Telegraph Investor SIPP Payment of Benefits Guidance Notes

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1 Under the HMRC pension legislation you can take your benefits from age 55, or younger on ill health grounds (see section below). Please note that you do not have to leave employment to draw your benefits from your Telegraph Investor 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. Your Retirement Options When it comes to taking your pension benefits you can choose whether or not to: take an initial, tax-free, lump sum of up to 25% of your fund transfer all, or some, of your fund for the purchase of an annuity take a regular income or further ad hoc payments not take an initial tax-free lump sum, but take part tax-free/part taxed payments as and when you want them withdraw the whole fund value, with 25% being tax-free and the remainder taxed at your marginal rate. 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). Lump Sum Options 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). 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. Flexi Access 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. Page 1/6

2 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. Income Options Annuity 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 Telegraph Investor 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 Capped Drawdown only applies where you have crystallised all or part of your pension fund before 6 April 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 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. Flexi Access 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). Page 2/6

3 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. Drawdown examples 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 refer our website, contact Pension Wise ( call us, or seek independent financial advice. Taking tax-free cash and an income via Flexi Access John 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. Pension fund 400,000 Tax-free lump sum 100,000 Remaining for income 300,000 Uncrystallised pension fund nil 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. John 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. Peter 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. Pension fund 400,000 Tax-free lump sum 50,000 Remaining for income 150,000 Uncrystallised pension fund 200,000 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 Peter 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. Page 3/6

4 Taking payments under UFPLS John 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. Pension fund 400,000 Tax-free lump sum nil Lump sum under UFPLS 50,000 Uncrystallised pension fund 350,000 His 50,000 withdrawal is taxed as follows: First 25% tax-free 12,500 Remainder taxed 37,500 So, if he was a basic rate tax payer he would pay 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. Other Options 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: Provide the Scheme Administrator with written evidence from a registered medical practitioner confirming that you are expected to live for less than one year. You have not used-up all of your lifetime allowance at the point the payment is made. The payment uses all of the benefits under the arrangement and is paid as a serious ill-health lump sum. The payment is made before your 75th birthday. No benefits have been paid out of your SIPP prior to the Ill Health application. 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%. Death Benefits 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:- 1. Take the whole fund as cash in one go, this will be subject to 45% tax. 2. Use drawdown or an annuity to take a regular income, this will be taxed at the beneficiary s marginal rate. 3. Use drawdown to take lump sums, these sums will be subject to income tax at the beneficiary s marginal rate. Page 4/6

5 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: 1. If your pension fund is worth 10,000 or less and you can take it as a small pot. You can do this up to three times from 3 different personal pensions and unlimited times from an occupational scheme, however there are other conditions that apply. We recommend you seek independent advice on how the small pot rules may apply to you. 2. If you went into Capped Drawdown before 6 April 2015, withdrawals after that date remain within your current, maximum, drawdown limit calculated under the CVD rules. 3. If you are building-up benefits in a final salary scheme and take your pension as a lifetime annuity (rather than as a flexible annuity) or scheme pension (except when fewer than 12 people are entitled to one), the 10,000 annual allowance limit does not apply. 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. Fees The fees payable are detailed on the fee schedule which can be found on our website. Page 5/6

6 Guidance and Advice Please note that neither Telegraph Investor, 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 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 for further information on adviser in your area. You can also visit the Money Advice Service website 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 Before you make any decisions we recommend that you read the Money Advice Service Leaflet Your pension: it s time to choose. Important Notes 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. Page 6/6