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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 2
    • ex-pat scot
    • By ex-pat scot 3rd Jan 17, 6:02 PM
    • 212 Posts
    • 230 Thanks
    ex-pat scot
    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?
    Originally posted by nxdmsandkaskdjaqd
    Actually, what the full statement should say is the following:


    "Anyone, regardless of whether they are taxpayers or not, can pay in 2880 to a pension and receive BR tax relief, up to age 75."


    Clearly, those with surplus cash and with earnings <11,000 can take advantage of this, receiving the full BR tax relief "free".
    If you are already a taxpayer, then there's no difference between this and the normal pension tax credit approach.
    If you are a BR taxpayer, and will be so in retirement, then you benefit to the usual level of the 25% tax free withdrawal, and suffer 20% tax on the remainder. It's not such a no-brainer, but still a useful tool in the financial-planning-armoury.


    This pot can be accessed from age 55, meaning that if you are near or beyond that age, then you can take advantage without exposure to political risk (ie changing the rules before you are allowed to access the pot).


    Situations when it's most advantageous:


    1. stay at home person. You can still build up a modest pension and obtain the 720 uplift to your contribution. (the source of funding could be from savings, or from spouse income).


    2. low earner / part timer. You can still benefit if you do not earn sufficient to pay UK income tax.


    3. earn around the 11,000 income level and below 14,600 or so. If you were to contribute to a normal pension scheme, then you might have a low amount of tax payable, which would be insufficient to be credited back if you wanted to make significant pension contributions. (ie if you earned 12,000 then you'd only have 1,000 of that income subject to tax, so would get pension tax contribution of 20% x 1,000)
    • bowlhead99
    • By bowlhead99 3rd Jan 17, 6:16 PM
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    bowlhead99
    3. earn around the 11,000 income level and below 14,600 or so. If you were to contribute to a normal pension scheme, then you might have a low amount of tax payable, which would be insufficient to be credited back if you wanted to make significant pension contributions. (ie if you earned 12,000 then you'd only have 1,000 of that income subject to tax, so would get pension tax contribution of 20% x 1,000)
    Originally posted by ex-pat scot
    Actually (in case people were just assuming this gets you access to the 720 of relief instead of just 200, it's better than that) - if you only earn 12000 you can put 9600 net into a 'normal' personal pension scheme and the provider is allowed to do the standard gross-up to the 12000, for a full 2400 of tax relief. Yes, even if you wouldn't have paid as much as 2400 tax on the income.

    Your gross contributions are allowed to be as high as your gross pay, subject to the 40k a year cap (ignoring carry-forward allowances which can increase the 40k cap).

    That government policy, designed to encourage people to invest in pensions for their retirement, only works if you are making a personal contribution to a pension which claims the automatic gross-up direct from HMRC. If you were having deductions taken and paid over out of your gross salary by your employer, it's right that you could only save 200 of tax because after that your gross pay would not be attracting any tax so there's no tax to save via PAYE.
    Last edited by bowlhead99; 03-01-2017 at 6:31 PM. Reason: to clarify
    • MoneySavingUser
    • By MoneySavingUser 3rd Jan 17, 8:57 PM
    • 1,607 Posts
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    MoneySavingUser
    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?
    Originally posted by ThinkingOutLoud
    I think the 4k limit has been chosen on the basis of auto-enrolment legislation, qualifying earnings:

    43000 - 5824 = 37,176 * 8% (rising to) = 2,974 so the idea is that people still working and contributing to an AE pension aren't going to fall foul of the lower AA.
    • The Book-keeper
    • By The Book-keeper 3rd Jan 17, 9:18 PM
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    The Book-keeper
    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 ?
    Originally posted by Nationwide8
    Just trying to get this clear in my head (!) if you were to open a SIPP each tax year with 2880 and then get this topped up with the 720 tax allowance, what about the fees that are charged by the pension provider, is there any one pension provider that is the best option, if you are planning on doing this transaction each tax year? I understand it is best to leave it as cash and not withdraw the whole 3600? Thanks
    • saver861
    • By saver861 3rd Jan 17, 10:35 PM
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    saver861
    Just trying to get this clear in my head (!) if you were to open a SIPP each tax year with 2880 and then get this topped up with the 720 tax allowance, what about the fees that are charged by the pension provider, is there any one pension provider that is the best option, if you are planning on doing this transaction each tax year? I understand it is best to leave it as cash and not withdraw the whole 3600? Thanks
    Originally posted by The Book-keeper
    There are effectively no charges if you use HL and put the money in cash. However, if you close the account in the first year you will get hefty closure charges.

