Drawdown - frequently asked questions
Moving funds into drawdown
How do I start drawdown in the Vantage SIPP?
Simply request your personalised illustration and application pack online or contact us on 0117 980 9940 for more information. Make sure you understand your options and check they are suitable for your circumstances: take appropriate advice or guidance if you are unsure. The Government's free Pension Wise service can help. It provides impartial guidance face-to-face, online or by phone - more on Pension Wise.
Do I have to move all my funds into drawdown at the same time?
No, you can move all or part of your funds into drawdown - you don’t have to do it all at the same time. Moving only part of your pension into drawdown can be tax efficient, and is known as partial drawdown. Each time you move a part of your fund into drawdown you can usually take up to 25% tax-free cash from it, which can’t be taken at a later date. Income taken from the rest will be subject to Income Tax.
Further funds may be moved into drawdown later by completing a new application form.
When can I go into drawdown?
You can start drawdown in the Vantage SIPP at any time from your 55th birthday (57th from 2028).
Can I transfer other drawdown plans to my Vantage SIPP?
Yes, the Vantage SIPP accepts transfers of existing UK drawdown plans.
Please note, an existing capped drawdown plan will automatically convert to flexible drawdown upon receipt of the transfer (unless requested otherwise).
HMRC rules also mean that existing drawdown plans transferred to Hargreaves Lansdown must remain separate for administrative purposes. So for arrangements that remain in capped drawdown, each plan will have its own pension year and three yearly GAD calculation review dates (annually after age 75). Each arrangement will be subject to separate reviews and GAD calculation charges.
Managing your drawdown
Can I make additional contributions to my Vantage SIPP after drawdown has commenced?
Yes, you can make further pension contributions and will receive tax relief on personal contributions provided you are within your contribution limits and you are under age 75. Pension contributions are normally subject to a £40,000 annual allowance. This applies to any benefits you are building up in defined benefit (e.g. final salary) or money purchase (e.g. personal, self-invested) pensions.
However, within the standard allowance there is a money purchase annual allowance (MPAA). Under current rules the MPAA is £4,000 per tax year. The MPAA will be triggered once pension benefits are first flexibly accessed, for example by taking an income from a flexible drawdown plan, meaning future contributions into SIPPs and other money purchase pensions will be restricted from that point. Just taking tax-free cash will not trigger the MPAA.
Those in capped drawdown who remain within their GAD limits, and choose not to remove the cap on their drawdown income, will not be subject to the MPAA unless they flexibly access other pension benefits in another way. Further monies can be moved into capped drawdown providing the plan is in partial drawdown. Otherwise, moving more monies into drawdown will convert the entire plan to flexible drawdown and the MPAA will apply once the first income payment has subsequently been withdrawn.
Please call us on 0117 980 9940 if you would like to discuss how this works in more detail.
How do I convert my existing capped drawdown to flexible drawdown?
Those in capped drawdown in the Vantage SIPP can convert to flexible drawdown free of charge. Simply contact us on 0117 980 9926 and we will send you the appropriate application.
Once the cap is removed, flexible drawdown rules will apply to all existing and future arrangements within your drawdown account. If you are not already affected then from the date you take your first income payment under these rules, any future money purchase contributions (such as to your SIPP) will be restricted to £4,000 per tax year.
Where can I invest my drawdown account?
You can invest in the wide range of investments available in the Vantage SIPP.
Can I buy a short term annuity with my drawdown account?
The Vantage SIPP does not offer the facility to buy a short term annuity. A short term annuity is different to a lifetime annuity that can be purchased from drawdown.
Taking an income
Can I alter the level and frequency of my income payments?
You can vary the amount and frequency of payments at any time, free of charge.
You can choose to receive one-off (ad hoc) payments as and when you require income or you can choose to receive a regular income. Regular payments can be made monthly, quarterly, half-yearly or yearly. Any instruction to change your regular income or request a one-off payment must be received by the 17th of the month in which the instruction should take effect.
