Why will it cost me £3,000 to withdraw only £9,000 tax-free from my pension?

When my boiler filled up last month it was inconvenient, to put it mildly, but luckily I had tax-free cash stashed away in my pension, ready for such an eventuality. I have £120,000 in a Self-Invested Personal Pension (Sipp) with investment platform AJ Bell, which I have built up over 20 years of careful saving.

As I am over 55, pension rules allow me to withdraw substantial amounts of cash tax-free as a lump sum, or smaller amounts whenever I wish.

I told AJ Bell I wanted to withdraw £9,000. I was expecting a fee of around £100 and the cash to appear in my linked current account within a couple of days. How wrong I was.

I was initially told that the matter would be resolved quickly and would be considered a “high priority.” But after a frustrating saga of 17 email exchanges in 11 days, I was told the bad news.

Before I could pay my £9,000 he said he had to arrange and pay a legal document. I looked at how much it would cost me to get it. The answer? At least £3,000.

AJ Bell insisted I pay £3,000 to access £9,000 of my own money.

It turns out the reason is that I have two small commercial properties within my Sipp. This is a convenience store and t-shirt shop in Cardiff that I bought using my Sipp about ten years ago to make a small income. They are currently worth around £200,000 together and pay me an income of around £20,000 a year.

The good thing about keeping them in a Sipp is that the income accumulates tax-free. Only when I withdraw it for my own use is it subject to income tax.

They had proven to be a good investment. But now, suddenly, I was being prevented from accessing the tax-free cash I really needed.

I was told that due to pension regulations I needed to arrange and pay for new valuations for both properties before I could receive my money. I was led to believe this was standard procedure.

The valuations would cost me at least £3,000 due to the complex legal nature of the properties.

It was, I told AJ Bell, like a bank saying to a customer: “You have £20,000 in your current account, but we won’t give you a penny until you pay £1,500 for a studio in your own home.”

But this argument was of no use. The rules were rules. It was the typical “the computer says no” argument that so many companies resort to.

When tax-free cash is taken from a pension, the first 25 per cent is tax-free and the rest may be subject to tax. Your pension provider needs to know what your total fund is worth so they can calculate how much is tax-free. Calculating the value of a pension fund is relatively simple when it contains only funds, shares and cash. But it’s more complicated when you include commercial properties that need to be valued.

However, as well as the two commercial properties, my Sipp also contained £60,000 in easy-access cash. Surely, to withdraw £9,000 of tax-free cash, AJ Bell could allocate another £27,000 of taxable cash (three times the tax-free sum) without having to obtain a full valuation of the Sipp.

So I complained. Three decades of presenting TV shows for the BBC and ITV about poor service and overcharging meant he was never going to take this sort of thing in stride.

I did what every client should and refused to take no for an answer. I told AJ Bell that I would complain to the Pensions Ombudsman (however, I will have to wait for the company to investigate my complaint first) and that I would write this article.

Two days later, I received an email saying the position had changed. The managers reviewed my case and decided that I did not need the expensive surveys. AJ Bell said: “Initially, valuations were requested to ensure accurate calculations of your tax-free cash and compliance with HMRC regulations.”

However, as I had recently made a £30,000 cash payment into my Sipp, AJ Bell could now “match its registered value and avoid the need for valuations”. The email continued: ‘We would not normally do this as it would likely negatively impact the amount of tax-free cash you would receive. We therefore departed from our procedure as you did not want to obtain a valuation of the property.’

This type of onerous regulation governing commercial properties must change. Tens of thousands of pensioners own commercial property through their Sipps.

Currently, a strict reading of the rules requires servicers to tell clients they must pay expensive surveys every time they want tax-free cash.

In my opinion, this is an over-caution and almost always completely unnecessary.

You won’t be surprised to know that I plan to leave AJ Bell. But I will heed Jenny Ross’s advice, which one? Pension, who says: ‘If you wish to transfer your Sipp to another provider, the new provider will manage the transfer on your behalf. But be aware that some providers charge departure fees if you move somewhere else. But you might think it’s a price worth paying.”

This experience with AJ Bell is the last straw. For the past five years I have watched in horror at its dizzying charges.

In that time, my annual fees have gone from just over £1,600 to almost £2,500, an increase of 60 per cent. That sum includes almost £1,500 in ‘property management costs’ as AJ Bell collects rent from two small shops owned by my Sipp in Cardiff, £340 in ‘quarterly management costs’, £320 in ‘maintenance costs’ off-panel management’ (this is what I pay for the privilege of having instructed AJ Bell to invest in a tracker fund), £180 in ‘income withdrawal fees’ and £130 in miscellaneous charges unique.

IPM, a Sipp manager based in Hertfordshire, would charge £800 a year for exactly the same service – a saving of more than 60 per cent.

And that includes any property management fees that IPM would require before allowing me to access tax-free cash. Other companies that offer a similar service are Investec and Dentons.

Tellingly, it seems it’s not just me who is unhappy with the regulatory burden of owning commercial property on Sipps.

Even AJ Bell herself announced that she would no longer be willing to manage newly acquired commercial properties.

The reason, according to Nick Reeve, editor of Pensions Expert, is the increasingly problematic, bureaucratic, costly and time-consuming rules designed to stop scams.

He says: “This is because some unscrupulous people could be slapping commercial properties as a way of scamming people.”

In the meantime, I’ll be moving my Sipp as soon as I can. Don’t ask for whom the bell tolls, AJ Bell: it tolls for you.