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  • FIRST POST
    • nxdmsandkaskdjaqd
    • By nxdmsandkaskdjaqd 3rd Jan 17, 8:39 AM
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    nxdmsandkaskdjaqd
    Paying 2880 into pension when retired
    • #1
    • 3rd Jan 17, 8:39 AM
    Paying 2880 into pension when retired 3rd Jan 17 at 8:39 AM
    Jamesd wrote in another thread the following:
    "She can make 720 a year tax free by paying 2880 net into a pension, having it grossed up to 3600 then withdrawing it. Can only do the withdrawing part from age 55. Can only pay in for this until age 75."

    I have just retired at 60 and have transferred my DC pension to a new SIPP. I plan to live off savings till state pension kicks in.

    I am correct that the above approach should be part of my strategy of being tax efficient?
    Last edited by nxdmsandkaskdjaqd; 03-01-2017 at 10:14 AM.
Page 1
    • ischofie1
    • By ischofie1 3rd Jan 17, 9:53 AM
    • 185 Posts
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    ischofie1
    • #2
    • 3rd Jan 17, 9:53 AM
    • #2
    • 3rd Jan 17, 9:53 AM
    I think the gain of 720 is "over egging" it a bit.
    Bear in mind you're moving money from a taxed paid to tax due environment.
    Assuming you're drawing the 3600 out as a 20% taxpayer, you'll pay 15% tax with consideration to the 25% TFLS.
    Therefore 3600 x 0.85 = 3060.
    This gives a gain of 180 which is still worth doing.
    Better than a slap with a wet fish as they say!!!
    • ischofie1
    • By ischofie1 3rd Jan 17, 9:56 AM
    • 185 Posts
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    ischofie1
    • #3
    • 3rd Jan 17, 9:56 AM
    • #3
    • 3rd Jan 17, 9:56 AM
    Apologies just noticed you're living off savings so yes could withdraw all the 3600 tax free as it is within you PA.
    • saver861
    • By saver861 3rd Jan 17, 10:07 AM
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    saver861
    • #4
    • 3rd Jan 17, 10:07 AM
    • #4
    • 3rd Jan 17, 10:07 AM
    Yes - tho take care not to close the account with the SIPP provider in the first year or you will incur hefty charges.

    Basically pay in your 2880 - HMRC adds 720 within about two months. Withdraw 3000. It may be taxed and you will need to claim the tax back via form, which itself is quite straight forward and quick, considering it is HMRC!!

    Effectively 720 for zilch. Grab it while it is going.
    • nxdmsandkaskdjaqd
    • By nxdmsandkaskdjaqd 3rd Jan 17, 10:14 AM
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    nxdmsandkaskdjaqd
    • #5
    • 3rd Jan 17, 10:14 AM
    • #5
    • 3rd Jan 17, 10:14 AM

    Basically pay in your 2880 - HMRC adds 720 within about two months. Withdraw 3000. It may be taxed and you will need to claim the tax back via form, which itself is quite straight forward and quick, considering it is HMRC!!

    .
    Originally posted by saver861
    What are the logistics of doing this?

    Set up a Direct Debit to pay in 240 per month or 2880 on the 6th April? When do you withdraw?
    • saver861
    • By saver861 3rd Jan 17, 10:21 AM
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    saver861
    • #6
    • 3rd Jan 17, 10:21 AM
    • #6
    • 3rd Jan 17, 10:21 AM
    What are the logistics of doing this?

    Set up a Direct Debit to pay in 240 per month or 2880 on the 6th April? When do you withdraw?
    Originally posted by nxdmsandkaskdjaqd
    You can pay monthly DD but its easier if you have the cash to pay in one lump sum of 2880. You pay in before 6th April for this year and after 6th April for next year. So pay in 2880 on 7th April. Get the HMRC 720 added by about June. Withdraw 99% and put it somewhere else to gain interest.

    PS You need to leave it in Cash in the SIPP platform rather than investing it into anything.
    • Theta101
    • By Theta101 3rd Jan 17, 10:47 AM
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    Theta101
    • #7
    • 3rd Jan 17, 10:47 AM
    • #7
    • 3rd Jan 17, 10:47 AM
    PS You need to leave it in Cash in the SIPP platform rather than investing it into anything.
    Why?