    So, put in your 2880, get 720 from HMRC. Withdraw 3550. Keep SIPP account open until next year and do same again, until 75. Dont forget tho, it is only 720 profit for those who wont reach the BR tax threshold.
    • Nationwide8
    • By Nationwide8 4th Jan 17, 1:33 AM
    • 316 Posts
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    Nationwide8
    There are effectively no charges if you use HL and put the money in cash. However, if you close the account in the first year you will get hefty closure charges.

    So, put in your 2880, get 720 from HMRC. Withdraw 3550. Keep SIPP account open until next year and do same again, until 75. Dont forget tho, it is only 720 profit for those who wont reach the BR tax threshold.
    Originally posted by saver861
    This is basically what I'm thinking certainly for a few years,in theory I won't hit the tax threshold ( above PA ) until my State Pension ( if I get there !! ) kicks in so it would be a balancing act over the years dependant on how much savings I have left every year or so.

    Sorry if this is an obvious question but if you withdraw say 3550 in a tax year does that count towards your PA ?
    • k6chris
    • By k6chris 4th Jan 17, 9:04 AM
    • 137 Posts
    • 221 Thanks
    k6chris
    OK, I realise this thread is repeating itself, but that is due to the sound of the 'penny' dropping, so I want to get this clear in my head as I am about to discuss this with my OH;

    OH is a basic rate tax payer, currently drawing a small DB pension (500pm) and will be able to draw SP and another smaller DB in 5 years time, very likley to lose current job before then. Has some savings in ISA etc, VERY risk averse ("only buy me shares that go up").

    1) Open up a HL SIPP, put in xxx cash - Government will add +20% (up to amount she currently earns)

    2) Leave in cash (no risky shares here)

    3) OH could at anytime draw down 25% tax free or (drum roll) if loses job, draw down more than that tax free as long as remains below basic rate tax level.

    4) Max OH could put in is annual earnings (less current pension contribution), or once not earning 2,880. Worst case would be paying basic rate tax on 75% of this on the way out (but benefit is 20% relief on 100% on the way in).

    What have I missed?
    • saver861
    • By saver861 4th Jan 17, 10:32 AM
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    saver861
    Sorry if this is an obvious question but if you withdraw say 3550 in a tax year does that count towards your PA ?
    Originally posted by Nationwide8
    I mention only withdraw 3550 in first year so that you leave the account open.

    Each year thereafter, you can withdraw 3600 - the 2880 you put in plus the 720 HMRC puts in.

    25% is tax free so that will not go towards your PA. The other 75% will - i.e. 2,700.

    So, if your PA is 11,000 and your income is less than 8,300 then you will be able to withdraw the 2700 without reaching your PA. However it still does count towards PA so if your income is 8,300 and you withdraw the 2700 from the SIPP you have then used up your full PA for the year.
    • saver861
    • By saver861 4th Jan 17, 10:35 AM
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    saver861
    OK, I realise this thread is repeating itself, but that is due to the sound of the 'penny' dropping, so I want to get this clear in my head as I am about to discuss this with my OH;

    OH is a basic rate tax payer, currently drawing a small DB pension (500pm) and will be able to draw SP and another smaller DB in 5 years time, very likley to lose current job before then. Has some savings in ISA etc, VERY risk averse ("only buy me shares that go up").

    1) Open up a HL SIPP, put in xxx cash - Government will add +20% (up to amount she currently earns)

    2) Leave in cash (no risky shares here)



    3) OH could at anytime draw down 25% tax free or (drum roll) if loses job, draw down more than that tax free as long as remains below basic rate tax level.

    4) Max OH could put in is annual earnings (less current pension contribution), or once not earning 2,880. Worst case would be paying basic rate tax on 75% of this on the way out (but benefit is 20% relief on 100% on the way in).

    What have I missed?
    Originally posted by k6chris
    Pretty much correct. However, note if you are going to leave it in cash for 5 years or more your money would be reducing at inflation rate.

    So, if you were going to do that, take as much out as possible before reaching PA and put it somewhere that can earn some interest for 5 years. The rest you might want to put it into a lower risk option that might at least counter inflation.
    • Theta101
    • By Theta101 4th Jan 17, 3:39 PM
    • 59 Posts
    • 8 Thanks
    Theta101
    My OH started doing this (thanks Jamesd) and now we have another related question.

