Wealthtime SIPP Benefits. Questions and Answers.

SIPP Benefits.

When can I take Benefits?

You do not need to retire or stop working to take benefits from your SIPP. Under HM Revenue & Customs rules the minimum age you can take benefits is 55, unless you have a protected early retirement age as defined by the legislation (for example a rugby league player may have an early retirement age of 35) or you have to retire early due to ill health. You can defer taking all or part of your benefits indefinitely.

What types of benefits are available?

From age 55 the SIPP allows you to take the following types of benefits:

  • A pension commencement lump sum of normally up to 25% of the SIPP fund value which is tax free
  • An income known as Drawdown Pension
  • An annuity purchased on the open market.
  • From April 2015 Flexi-access Drawdown.

What is required before benefits can be paid?

Before any benefits can be paid from your SIPP, Wealthtime requires the following:

  • If applicable, the full transfer value and associated transfer information
  • The re-registration of any assets being transferred in specie to be complete
  • Any contributions
  • If applicable, HM Revenue & Customs certificates enhancing or protecting your lifetime allowance
  • Evidence of your age
  • Evidence of your name and address (money laundering verification).

Can I phase my retirement?

The SIPP gives you the option to take all your benefits at once or, if you prefer, to take your benefits in stages over a period of time. You do not need to retire to start taking your benefits. Subject to HM Revenue & Customs rules, you may take benefits from the Arrangement all at once or from part of the Arrangement only and phase in your benefits at the times you choose, to suit your income needs. When you want to start taking benefits, we will need written notification of either the percentage or amount of the fund you wish to allocate to provide benefits or the level of income/lump sum you require and we will work out how much of your fund needs to be set aside to provide these. You will then need to complete our Benefit Payment Form. Wealthtime will then utilise funds from the Arrangement to provide these benefits. The part of the fund on which you have drawn benefits will be known as the crystallised part of the fund and the part on which you have not drawn benefits will be the uncrystallised part of the fund. The two parts may continue to be invested together in the same way as before you started taking benefits.

From April 2015 you will be able to take up to the whole of your fund at any time from age 55 subject to tax on the taxable element at your marginal rate of tax as Flexi-access Drawdown (see later).

If an annuity is required, Wealthtime will forward the appropriate monies directly to your chosen insurer.

Can I take my retirement benefit as a pension commencement lump sum (tax free cash)?

When your pension starts, either as an annuity or as drawdown from your fund, the pension commencement lump sum to which you are entitled under the fund must be taken at the same time or entitlement to it is lost. However, you can take your pension commencement lump sum and defer taking any pension if you wish. The payment of a pension commencement lump sum cannot be deferred. The pension commencement lump sum has to be taken as a lump sum in advance and cannot be taken on a regular basis. If you are phasing your retirement, the amount of pension commencement lump sum will be paid in proportion to the value of fund you have used to provide income compared to the value of the total fund.

What is the maximum pension commencement lump sum available?

The maximum pension commencement lump sum available to you from the SIPP will normally** be up to the lesser of 25% of the value of your fund and 25% of the Standard Lifetime Allowance (see later for the position when Fixed Protection has been granted).

** Transitional protection may be available for large tax free cash funds accrued before 6th April 2006.

How much income can I take as Drawdown Pension - Flexi-access Drawdown?

From April 2015 it is still be possible to purchase an annuity but it is only be possible to set up one type of drawdown - Flexi-access Drawdown. There will be no requirement to have a minimum income before being entitled to access up to the whole of your pension fund from age 55, subject to tax at your marginal rate but with, normally, 25% of the amount withdrawn being free of tax.

If you are currently taking Capped Drawdown, this will remain in place unless and until you decide you want to access more of your fund than permitted under the Capped Drawdown rules when it will be converted to Flexi-access Drawdown.

You can still decide to purchase an annuity at any time and there will still be no requirement to take benefits at any time.

From April 2015 we expect all clients starting to take benefits or transferring additional funds into Flexi-access Drawdown either to have obtained guidance from the Pensions Advisory Service for online and telephone enquiries or the Citizens Advice Bureau for face to face meetings (this is known as the Guidance Guarantee), or to have obtained pensions advice from a suitably qualified financial adviser. The Guidance Guarantee service is known as Pension Wise and is free. Their website is www.pensionwise.gov.uk. More information will be available in the "Wake Up" pack we will send you before you start taking benefits.