The same payment frequency (and month for annual payments) will apply to all underlying arrangements within your drawdown account. All requested income payments should arrive in your bank account on the 28th day of the month (or the previous working day).
For those in capped drawdown the total income taken must stay within the maximum GAD limit.
How much income can I take?
Normally there is no maximum or minimum limit to the amount of income you can take. You can just take your tax-free cash and no income if you wish.
In capped drawdown there is a limit on the amount of annual income you can take. This limit is initially based on the value of your SIPP and your age on the day the cap was calculated. It is calculated using tables produced by the Government Actuary's Department (GAD) and is referred to as the GAD limit. This limit is re-calculated at least every 3 years and annually after age 75.
The maximum income will be 150% of the equivalent conventional annuity using the same fund value. You can take any amount you choose up to the maximum income each pension year.
There is no maximum income limit for those who convert or apply for flexible drawdown.
How will any income be taxed?
Drawdown income payments are subject to PAYE Income Tax. If you make a large withdrawal this could push you into a higher tax bracket. We are required to deduct income tax at source. HM Revenue & Customs rules mean that your income could initially be taxed under an emergency tax code. Find out more by using our emergency tax calculator.
How often is the GAD limit calculated in capped drawdown?
The GAD limit is calculated on the start date and must be reviewed at least every three years until age 75.
You may request a new GAD calculation to take effect on any anniversary of the plan; this will start a new three year period.
If you move further funds into a partial capped drawdown arrangement, a review of the GAD limit is triggered. The new GAD limit will take effect immediately unless the new income limit is lower, in which case it will take effect on the anniversary of the plan. This type of review will not start a new three year period. This review may result in a lower maximum income.
If you use some of your capped drawdown funds to purchase an annuity the GAD limit will be recalculated but the new limit will not apply until the next anniversary of the plan. Again this will not start a new three year period.
After age 75, the GAD limit is reviewed annually on each anniversary.
In some circumstances a review may result in a lower maximum income, even if the fund value has increased.
What happens if there is insufficient cash to cover any income payments?
You are responsible for ensuring there is always sufficient cash in your Vantage SIPP drawdown account to meet your requested income payments. Where there is insufficient cash in your account for us to meet a requested income payment in full, a reduced payment of the cash available will be made. No payment will be made where the reduced payment is less than £50. Please refer to our factsheet: How to manage cash in your drawdown account to meet income payments and fees for more information.
Moving funds out of drawdown
What happens to my drawdown fund when I die?
There are various options for passing the fund to your beneficiaries, some of which may be tax free. You can change your nominated beneficiaries at any time in line with your changing circumstances.
Can I transfer my Vantage SIPP after drawdown has commenced?
Yes, you can transfer a drawdown plan to another drawdown provider. HMRC regulations do not permit the partial transfer of drawdown arrangements, so all of the funds in an arrangement must be transferred at the same time to the same provider.
Can I change my mind once I have commenced drawdown?
You have the right to cancel drawdown within 30 days of first setting up your account. To cancel, please write to us at the address below within 30 days of your drawdown plan being set up.
Hargreaves Lansdown, 1 College Square South, Anchor Road, Bristol BS1 5HL
Any tax-free cash and income payments must be returned. We will deduct charges for any services provided in the interim. The value of your pre-retirement SIPP when re-instated will reflect any changes in the value of the investments moved into drawdown.
The cancelation period will not apply when moving further funds into an existing Vantage drawdown account.
When can I buy a lifetime annuity?
You can use some, or all, of your drawdown fund to purchase an annuity at any time.
Fees and charges
What is the annual management charge in the Vantage SIPP drawdown arrangement?
The charge to hold funds is tiered within the Vantage SIPP drawdown arrangement:
- 0.45% per annum on the first £250,000 of funds
- 0.25% on the value of funds between £250,000 and £1m
- 0.1% on the value of funds between £1m and £2m
- No charge on the value of funds over £2m
- The annual charge to hold shares, bonds, Investment Trusts, ETFs or gilts in the Vantage SIPP drawdown arrangement is 0.45% (capped at £200 per annum)
How do I pay my fees and charges?