    Can you not invest it.
    • Sterlingtimes
    • By Sterlingtimes 3rd Jan 17, 11:18 AM
    • 1,362 Posts
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    Sterlingtimes
    • #8
    • 3rd Jan 17, 11:18 AM
    • #8
    • 3rd Jan 17, 11:18 AM
    Are there no limitations on this such as recycling? Is it the case that any pensioner can without earned income just keep recycling 2,880 per year until the age of 75?
    Solar installed 21 November 2014 > Centre of England > 3,780 Wp > 14 *270 Watt Trina panels > 14 * Enphase micro-inverters > managed by Enlighten Envoy Hub > 19 west of south > 35 pitch > tree shading to east > iBoost > Wattson Anywhere monitoring > Ovo Smart Gateway > Schneider Electric (Drayton) MiGenie smart thermostat.
    • nxdmsandkaskdjaqd
    • By nxdmsandkaskdjaqd 3rd Jan 17, 11:52 AM
    • 474 Posts
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    nxdmsandkaskdjaqd
    • #9
    • 3rd Jan 17, 11:52 AM
    • #9
    • 3rd Jan 17, 11:52 AM
    .
    PS You need to leave it in Cash in the SIPP platform rather than investing it into anything.
    Originally posted by saver861
    I would like to know more about the rules on this area.
    • xylophone
    • By xylophone 3rd Jan 17, 12:02 PM
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    xylophone
    I would like to know more about the rules on this area.
    What rules exactly?
    • ThinkingOutLoud
    • By ThinkingOutLoud 3rd Jan 17, 12:03 PM
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    ThinkingOutLoud
    This is an interesting area that the government seem to be focussing on a little more!

    The potential 10k that a previous lump sum taker / pension drawing person earning enough could "recycle" has been cut to 4k in the chancellor's latest statement. This is just above the original poster's cited limits which are the sums that can be invested in a pension by anyone with zero income.

    There seems to be a degree of greyness to HMRC's responses to questions journalists have posed around recycling. But, many commentators have also suggested there is a moral question to consider.

    If I understand it, the government is trying to allow someone who was say forced to take their pension early maybe due to temporary ill health or unemployment, but then was able to work again to save into their future pension.

    The idea is not to enable people to get double the tax contributions.

    I wonder how or if they will close the loophole to still help the former and prevent the later?
    • AlanP
    • By AlanP 3rd Jan 17, 12:12 PM
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    AlanP
    Why?

    Can you not invest it.
    Originally posted by Theta101

    You CAN invest it, but if the intention is to do a quick In/Out to gain the tax relief you wouldn't want to risk investing it in something for a few weeks and expose yourself to the possibility of a reduction in value.

    If you intent to stay invested longer-term then investing it makes sense obviously.
    • nxdmsandkaskdjaqd
    • By nxdmsandkaskdjaqd 3rd Jan 17, 12:15 PM
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    nxdmsandkaskdjaqd
    What rules exactly?
    Originally posted by xylophone
    The comment:
    PS You need to leave it in Cash in the SIPP platform rather than investing it into anything.

    And also any recycling considerations?
    Last edited by nxdmsandkaskdjaqd; 03-01-2017 at 12:17 PM.
    • missile
    • By missile 3rd Jan 17, 12:24 PM
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    missile
    Jamesd wrote in another thread the following:
    "She can make 720 a year tax free by paying 2880 net into a pension, having it grossed up to 3600 then withdrawing it. Can only do the withdrawing part from age 55. Can only pay in for this until age 75."
    Originally posted by nxdmsandkaskdjaqd
    I did exactly as he suggested:
    Paid 2880 into a SIPP with HL for my wife
    Government top up to 3660
    Immediately withdrew 25%
    Set up pension to pay the balance as a monthly pension over 12 months
    I shall pay in another 2880 before April 05th
    "A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Gandhi
    Ride hard or stay home
    • xylophone
    • By xylophone 3rd Jan 17, 12:40 PM
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    xylophone
    https://www.taxation.co.uk/Articles/2015/05/05/333016/money-go-round
    - tax year 2015-16 so the figures re PSA are out .

    Examples.

    A retired person ( in sixties)on a generous DB pension pays 2880 per annum into a SIPP with HL - it reduces his adjusted net income ( would otherwise be on higher rate tax) and invests his contribution plus the tax relief in various funds - he takes no income, the intention being that this pension should be an inheritance.

    His spouse's state pension and small DB pension from a long ago job give her an income a couple of thousand or so below her personal allowance.