How much income can I take as Drawdown Pension - Capped Drawdown?

If you remain in Capped Drawdown after 6th April 2015 the level of income you can receive is calculated using tables compiled by the Government Actuary’s Department (GAD). These tables are used to determine the maximum income you can receive from the part of the SIPP fund you want to use to provide benefits. The maximum income you can choose to take can be up to 150% of the value derived from these tables. The minimum income is nil.

Under HM Revenue & Customs rules for Capped Drawdown we must currently recalculate your income limits at least every three years from the date the income payments started whilst you are under 75 and annually thereafter. You can request that we recalculate your income limits more frequently but any change can only be made at the beginning of a new pension year.

After 6th April 2015 those already in Capped Drawdown will be able to continue with this as long as the above benefit limits are not exceeded and further pension funds can be designated to Capped Drawdown. If the benefit limits are exceeded the Arrangement automatically becomes a Flexi-access Drawdown arrangement. This could be important for the amount of your Annual Allowance (see under SIPP Contributions for more information).

What frequency can I have my income payments?

Your income may be paid to you:

  • Either on an annual basis, or
  • In regular monthly, quarterly or half yearly instalments.

Your income will be paid on the first business day of the month. We cannot make payments at other times due to the automated nature of the payroll arrangements (this does not apply to pension commencement lump sums, which can be paid at any time).

What is the cut-off date for receipt of cleared funds?

To ensure that your income payment is included within our monthly income payroll, sufficient cleared monies must be held in your Designated SIPP Bank Account, at least 9 working days before the end of the month, prior to the date the income payment is to be made. Please note if you do not provide instructions, and there are insufficient monies in your Designated SIPP Bank Account, it may mean that your pension commencement lump sum and/or income cannot be paid on time. You will also need to check that your chosen investment providers/fund managers are able to set up the required disinvestments.

How can I amend my existing income instructions?

If you wish to start taking an income from your SIPP, you must notify us at least 15 working days before the end of the month, prior to the date the first income payment is to be made. If you wish to vary the amount of income you receive, you must notify us at least 10 working days before the end of the month, prior to the date the change is to come into effect. This notice is essential due to the complexities of HM Revenue and Customs' PAYE requrements. If you are in phased income payment and wish to take income from your remaining uncrystallised arrangement, you must notify us at least 15 working days before the end of the month, prior to the date the change is to come into effect.

Please note the ‘date the change is to come into effect’ is always the first business day of the month.

Is income tax payable?

All income payments are paid net of tax under the PAYE system. Please see the Corporate Application Form and the Benefit Payments Form for further information on how tax will be deducted which is potentially complex.

What is the Standard Lifetime Allowance?

Lifetime Allowance is the amount you are allowed to save in your pension fund(s) before it becomes liable to tax. When you take benefits from the SIPP these will be tested against your Lifetime Allowance.

The amount of Lifetime Allowance depends on your circumstances and may be either the Standard Lifetime Allowance or an Enhanced Lifetime Allowance.

The Standard Lifetime Allowance is £1.0 million from 06/04/2016. This amount has been steadily reduced from £1.8 million in 2011/12. At each reduction there was an opportunity to apply for protection against these reductions if the value or expected value of your pension plans warranted it.

Will I be able to enhance my Standard Lifetime Allowance?

You may be able to enhance your Standard Lifetime Allowance for the following reasons:

  • If the SIPP has received a transfer from a recognised overseas pension scheme where no UK tax relief has been received.
  • In certain circumstances if a pension credit is received.
  • You are not a UK resident when making contributions so have received no tax relief.
  • You have pre A-day pension funds (A-day was 6th April 2006).

More information about the types of protection available on pre A-day pension funds can be found later in this document.

Your Lifetime Allowance does not restrict the amount of pension fund you can build up but it does restrict the amount that is tax protected. This means that if your pension fund exceeds your Lifetime Allowance, in the absence of protection, the excess will be subject to a tax charge and the amount of this charge depends on whether you take this excess as an income or a lump sum.

What are Benefit Crystallisation Events?

Your fund is tested against your Lifetime Allowance at specific times to see if this has been exceeded and tax is payable. These are known as ‘Benefit Crystallisation Events’

A Benefit Crystallisation Event occurs when certain types of benefits are taken from your SIPP, for example:

  • Payment of pension commencement lump sums.
  • Establishment of drawdown pension including Flexi-access Drawdown after 6th April 2015.
  • Reaching age 75
  • Annuity purchase.
  • If you transfer your SIPP fund to a qualifying recognised overseas pension scheme.

