Notional split

John has not moved any funds into drawdown yet and has non-drawdown funds in his SIPP worth £800,000 made up of several different share and fund holdings.

He chooses to move half of his pension into drawdown leaving £400,000 in the non-drawdown pot. This would mean that he now has a 50/50 split between non-drawdown and drawdown funds. As the split is only notional, there is no need for John to choose which of his assets should sit in each of the two pots.

However, as part of the process of moving funds into drawdown, he chooses to take his full tax free PCLS allowance of 25% of the amount he moves into drawdown, which is £100,000. To do so he sells £100,000 worth of his stocks and funds, and he is free to sell from whichever holdings he chooses at the point he wants his £100,000 PCLS payment. 

After he’s sold his chosen stocks and received his PCLS payment, his SIPP is now worth £700,000 with £400,000 still in his non-drawdown pot and £300,000 in his drawdown pot. This is now a split of 57% non-drawdown & 43% drawdown.

If John doesn’t make any more withdrawals or contributions to his SIPP, the 57% / 43% split will stay the same as the market goes up or down. So, for example, if due to price changes in his different holdings, the total value of his SIPP was to rise by 10% to £770,000, his SIPP would still be split 57% / 43% with £440,000 in his non-drawdown pot and £330,000 in his drawdown pot. 

Equally, if the total value of his SIPP was to fall by 10% to £630,000, his SIPP would still be split 57% / 43% with £360,000 in his non-drawdown pot and £270,000 in his drawdown pot.

Sarah opens a new SIPP account with ii and transfers an existing pension into her new SIPP from her existing provider, where her drawdown funds were kept separate from her non-drawdown funds. With her previous provider, when she took money out of her SIPP, she could only choose to sell the assets which were classed as being in her drawdown pot, rather than having the freedom to choose to sell any of her assets to free up cash to withdraw.

At the point Sarah’s previous provider completes the transfer of her pension to ii, they let us know that her pension is worth £400,000 and that it is made up of £160,000 of non-drawdown funds and £240,000 of drawdown funds. ii record this as a split of 40% non-drawdown funds / 60% drawdown funds. ii do not segregate Sarah’s different stocks and shares into two separate drawdown and non-drawdown accounts, instead applying a notional split of 40/60 across the one account.

Once the transfer is complete, Sarah chooses to take a taxable income payment of £20,000 from her drawdown funds. Unlike with her previous provider, Sarah is able to choose to sell £20,000 worth of stock from anywhere in her SIPP. Once the withdrawal is complete, her SIPP is now worth £380,000 and is made up of £160,000 of non-drawdown funds and £220,000 of drawdown funds, which means the split changes from 40/60 to 42% non-drawdown / 58% drawdown funds.

Then Sarah chooses to move another £80,000 into drawdown taking 25% of this as a £20,000 tax free PCLS payment. This means that her non-drawdown funds are reduced by £80,000 with £20,000 leaving her SIPP and £60,000 adding to her drawdown funds. Just like before, she can choose which shares to sell to free up £20,000 for her withdrawal.

Her SIPP is now worth £360,000 and is made up of £80,000 of non-drawdown funds and £280,000 of drawdown funds, which means the split changes from 42/58 to 22% non-drawdown / 78% drawdown funds. 

David has a SIPP that is worth £500,000, which is made up of £200,000 of non-drawdown funds and £300,000 of drawdown funds, which means it is split 40% non-drawdown / 60% drawdown funds. 

He then makes a one off contribution of £40,000. All contributions are added to a pension’s non-drawdown funds, which means his SIPP is now worth £540,000, which is made up of £240,000 of non-drawdown funds and £300,000 of drawdown funds. This means his split of non-drawdown / drawdown funds changes from 40/60 to 44% non-drawdown / 56% drawdown funds.

Claire has a SIPP worth £160,000, which is all in drawdown and invested in a number of different funds and shares. She then makes a contribution of £40,000, which she leaves uninvested in cash.

The contribution of £40,000 goes into her non-drawdown pot and means that her notional split of funds is now 20% non-drawdown and 80% drawdown. 

At the point the cash contribution is added to the SIPP account, it is classed as non-drawdown, but it is important to remember that this cash is not ringfenced as non-drawdown funds and instead the notional split means that the SIPP is 20% non-drawdown and 80% drawdown. This means that if the value of the stocks and shares in the account go up or down, but the cash balance remains at £40,000, her cash balance will no longer be exactly the same as her non-drawdown funds, which will have an impact on how much Claire can take as a Pension Commencement Lump Sum (PCLS) payment, when she moves her remaining funds into drawdown. 

If Claire requested to move her remaining funds into drawdown at a point when her SIPP was still worth £200,000, she could move £40,000 into drawdown and take a tax free PCLS payment of 25% of this amount, which would be £10,000.

If, however, she waited to move her remaining funds into drawdown and the overall SIPP balance dropped to £196,000, the non-drawdown part of the SIPP would also have dropped to 20% of that value (£39,200). This would mean that the 25% PCLS payment she took when moving those funds into drawdown would now be only £9,800.

Alternatively, if the value of her SIPP went up before she moved her remaining funds into drawdown, the amount she could take as a tax free PCLS payment would go up too. For example, if the total value of the SIPP increased to £204,000, the non-drawdown part of the SIPP would also rise to 20% of that value (£40,800). This would mean that the 25% PCLS payment she took when moving those funds into drawdown would now be worth £10,200 instead.

Any funds that you contribute to your SIPP will be automatically added to the non-drawdown pot in your SIPP and we will recalculate the split between drawdown and non-drawdown funds each time you make a contribution to your account.

• Regular and one-off income payments are taken from your drawdown pot
• Uncrystallised Funds Pension Lump Sums (UFPLS) are taken from your non-drawdown pot

When you move funds into drawdown in your SIPP, funds are moved from the non-drawdown pot to the drawdown pot. At the same time as doing this, you can take a Pension Commencement Lump Sums (PCLS), which comes from the funds newly moved into drawdown.

We will recalculate the split between drawdown and non-drawdown funds each time you make a withdrawal from your account.

No. Your different assets are not allocated to the drawdown or non-drawdown parts of your SIPP, so you are free to sell whichever assets you choose if you do not have enough cash in your account to fund the withdrawal.

ii will work with your previous provider to find out how much of the pension that is being transferred is already in drawdown and how much is not in drawdown. We will then ensure that the funds are correctly split between non-drawdown and drawdown within your ii SIPP.

ii will work with your new provider to let them know how much of the pension that is being transferred is in drawdown and how much is not. 

If any of your SIPP funds are then left with ii, we will then ensure that the remaining funds are still correctly split between non-drawdown and drawdown within your ii SIPP.