Drawdown and tax free cash - is this how it works?

[Cabbage Patch]

I'm retiring next year and I think I have all the preparations in place, but could do with someone checking my understanding of the drawdown process. I think it works like this:

I apply to drawdown a lump sum from my SIPP. At this point 25% of the sum is paid directly to me (not into the drawdown account) tax free. The remaining 75% is transferred into the drawdown account. Withdrawals from this are taxed at my marginal rate.

I haven't decided how much I'll withdraw each year as I'll be accessing ISAs and other savings, but I intend to take at least £12,570 to use up my personal allowance, as I won't have any other income. I'll transfer further sums from the SIPP into drawdown to maintain a balance to draw from regularly.

Have I understood the process correctly?

[PM3]

Sounds spot on to me. Sounds similar to my situation next year ( or after depending on what Товарищ Starmer and his witches coven do )

[LeoSayer]

Yes that's exactly how it works.

For example, if you want 12,570 as income then you would crystallise 16,760, giving you 4,190 as your 25% tax free and leaving 12,570 in your drawdown account.

[Cabbage Patch]

Thanks chaps.

[jesusbuiltmycar]

Is it possible to leave the TFLS invested as part of the pension and drawdown from the TFLS and the pension each year? If so how does that work

[Cabbage Patch]

You can do partial drawdown. Transferring to drawdown triggers the TFLS to be paid out, not into the drawdown account. You can then draw the taxable element from the drawdown pot. If you want to leave the TFLS invested as part of the pension you need to leave it in the SIPP.

[Hants PHer]

A question, if I may, to the PH pension experts. Is it possible to take the maximum Tax Free Lump Sum (TFLS) after I have withdrawn funds via UFPLS?
Example:
Pension fund value is £516,760.
I use UFPLS to withdraw £16,760. This sum goes into my bank account with £12,570 being taxable and £4,190 tax free.
My pension fund value is now £500,000 (let's ignore any growth). My understanding is that it's all treated as 'uncrystallised' at this point.
Can I now take the full 25% TFLS - i.e. £125,000 into my bank account - leaving the remaining £375,000 invested and 'crystallised'?

Incidentally, my question is prompted by fears of what Labour might do to the TFLS in the forthcoming budget.

[Halitosis]

That aligns with my understanding of the process Hants PHer

[mikeiow]

The main thing might be to check with your provider that they can support it.