    How does 'carry-forward' effect the 3600?
    I mean can you carry-forward un-used years worth?

    Or.

    Does 'carry-forward' apply until you are 75 (oh heck, or until you are 78, 75 plus 3 years carry-forward)?

    I hope some one understands me, I'm confusing myself!!!

    Thanks.
    • missile
    • By missile 4th Jan 17, 4:09 PM
    • 8,990 Posts
    • 4,365 Thanks
    missile
    My OH started doing this (thanks Jamesd) and now we have another related question.

    How does 'carry-forward' effect the 3600?
    I mean can you carry-forward un-used years worth?

    Or.

    Does 'carry-forward' apply until you are 75 (oh heck, or until you are 78, 75 plus 3 years carry-forward)?

    I hope some one understands me, I'm confusing myself!!!

    Thanks.
    Originally posted by Theta101
    No, it is like your ISA allowance. Use it or loose it.
    "A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Gandhi
    Ride hard or stay home
    • missile
    • By missile 4th Jan 17, 4:23 PM
    • 8,990 Posts
    • 4,365 Thanks
    missile
    ...
    4) Max OH could put in is annual earnings (less current pension contribution), or once not earning 2,880. Worst case would be paying basic rate tax on 75% of this on the way out (but benefit is 20% relief on 100% on the way in).

    What have I missed?
    Originally posted by k6chris
    You seem to have misunderstood.
    AFIK, you cannot contribute to two schemes in one year.
    There is no tax relief on payments into a SIPP if he has zero taxable earning.
    Payment up to 2880 per annum, will attract 25% top up by the government.
    "A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Gandhi
    Ride hard or stay home
    • Nationwide8
    • By Nationwide8 4th Jan 17, 6:00 PM
    • 316 Posts
    • 125 Thanks
    Nationwide8
    I mention only withdraw 3550 in first year so that you leave the account open.

    Each year thereafter, you can withdraw 3600 - the 2880 you put in plus the 720 HMRC puts in.

    25% is tax free so that will not go towards your PA. The other 75% will - i.e. 2,700.

    So, if your PA is 11,000 and your income is less than 8,300 then you will be able to withdraw the 2700 without reaching your PA. However it still does count towards PA so if your income is 8,300 and you withdraw the 2700 from the SIPP you have then used up your full PA for the year.
    Originally posted by saver861
    Thank you,as my pension is 7000 a year then the extra 2700 would not take me above my PA.

    Will have to look it up but am assuming interest from various accounts of approx 1900 a year wouldn't count towards my PA ???

    7000 + 2700 +1900 =11800 ?? Just above PA ??
    Last edited by Nationwide8; 04-01-2017 at 6:02 PM.
    • xylophone
    • By xylophone 4th Jan 17, 6:10 PM
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    xylophone
    Will have to look it up but am assuming interest from various accounts of approx 1900 a year wouldn't count towards my PA ???
    It would seem that your income is modest enough to qualify for the 0% band on savings income.

    http://www.taxvol.org.uk/about-tax/entitled-10-band-savings-interest/

    If your total non savings income would be 9,700


    you would not owe any tax on the savings interest of 1900 as this would be covered by the PSA and the 0% band.
    • k6chris
    • By k6chris 4th Jan 17, 6:50 PM
    • 137 Posts
    • 221 Thanks
    k6chris
    AFIK, you cannot contribute to two schemes in one year.
    .
    Originally posted by missile
    I think you can have an employers pension and another SIPP, so long as the total contributions in a tax year don't exceed your earnings (or 40k, whichever is the lower)?? Confused!
    • bob_a_builder
    • By bob_a_builder 4th Jan 17, 7:09 PM
    • 1,518 Posts
    • 721 Thanks
    bob_a_builder
    I mention only withdraw 3550 in first year so that you leave the account open.

    Each year thereafter, you can withdraw 3600 - the 2880 you put in plus the 720 HMRC puts in.
    Originally posted by saver861
    This POST suggests you may need to leave in more than 100 to avoid the charges ? ( with HL anyway )
    • saver861
    • By saver861 4th Jan 17, 11:56 PM
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    saver861
    Thank you,as my pension is 7000 a year then the extra 2700 would not take me above my PA.

    Will have to look it up but am assuming interest from various accounts of approx 1900 a year wouldn't count towards my PA ???