    She contributes 2880 to an HL SIPP, receives the tax relief, chooses not to invest but takes the tax free PCLS and draws down most of the balance, being careful in the first year not to close the SIPP and thus avoiding the closure fee.
    • Nationwide8
    • By Nationwide8 3rd Jan 17, 2:51 PM
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    Nationwide8
    This thread has reminded me of something I should probably be doing..
    Background....Age 55,12 yrs until SPA ( as it stands at the moment )
    Private Pension approx 7000 a year
    Savings to supplement pension,for emergencies etc...gives me about "1500 yr interest..

    Non tax payer..

    Seems a no brainer that I should open a SIPP yearly with some of the savings ??? Then draw on it as needs be..

    Would the draw down be counted as income towards your personal allowance ? .ie,if withdrew enough to go over PA part of it would be taxed ?

    Someone also asked above is this something people can keep doing up to age 75 and just keep getting tax relief added on of 720 a year ?
    Last edited by Nationwide8; 03-01-2017 at 2:58 PM.
    • saver861
    • By saver861 3rd Jan 17, 3:17 PM
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    saver861
    I would like to know more about the rules on this area.
    Originally posted by nxdmsandkaskdjaqd
    As others have said, its simply a transaction. So you would not invest the money when you are going to withdraw it within a few months.

    There is nothing to stop you investing it but it would not make sense to do so for such a very short period of time.

    So, its not saying there are rules to prevent it, merely that it would be sensible not to invest it and keep it as cash ready to withdraw when you want it.
    • nxdmsandkaskdjaqd
    • By nxdmsandkaskdjaqd 3rd Jan 17, 5:06 PM
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    nxdmsandkaskdjaqd
    As others have said, its simply a transaction. So you would not invest the money when you are going to withdraw it within a few months.

    There is nothing to stop you investing it but it would not make sense to do so for such a very short period of time.

    So, its not saying there are rules to prevent it, merely that it would be sensible not to invest it and keep it as cash ready to withdraw when you want it.
    Originally posted by saver861
    OK I understand, only invest if for the long term, which would be my intention.
    • bowlhead99
    • By bowlhead99 3rd Jan 17, 5:41 PM
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    bowlhead99
    OK I understand, only invest if for the long term, which would be my intention.
    Originally posted by nxdmsandkaskdjaqd
    Right, but at the moment while state pension has not kicked in - and presuming you are not drawing in excess of your 11kpa personal allowance from your SIPP, just living off savings and savings income as you suggested above - you probably have capacity to take the 3600 out entirely tax free. 900 as a 25% tax-free lump sum and the other 75% (2700) taxable but fitting inside your annual 11k personal income allowance.

    Whereas if you left it for 'the long term', a decade or more, invested inside the pension... then when you came to take it out - assuming by that point you are drawing state pension and other personal pensions - you would quite possibly be paying more than zero tax on the taxable 75% part.

    So for many people, your current time of life is the best time to do the 3600 pension recycling 'trick', because it means the 720 almost-instant profit is entirely tax free. You can then stick the 3600 in your ISA or invest it unwrapped (and/or use some of it to help fund next tax year's 2880 contribution).
    • nxdmsandkaskdjaqd
    • By nxdmsandkaskdjaqd 3rd Jan 17, 5:59 PM
    • 474 Posts
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    nxdmsandkaskdjaqd
    Right, but at the moment while state pension has not kicked in - and presuming you are not drawing in excess of your 11kpa personal allowance from your SIPP, just living off savings and savings income as you suggested above - you probably have capacity to take the 3600 out entirely tax free. 900 as a 25% tax-free lump sum and the other 75% (2700) taxable but fitting inside your annual 11k personal income allowance.

    Whereas if you left it for 'the long term', a decade or more, invested inside the pension... then when you came to take it out - assuming by that point you are drawing state pension and other personal pensions - you would quite possibly be paying more than zero tax on the taxable 75% part.

    So for many people, your current time of life is the best time to do the 3600 pension recycling 'trick', because it means the 720 almost-instant profit is entirely tax free. You can then stick the 3600 in your ISA or invest it unwrapped (and/or use some of it to help fund next tax year's 2880 contribution).
    Originally posted by bowlhead99
    It's interesting how financial matters take twist and turns as you understand more.

    From the above, based on the fact that I am living of savings and have no other income. My best strategy going forward is to withdraw the 3600 and put that within my ISA.
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