Paying £2880 into pension when retired

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  • jamesd
    jamesd Posts: 26,103 Forumite
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    The 25% tax free lump sum is always tax free. The 75% depends on personal allowance being available.

    Your friend could pay in gross of that around 12k a year then take out the 25% tax free lump sum each year.

    Since she's still working sure wouldn't want to take out any of the 75% because that would cause her to be restricted to paying in only 4k gross a year after doing it. The workaround for this is the small pot rule. The 75% from a small pot doesn't cause that reduction to 4k. So she can pay in 10k gross then take it out using the small pot rule. Then she can pay in the remaining 2k this tax year. Next year she adds another 8k and takes that combined 10k as another small pot. Adds another 4k during that tax year to get to the 12k paying in max and in the next tax year pays in another 6k and takes the last of the three small pot rule pots that she's allowed to take in her lifetime.
  • busybee100
    busybee100 Posts: 1,530 Forumite
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    Thank you for that jamesd.

    How would she ensure the withdrawal was made under small pot rules? Who would she tell and at what point?

    I'm thinking it may be worth my husband employing me so I can invest more as I'm nearly 55. I've never been so excited about a birthday. :j:j
  • jamesd
    jamesd Posts: 26,103 Forumite
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    Telling the pension firm would be the way to go.

    LOL re 55, it is nice when getting older has rewards. :)
  • nxdmsandkaskdjaqd
    nxdmsandkaskdjaqd Posts: 782 Forumite
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    Can you notify HMRC of your plans to take the money from the pension/SIPP so they do not put you on an emergency tax code?

    Or would making a one-of £100 withdrawal say on the 6th April sort things out for the rest of the year?
  • jamesd
    jamesd Posts: 26,103 Forumite
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    They won't have details of your "employer", the pension firm, until the first payment has been made so they won't be able to send them a tax code until they have received the first PAYE notification from them. If you take an initial payment and wait until you get a new notice of coding you can tell HMRC and they will update the code to get the tax fixed over the year.
  • Ganga
    Ganga Posts: 4,158 Forumite
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    Can anybody give me some guidence on the following:-
    both myself and my wife opened a personel pension with Virgin Money,paid in £2880 each and drew it out when grossed up to £3600,
    The problem is i am a non tax payer,i have not earned any money since the end of March 2016 so have claimed the tax back that HM Tax/Virgin have deducted.
    My wife draws her state pension and a small works pension and will earn £9150 this year.with the payout from Virgin it will take her over the £11000 tax threshold.( bad planning by me )
    Is there any way she can claim any of my unused tax allowance to avoid this?
    Any help will be much appreciated.
    ITS NOT EASY TO GET EVERYTHING WRONG ,I HAVE TO WORK HARD TO DO IT!
  • colsten
    colsten Posts: 17,597 Forumite
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    Ganga wrote: »
    Can anybody give me some guidence on the following:-
    both myself and my wife opened a personel pension with Virgin Money,paid in £2880 each and drew it out when grossed up to £3600,
    The problem is i am a non tax payer,i have not earned any money since the end of March 2016 so have claimed the tax back that HM Tax/Virgin have deducted.
    My wife draws her state pension and a small works pension and will earn £9150 this year.with the payout from Virgin it will take her over the £11000 tax threshold.( bad planning by me )
    Is there any way she can claim any of my unused tax allowance to avoid this?
    Any help will be much appreciated.
    You should be able to transfer £1,100 of your personal allowance to her
    https://www.gov.uk/marriage-allowance/how-it-works
  • MyOnlyPost
    MyOnlyPost Posts: 1,562 Forumite
    edited 20 January 2017 at 5:58PM
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    My parents are 67 and 62. My dad is state pension age, my mum just missed out when they made the changes and will reach state pension age in four and a half years. They are not blessed with lots of money (but have enough to cover 2x deposits) and both are technologically challenged, so it needs to be simple to explain. Both are under the tax threshold and my mum already signed over 10% of her allowance when my dad took a lump sum from a small pension. I think withdrawing £3600 would take my dad about £1k over the threshold and my mum should still be under it, for now.

    So if I understand they can both open a SIPP (I am familar with HL, my SIPP is with them) and deposit £3880 to each. After 2-3 months HMRC adds £720 and they can withdraw £3,600 leaving £1k to keep the account open, which they can invest in income funds. This can be repeated each year until 75, when they then take out the whole balance? So although they make £720 in the first year they do not see that profit until the end, but they make 2x £720 profit each interim year which they can enjoy immediately, less the tax my dad would have to pay on the £1,000 over his threshold

    Have I grasped it? Is there anything to add?
    It may sometimes seem like I can't spell, I can, I just can't type
  • Ganga
    Ganga Posts: 4,158 Forumite
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    MyOnlyPost wrote: »
    My parents are 67 and 62. My dad is state pension age, my mum just missed out when they made the changes and will reach state pension age in four and a half years. They are not blessed with lots of money (but have enough to cover 2x deposits) and both are technologically challenged, so it needs to be simple to explain. Both are under the tax threshold and my mum already signed over 10% of her allowance when my dad took a lump sum from a small pension. I think withdrawing £3600 would take my dad about £1k over the threshold and my mum should still be under it, for now.

    So if I understand they can both open a SIPP (I am familar with HL, my SIPP is with them) and deposit £3880 to each. After 2-3 months HMRC adds £720 and they can withdraw £3,600 leaving £1k to keep the account open, which they can invest in income funds. This can be repeated each year until 75, when they then take out the whole balance? So although they make £720 in the first year they do not see that profit until the end, but they make 2x £720 profit each interim year which they can enjoy immediately, less the tax my dad would have to pay on the £1,000 over his threshold

    Have I grasped it? Is there anything to add?

    I do not know what HL charge but Virgin Money only charge 1% and you can close the account each year without forfeit.
    ITS NOT EASY TO GET EVERYTHING WRONG ,I HAVE TO WORK HARD TO DO IT!
  • jamesd
    jamesd Posts: 26,103 Forumite
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    The Virgin charge is made partially each day so it's small overall for the time involved.

    HL can close an account with under 1k in it so consider taking the tax free lump sum then regular income for twelve months, then starting monthly direct debit in from April that will mostly come from the monthly income.
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