    7000 + 2700 +1900 =11800 ?? Just above PA ??
    Originally posted by Nationwide8
    As xlyophone says, your savings are covered for 1000 tax free. So, if the savings were not in any isa then at most only 900 would be taxable. So in total you would still be under the 11,000 threshold.

    One point tho, if you are married and your OH is paying tax then you should transfer the 10% marriage allowance to OH. You would then need to relook at your totals to ensure tax efficiency.


    This POST suggests you may need to leave in more than 100 to avoid the charges ? ( with HL anyway )
    Originally posted by bob_a_builder
    No, I only suggested it as a nominal figure to keep in the account to keep it open. As far as I know, there is no minimum so it could be as little as 5. The main point is to ensure the account is not closed in the first year to avoid hefty charges.
  • jamesd
    I am correct that the above approach should be part of my strategy of being tax efficient?
    Originally posted by nxdmsandkaskdjaqd
    Yes.

    I think the gain of 720 is "over egging" it a bit
    Originally posted by ischofie1
    None involved, given the income situation of the wife in that post. Later I linked to a more complete description with more examples.

    Yes - tho take care not to close the account with the SIPP provider in the first year or you will incur hefty charges.
    Originally posted by saver861
    There may be no charges, as with Virgin. With Hargreaves Lansdown there is a charge if closed within the first year including if the balance goes below 1k and they choose to close.

    With HL one easy approach is to set up a regular monthly payment into a SIPP of 2880 / 12 take the 25% from the first year and set up a regular monthly payment to you of (3600 * 0.75 / 12) from the remaining 75% in the new crystallised SIPP account that they will create. The account wouldn't go below 1k and the regular payments give HMRC ample time to get them the right tax code and refund any excess tax.

    PS You need to leave it in Cash in the SIPP platform rather than investing it into anything.
    Originally posted by saver861
    You can use any permitted investment that the provider offers. Virgin always uses a FTSE tracker fund with no cash option. Cash guarantees the values, though, and some will like the low hassle delivered by that.

    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?
    Originally posted by Sterlingtimes
    Correct, no relevant rules for that case.

    More generally there are no rules banning recycling of pension income but if you take a penny of the taxable 75% using flexible drawdown your allowance for contributions to any defined contribution by anyone including an employer is reduced to 4k per year. Irrelevant to your case but it can matter to those still working. Once the 4k limit is triggered carry forward of unused annual allowance from the past three years is no longer permitted.

    A workaround is use of the small pots rule which allows three whole pots of up to 10k each per human lifetime to be taken without triggering this. You can transfer to get close to but below the 10k if desired to make more efficient use of this.

    Income from DB pensions, annuities or capped drawdown up to the GAD limit doesn't cause this reduced allowance.

    Sorry if this is an obvious question but if you withdraw say 3550 in a tax year does that count towards your PA ?
    Originally posted by Nationwide8
    The 75% part is normal taxable income and the pension firm's PAYE system will deduct income tax using the tax code sent to them by HMRC.

    4) Max OH could put in is annual earnings (less current pension contribution), or once not earning 2,880. Worst case would be paying basic rate tax on 75% of this on the way out (but benefit is 20% relief on 100% on the way in).
    Originally posted by k6chris
    Correct mostly but it is the gross - after tax relief - amount added to the pension has to be no higher than earnings or, if not earning or earning under 3600, the 3600 alternative. Be sure they don't trigger the 4k limit by taking any of the taxable 75% until ready not to pay in more than 4k gross any more. DB has no effect on that. Can use a work scheme and/or any number of others so long as the total gross going in is no more than those limits.
    Last edited by jamesd; 05-01-2017 at 12:07 PM.
  • jamesd
    AFIK, you cannot contribute to two schemes in one year.
    There is no tax relief on payments into a SIPP if he has zero taxable earning.
    Originally posted by missile
    A person can use an unlimited number of pensions in the same year. A person gets basic rate tax relief on personal contributions into a pension operating the usual Relief at Source system even if they are not earning or have no taxable income.
  • jamesd
    I think you can have an employers pension and another SIPP, so long as the total contributions in a tax year don't exceed your earnings (or 40k, whichever is the lower)?? Confused!
    Originally posted by k6chris
    But right enough. Although you can pay into 500 if you like, including more than one from each employer in the uncommon situation that they offer more than one.

    The 40k can be exceeded if you have unused 40k annual allowance from the last three years and were in any pension in the years you want to use. The income limit can't be exceeded and high earners have lower limits.
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