We collect fees and charges from available cash on your account. If there is no available cash within your account, we will try to collect fees from cash you hold in your Fund & Share Account.
Our system will look to collect fees in this order:
- Loyalty bonuses received on units purchased before 1 April 2014. If no loyalty bonuses then;
- Cash in the account in which the fees were generated (income account first, then capital account). If no cash on the account then:
- Cash in your Fund & Share Account. If no cash in your Fund & Share Account then;
- Sell holdings to cover fees from the account in which the fees were generated
What is the Suggested Minimum Cash Balance?
The Suggested Minimum Cash Balance is designed to give you an idea of the amount of cash you should hold to meet the next few months’ fees. It does not take into account any cash required for pending drawdown income payments.
The Suggested Minimum Cash Balance provides a good guide to how much cash you could hold, but as the value of your holdings will rise and fall, so will your fees. You may wish to adjust the cash balance you hold if there is a significant change in the value of your holdings.
Where can I see the fees or charges that have been applied to my account?
You can view the management fees and charges which have been applied to your account by logging in and going to the Account Administration section of each account you hold. You then simply need to click on the ‘view history of fees charged’ link.
How can I pay fees from outside my drawdown arrangement?
If you choose not to hold cash within your drawdown account or do not wish to use cash from within this account to pay fees, you can choose to have all fees collected from the Fund & Share Account.
To choose this option:
- Go to the 'Account Settings' section of your account
- Select the ‘Fee and Minimum Cash Balance’ tab
- Follow the proceeding onscreen instructions
- Click on 'Fee collection options'
- Follow the onscreen instructions to edit your fee collection method
When do you collect fees and charges?
Management fees are charged on a monthly basis and are calculated based on the value of your holdings at the end of each month. They are collected in the next month.
How will you collect fees and charges if there is insufficient cash on my account?
If there is insufficient cash on your account and in the Fund & Share Account to pay, we will sell sufficient holdings to cover the amount owed and restore the suggested minimum cash balance. There will be a charge of £1.50 per deal if an automatic sale is required.
Will you tell me before you sell my holdings?
We provide a notification service to let you know if you have insufficient cash on your accounts to pay fees due and your investments are at risk of being sold. You will then be able to add money (allowances permitting), or sell holdings of your choice to raise money, and therefore avoid your investments being automatically sold. This is an opt-in service so please set an email alert now.
Reaching age 75
What happens to my drawdown fund on my 75th birthday?
It is possible to carry on in drawdown indefinitely.
If your fund value is higher on your 75th birthday than when you first went into drawdown, the growth will be tested against the lifetime allowance.
For those in capped drawdown, after age 75 your income limits will be reviewed annually rather than every three years.
What is the lifetime allowance?
Every individual has a set level of benefits they can draw from pension schemes in their lifetime without triggering certain tax charges. This measure is referred to as the lifetime allowance. For the 2017/2018 tax year it is £1 million.
When will my Vantage SIPP be tested against the lifetime allowance?
Your Vantage SIPP funds will be tested against the lifetime allowance at the following times:
- When you take a lump sum payment (such as an Uncrystallised Funds Pension Lump Sum) from your SIPP before age 75.
- When you move funds into drawdown before age 75, even if you choose not to draw an income.
- When an annuity is purchased with your funds before age 75.
- When you reach age 75; this includes any remaining funds in your SIPP from which you have not already taken benefits.
- On transfer to a Qualifying Recognised Overseas Pension Scheme before age 75.
- If a beneficiary takes a lump sum payment, from funds which have not been moved into drawdown, where death occurred before age 75.
- If a beneficiary moves funds into drawdown or purchases an annuity, using funds which have not been moved into drawdown, where death occurred before age 75.
Every time your benefits are tested against the lifetime allowance (excluding payments to beneficiaries) you will be required to provide information to enable us to do this. It is only the growth in the value of the funds since they were first moved into drawdown which is tested when you use them to buy an annuity before age 75, or when you reach age 75.