UK SIPP drawdown – help with the numbers please!

[Butterfingers]

I'm helping a relative decide on their drawdown strategy for one of their pension pots. Total pot is £26k, fees are around 2.1%. I'm pretty sure that we can get a better deal elsewhere, but looking at the Monevator's table I can't get my head around it.

I'd like to move it into a SIPP, put it in a single Vanguard Lifestrategy fund with low fees, annual withdrawals, and the option of annual payments (to take advantage of tax relief on the first £3600 of pension contributions). Can anyone look at that table and tell me what the best option is? I'm normally quite good with these things but I don't think my brain is in the right way around today.

[Playing with Fire UK]

Close Brothers looks pretty good from the table at 0.25% plus £90 for drawdown.  I've no idea how good their system is.

It looks like the drawdown fees are the driver on that amount.

X-O might also work if you would be okay with a Vanguard ETF rather than fund (this would get worse value as the pension depletes).

[Butterfingers]

Thanks, PwF. With that small a pension pot the drawdown fees make me think maybe they should just take the whole lot out, suffer the tax on it, and whack it in an ISA (they could have the whole lot tax-sheltered by April 6th next year). Their other pension income already puts them into paying basic rate income tax, so the ISA route looks more efficient as they would avoid drawdown fees, right?

[Playing with Fire UK]

Any earned income this year or next year? State pension yet?

If not:
26k - 11k = 15k taxable.
Of which 15k * 0.25 is tax free leaving 11.25k to pay 20% tax on.
2.25k tax on a total withdraw.

£2,250 would be 25 years of £90 draw down fees (ish - inflation, growth, fees, etc).

If there's no income this year or next, I'd look to move it to drawdown, take 11k this tax year and 11k on 6th April next year. It's a bit more admin and you might have closing fees but I'd take some form filling for £2,000.

If there is earned income but they are planning to stop work I'd hold out for the next tax year or two.

Any concerns about IHT?

[Butterfingers]

Yes to earned income this year, no to next year. Just retired. I will have to check, but I'm pretty sure taking the whole lump sum this year would not push them into the 40% band. Yes to state pension (just started). So whenever they take the cash, 75% of it will be taxed at 20% (state pension + other work pension exceeds £11.5k). Ideally they should have deferred taking state pension, but that ship has sailed.

So let's call it £4k in tax and fees. But because their other pension income is already above the basic rate threshold, paying 20% tax on 75% of it now versus paying 20% tax on 75% of annual drawdown lumps should be functionally equivalent, right? The only difference is the higher SIPP fees, which points to moving it to an ISA.

No IHT concerns. Assets today are around £150k, mostly in their house.

[Playing with Fire UK]

Shame about the State Pension.

Yes, the only difference between tax on 75% now or later is the tax on the growth (supports putting it in an ISA now) and any changes to the rules on tax (probably supports putting it in an ISA now).

Check about the 40% band (and maybe wait until next tax year), but it looks like the ISA is the way to go.

[Butterfingers]

Many thanks, PwF. I'll check out ISA options.