Taking Pension. Monthly or Yearly?

[Veryoldandgrumpy]

Hi,

I am still deciding how i want to take one of our pensions.
My thoughts were either Monthly to be similar to a wage or possibly as a lump in March for the following year.
Is it worth moving say 2 years into a MMF and taking the monthly income from that. Allowing the growth part to hopefully rise and topping up the MMF in March.
Or
Do you just take it monthly out of your main SIPP investments regardless of the ups and downs of the market.

Cheers
Voag

[BullDog]

For simplicity sake I drawdown the dividends that have accrued over the year in March, just before the end of tax year deadline.

[DrFfybes]

AIUI if you take a year's out at once, you get taxed as though you'll do that every month.

However being March you can claim it back again a few weeks later

Paul

[BullDog]

AIUI if you take a year's out at once, you get taxed as though you'll do that every month.

However being March you can claim it back again a few weeks later

Paul

Not quite. March is pay period 12, the last one in the tax year. April is tax period 1 of the next tax year. Overpayment of tax can occur if you drawdown in earlier months but not in month 12. Naturally, any under or over payment of tax is sorted out by self assessment.

[Gerry557]

Look for form P55 to claim back tax taken on a lump under the threshold for tax.

[Veryoldandgrumpy]

Thanks for the replies so far, can I also ask why you dont withdraw monthly and all choose yearly?

[swill453]

Thanks for the replies so far, can I also ask why you dont withdraw monthly and all choose yearly?

I don't know about anyone else, but I let dividends accrue in the run up to the start of the tax year then withdraw as soon as I can get my sticky mitts on it soon after the 6th April.

Actually I deposit £2880 into my SIPP on exactly the 6th April, then re-withdraw it as soon as it clears, plus enough of my cash balance to make up my annual £12,570 drawdown, avoiding income tax (though I have to claim it back via the P55).

If I've worked it out right I will have already re-invested any excess dividends.

Scott.

[BullDog]

Thanks for the replies so far, can I also ask why you dont withdraw monthly and all choose yearly?

For me, it's simply because I draw accrued dividends only, no capital. And I don't know exactly how much there's going to be until the end of the tax year.

[xxd09]

What I do and have done for 21 years of retirement -maybe of some practical help?
I have 2+ years living expenses cash at all times in instant access cash ISAs plus a high interest bank account
I take monies once a year (or more if required) from my SIPPs and /or ISAs and replenish / top up the cash accounts
I withdraw cash weekly /monthly as required from my high interest bank account (instant access cash ISAs if needed) to replenish my current bank account
Try to make all living expenses spending on credit card which can give up to a months free credit -if required -puts more financial leeway in the system
Pay off credit card well before months free credit limit is reached
xxd09

[SebsCat]

Thanks for the replies so far, can I also ask why you dont withdraw monthly and all choose yearly?

We've opted for my wife to take a regular monthly amount from her SIPP funded by the dividends received. Initially this was going to just be up to the personal allowance with the remainder reinvested but we've recently decided to set it at a level that - combined with shares sold & withdrawn in March - is such that it maximises use of her basic rate tax band (*).

* - the withdrawal rate is more than the hypothetical "safe" level, but takes into account that once she gets her State Pension then the SWR would result in higher rate tax being payable.

[Dicky99]

Last year I withdrew a year's worth of living expenses and bought premium bonds with it then withdrew 1/12th each month. I didn't bag many prizes but I'll do the same again this year and hopefully bag the big one

[jimleigh61]

Thanks for the replies so far, can I also ask why you dont withdraw monthly and all choose yearly?

Having first transferred 10% of my wifes tax allowance to myself. I do indeed take 1,536.66 tax free every month from my SIPP as UFPLS. This has worked very well for 5 plus years, however you have to make sure you have enough funds available ever month.

[Gerry557]

Thanks for the replies so far, can I also ask why you dont withdraw monthly and all choose yearly?

I assume some people take out lumps free of tax where they can and reinvest in tax free Isas until state pension age prevents that process.

[xeny]

Thanks for the replies so far, can I also ask why you dont withdraw monthly and all choose yearly?

I would guess administrative convenience. I have read at least one study showing progressively better outcomes as you move from annual to quarterly to monthly withdrawals (as you have more money invested for longer) but at any kind if sensible withdrawal rate the difference isn't huge.

I think DC pension only allows up to 4 withdrawals a year, so I will probably run that down quarterly.

[swill453]

Thanks for the replies so far, can I also ask why you dont withdraw monthly and all choose yearly?

I would guess administrative convenience. I have read at least one study showing progressively better outcomes as you move from annual to quarterly to monthly withdrawals (as you have more money invested for longer)

Unless of course you immediately re-invest the money outside the SIPP.

but at any kind if sensible withdrawal rate the difference isn't huge.