How can I enhance my Lifetime Allowance?

If you have an enhanced Lifetime Allowance you will have notified HM Revenue & Customs by 5th April 2009 who will then have calculated the amount of enhancement available and a certificate will have been issued to you.

You must keep the certificate provided by HM Revenue & Customs until all benefits have come into payment, but if it is lost, destroyed or defaced HM Revenue & Customs will replace the certificate.

What happens if I take benefits in excess of my Lifetime Allowance?

If you take benefits from your SIPP funds which are in excess of your Lifetime Allowance, you can choose to take the excess as an income, as a lump sum or as a combination of both, but there will be a tax charge of:

  • 25% on the excess, if it is paid as an income (in addition to income tax on the income payments) or
  • 55% on the excess if you choose to take the funds in excess of your Lifetime Allowance as a lump sum.

What is Primary Protection?

Primary Protection can only be claimed if the value of your pension fund at 5th April 2006 exceeded £1.5 million. If you have this type of protection HM Revenue & Customs allows your Standard Lifetime Allowance to be uprated by an ‘enhancement factor’ based on the percentage by which the value of the pension fund at A-day exceeds the Standard Lifetime Allowance at that date. This means that when you take benefits the enhancement factor is used to increase the Standard Lifetime Allowance in force at that time and only the value of the fund crystallised in excess of the Enhanced Lifetime Allowance will be taxed. You can continue to pay contributions to your SIPP whilst claiming Primary Protection.

What is Enhanced Protection?

Enhanced Protection can be claimed whether or not the value of your pension fund at 5th April 2006 exceeded £1.5 million. If you claim this type of protection HM Revenue & Customs will usually allow the full value of your pension benefits accrued at 5th April 2006, as well as all subsequent investment growth, to be protected from any tax charges but you will not be able to pay any contributions into your pension fund after 5th April 2006 whilst claiming Enhanced Protection.

Can I have both Primary and Enhanced Protection?

If your pension fund exceeded £1.5 million as at 5 April 2006 you can elect for both Primary and Enhanced Protection initially to keep your options open. Enhanced Protection will take precedence. Whether you have Primary or Enhanced Protection (and in the latter case, if Pension Commencement Lump Sum is also protected) will be shown on the Certificate you should have obtained from HM Revenue and Customs granting your Protection.

What death benefits are available?

There was a fundamental change in the rules in April 2015. For any death after 14 December 2014 the basic options are as follows:

Firstly there may be a test against the Lifetime Allowance and any excess over this limit, unless any protections apply, will be taxed at 55% if taken as a lump sum or 25% if the monies remain within the pension environment.

You can nominate any individual beneficiary to receive the Death Benefits from the pension fund.

A dependant (see below) can either take:

a) An income from a dependant’s pension
b) Lump sum

Any other nominated individual can either take

a) An income from a Nominee’s pension
b) Lump sum

The tax position will usually be determined by the age of the deceased; if you died under the age of 75, the payment (lump sum or income) will usually be tax-free, if you died over the age of 75 the same options will usually be taxed at the beneficiary’s marginal rate of tax.

You can nominate more than one beneficiary including a UK charity or Trust Fund and their options are independent of each other.

This applies to payments made on or after 6th April 2015 even if the death occurs before that date.

What is the definition of Dependant?

A dependant is:

  • A person who was married to the member or registered as the civil partner of the member at the time the member first became entitled to a pension under the Plan or at the date of the member’s death.
  • A child of the member if the child has not reached the age of 23.
  • A child of the member who has reached age 23 and, in the opinion of the Scheme Operator/Administrator, was at the date of the member’s death dependent on the member because, of physical or mental impairment.
  • A person who was not married to the member at the date of the member’s death and is not a child of the member if, in the opinion of the Scheme Operator/Administrator, at the date of the member’s death the person was financially dependent on the member (financial dependency for this purpose also includes interdependency).

The Wealthtime Private Client Service is administered by Wealthtime Limited, which is authorised and regulated by the Financial Conduct Authority.
Wealthtime recommends that before making a decision regarding this service and the investments you should contact your Financial Adviser.

Wealthtime Limited, The Oak House, Barford Lane, Downton, Salisbury, Wiltshire SP5 3QA T: 01725 512925 E: admin@wealthtime.co.uk

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