3. Calls to this number cost no more than calls to 01 and 02 numbers. Overseas callers,
Please dial: +44 (0) 141 206 3992
Our UK-based support service is available to assist you between 8am - 9pm Monday to Friday
Click the button to access our email submission form. Please note however, that due to security reasons, we will not use email to disclose your account information.
The information contained within this guide is for information purposes only and does not constitute financial advice. The information provided is our understanding of the tax rules as at the date of writing and our interpretation of FCA rules. We strongly recommend you take independent financial advice from a FCA authorised individual and tax advice from a suitably qualified tax adviser so they can tailor recommendations that will match your personal circumstances and your future requirements.