Paying £2880 into pension when retired

JohnB47 · 4 March 2017 at 6:47PM

Two more questions, please.

I understand now how my wife can start a cash SIPP for this financial year, and she'll do that using a lump sum. After 5th April, she'll want to invest monthly, building up to her expected taxable income for the year 2017 - 2018. Do these monthly deposits go into the same SIPP, or does she start a new SIPP each financial year?

Also, I'm not sure how a SIPP and a Drawdown account work. If, around June time, she decides to take the 25% tax free and maybe draw down some funds, does that mean a separate account is created? So maybe, as the financial years roll on, she would have just one cash SIPP, into which she pays funds and one Drawdown account, which is used to move funds from the SIPP to allow for withdrawing money as a yearly 25% tax free amount and/or monthly withdrawals.

Or is it a new SIPP and potentially a new paired Drawdown account for each financial year?

Cheers.

busybee100 · 4 March 2017 at 9:09PM

Hi. You can leave it in one account. Have you read bowlhead's post? I found it useful as it explains how flexible drawdown can be.

bowlhead99 wrote: »

You can choose to do it either way.

Traditionally, people would take a tax free "pension commencement lump sum" of 25% at the beginning, and then they would know that all the rest of it (75%) was taxable, and draw that remaining amount, taxable, over time. So in a £100k pot, take £25k out now tax free and then the £75k+ growth will give you ongoing taxable income over your chosen timescale.

However, the other way to do it is:
-if you have a big stack of money in your pension account that has not yet been "crystallized" (i.e., you have say £100k in the account and you have never taken a tax free sum or any taxable drawings from it), you are able to partition off just a little bit of it (e.g. £10k) and pull it out right now(£2.5k tax free and £7.5k taxable), and then leave the remaining £90k completely untouched, non-crystallized.

That remaining £90k is treated as if it is just a smaller pot which has never had any tax free money or taxable drawings taken out of it. It is raw and un-crystallized. It can sit around and grow (maybe back up to £100k, £200k or more)... and in the future you will still have the choice of (a) taking a big 25% lump tax free and leave the rest as taxable income, or (b) again grabbing a chunk out of it and having just that chunk be received as 25% tax free and 75% taxable.

So on your £3600 if you want £900 taken out of it you have a choice: you could take out £900 up front and later draw down the remaining taxable £2700 ; or take out, say, £900 of which £225 tax free and £675 taxable and the remaining £2700 you can take a decision on later.

That latter option of just grabbing a chunk of uncrystallized funds and having it 25% taxfree and 75% taxable and leaving all the rest behind un-crystallized, is sometimes known as taking an "Uncrystallized Funds Pension Lump Sum", with a 25/75 split of its taxability. As opposed to taking the traditional 25% tax free pension commencement lump sum at the beginning and then eventually drawing the rest of the 75% all taxable over your chosen timetable.

jamesd · 4 March 2017 at 10:20PM

It's one SIPP and one drawdown SIPP for all years combined.

pioneer · 5 March 2017 at 11:02AM

Could you tell me if once you start drawdown of the remaining taxable sum via UFPLS, are you precluded from applying additional sums above £4000 for life or only the year in which you made the withdrawal?

outofoakes · 5 March 2017 at 1:27PM

I came across this thread whilst looking for info on another pension related topic and have read it through from the beginning and found it all very informative, I have no knowledge of SIPPS (or much else pension related if it comes to that) pretty much learning as I go along.
My OH decided to quit work in July of last year at age 60, we now live off my wage and savings. I am trying to make sure we make the most of tax allowance etc and intend to transfer 10% of his allowance to mine in 2017/2018.
Regarding pensions I think I now understand the £2880 contribution for non earners scenario but wondered if my OH could contribute more this tax year as he has earnings (Apr - July) of £9.5k out of this there was £1230 tax deducted and he made contributions to a personal pension of approx £160 per month (4 months). I guess the government will have made a contribution also on these. If I am doing the math right can he therefore open a SIPP this tax year with 80% of the £9.5k less the 20% he has already had on the four pension contributions or am I getting this totally wrong?

Dazed_and_confused · 5 March 2017 at 1:54PM

If OH has only had £9.5k income this year why is he/she only applying for Marriage Allowance for 2017:18, why not 2016:17 as well?

Personal Allowance this year is £11000 less 10% Marriage Allowance = £9900 so unless he had other income you've not mentioned he would still be a non taxpayer (and due the £1230 tax paid back if not already claimed) and you could benefit from the Marriage Allowance for both this year and next.

Regarding the pension, why are you only considering 20% of his previous contribution, hasn't he paid 4 x £200 (including the tax relief claimed from the pension company)?

outofoakes · 5 March 2017 at 2:39PM

Thanks for your reply, I didn't know we could claim marriage allowance for this year as he had earnings of 9.5k, we were planning on claiming his tax back but thought we had to wait till end of tax year.
On the pension point I was thinking we needed to take into account the fact that he has had tax relief already on those 4 contributions. Sorry if I appear thick but this really wasn't something I was expecting to sort out.

Dazed_and_confused · 5 March 2017 at 2:50PM

If OH is not working and not signing on for jobseekers allowance then you could try form P50 on gov.UK to claim the tax refund now.

I don't know why earnings of £9.5k would stop you OH applying for Marriage Allowance? In some situations you can have income of nearly £16000 (a lot must be savings interest) and still apply and it be beneficial, potentially even £21000 if you have dividend income.

JohnB47 · 5 March 2017 at 3:43PM

busybee100 wrote: »

Hi. You can leave it in one account. Have you read bowlhead's post? I found it useful as it explains how flexible drawdown can be.

Thanks. Very interesting. I think I'll set down and read through every post on this thread - saves repeat questions.

Having said that, the last para you quoted was particularly interesting:

"That latter option of just grabbing a chunk of uncrystallized funds and having it 25% taxfree and 75% taxable and leaving all the rest behind un-crystallized, is sometimes known as taking an "Uncrystallized Funds Pension Lump Sum", with a 25/75 split of its taxability. As opposed to taking the traditional 25% tax free pension commencement lump sum at the beginning and then eventually drawing the rest of the 75% all taxable over your chosen timetable."

This is what I'm hoping my wife can take advantage of, in the next four years in which she will be a non tax payer. I'm thinking that she can withdraw 'a chunk' of the cash SIPP fund each tax year (uncrystallized funds), then reinvest it in the fund, together with additional cash up to the 80% of her earnings. So, if the chunk is the amount of that years HMRC contribution, she'll be recycling it each year.

If this plan is possible, we'll have to decide how to withdraw all of the funds, tax free, before her SP kicks in and she starts paying tax.

Is this plan workable in the way I've described - for a non tax payer? How much can 'a chunk' be? 25% of the fund each year?

Thanks.

jamesd · 5 March 2017 at 6:25PM

Using UFPLS a chunk can be anything up to the whole balance. 25% of whatever is taken out will be tax free.

UFPLS is not suitable for a person who is still earning and may want to pay more than £4,000 gross into a pension each tax year. Because it is taking taxable money it causes the annual allowance to be reduced to £10k under current rules, likely soon the £4k mentioned ed in the consultation last year.

Such a person should either only take the 25% tax free lump sum, letting the 75% go into flexible drawdown to be taken after work, or might consider the small pot rule instead. Small pot rule lets people take all of the money out of a pension pot with up to £10k in it up to three times a lifetime without triggering the reduction.

Paying £2880 into pension when retired

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