Agreed.

I think DC pension only allows up to 4 withdrawals a year, so I will probably run that down quarterly.

It will depend on the provider. Mine (AJ Bell) doesn't have a limit (though I guess they might get annoyed at daily withdrawals )

Scott.

[Veryoldandgrumpy]

I had originally planned on taking a small amount monthly, approx £1000 per month then taking the rest each March, depending on if it has been a good or bad year for the SIPP. I worried that taking a years worth out of the SIPP when it was potentially going to be a down year wasnt sensible. Hence my procrastination.
There is 700k in the pot, so in a way I doubt a £1000 monthly would make much difference either way in the long term.
Just thinking out loud really

[kempiejon]

Hi,

I am still deciding how i want to take one of our pensions.
My thoughts were either Monthly to be similar to a wage or possibly as a lump in March for the following year.
Is it worth moving say 2 years into a MMF and taking the monthly income from that. Allowing the growth part to hopefully rise and topping up the MMF in March.
Or
[b]Do you just take it monthly out of your main SIPP investments regardless of the ups and downs of the market.
[/b]
Cheers
Voag

#


I have no idea. In the past 6 months I have been unable to settle on a plan. I have a couple of pensions I'm contemplating getting into. I was going to take the full 25% and reinvest/save that. One pension can sit and accumulate after that the other I was going to have an income from by taking an annual amount to mop up my tax allowance. I was going to take that annual at the end of March each year and claim the return of overpaid tax. Then I decided I quite liked the idea of a regular income which might be a bit less tax man-y. I was going to estimate the monthly amount leaving some leeway that could be collected as an extra in March. In preparation I have accumulated some cash, gilts, short dated fixed interest so I know I have a balance off the volatility of the market.

I'm now thinking I'll change that, leave the 25% lump invested and take a monthly income of which 25% isn't taxed. That means I think I have collected too much cash and have a quandary of commit to the original plan or reinvest some accumulated cash. I really thought I had my plan screwed down but some home circumstance have shuffled a bit so the plan needs to too.

As for the emboldened last sentence, all your investing career you've suffered the ups and downs of the market has that given you a feel for what a drop might be, if so keep 12, 24 months or whatever amount in cash like if that helps you sleep at night.

[tjh290633]

I had originally planned on taking a small amount monthly, approx £1000 per month then taking the rest each March, depending on if it has been a good or bad year for the SIPP. I worried that taking a years worth out of the SIPP when it was potentially going to be a down year wasnt sensible. Hence my procrastination.
There is 700k in the pot, so in a way I doubt a £1000 monthly would make much difference either way in the long term.
Just thinking out loud really

That ought to be capable of giving you about £30,000 in dividends, so taking £1,000 a month should leave quite a lot which could be reinvested to provide even more income. That's after you have taken a chunk out at the end of the year, which will be useful for holidays or unexpected expenditure. Don't forget that dividends vary a lot less than capital values. Alliance Trust has increased its dividends annually for many years, but only yields about half of what City of London Trust does, for example.

TJH

[EthicsGradient]

I had originally planned on taking a small amount monthly, approx £1000 per month then taking the rest each March, depending on if it has been a good or bad year for the SIPP. I worried that taking a years worth out of the SIPP when it was potentially going to be a down year wasnt sensible. Hence my procrastination.
There is 700k in the pot, so in a way I doubt a £1000 monthly would make much difference either way in the long term.
Just thinking out loud really

That ought to be capable of giving you about £30,000 in dividends, so taking £1,000 a month should leave quite a lot which could be reinvested to provide even more income. That's after you have taken a chunk out at the end of the year, which will be useful for holidays or unexpected expenditure. Don't forget that dividends vary a lot less than capital values. Alliance Trust has increased its dividends annually for many years, but only yields about half of what City of London Trust does, for example.

TJH

That would be 4.3% - some portfolios may yield that in dividends, but many won't. The yield on Vanguard FTSE Developed World ETF is 1.6%, for instance.

[tjh290633]

That ought to be capable of giving you about £30,000 in dividends, so taking £1,000 a month should leave quite a lot which could be reinvested to provide even more income. That's after you have taken a chunk out at the end of the year, which will be useful for holidays or unexpected expenditure. Don't forget that dividends vary a lot less than capital values. Alliance Trust has increased its dividends annually for many years, but only yields about half of what City of London Trust does, for example.

TJH

That would be 4.3% - some portfolios may yield that in dividends, but many won't. The yield on Vanguard FTSE Developed World ETF is 1.6%, for instance.

So if you want income, avoid it.

TJH