Transfering then drawing a pension at age 55
Comments
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NorthernGeezer wrote: »Where has this figure of £2880 come from?
£2880 + £720 = £3700, i thought the annual allowance was £4000?
Anyone can contribute £3600 gross into a pension, even if not earning, £3600 gross = £2880 net.
The normal annual allowance is £40K but any personal contributions must be covered by earned income. Once you have drawn down taxable (possibly at 0%) money from a DC pension the annual allowance drops to £4K.0 -
AnotherJoe wrote: »Another one using HL to get the 25% lump sum.
You end up with two SIPPs one called “SIPP income drawdown” and one called “SIPP.” which is the original and empty and just left for historical purposes so you can look at its history.
Don’t forget to pay your £2880 a year into your remaining SIPP to get your free £720
Thanks.
While "on the way in" you get 20% added, it will then be taxable "on the way out" when you draw it later on. So you are taking a gamble that at the time you draw it, the basic rate of tax is less than 20% or you are a low earner below the tax threshold so some or all of it may be tax free.
I only have a short window between my expected retirement age (60 when my largest final salary pension starts to pay out) and when my state pension pays out 7 years later (which will definitely make me a tax payer again) I plan to draw down the remainder of this pension in that time meaning at least some of it will be free of tax. I will struggle to get all of what is already there out in that "tax free window" so I know any more I pay in would be taxable at the basic rate on the way out.
Useful advice none the less.0 -
NorthernGeezer wrote: »Where has this figure of £2880 come from?
£2880 + £720 = £3700, i thought the annual allowance was £4000?
Maybe in your universe
In mine, it equals £3600
NorthernGeezer wrote: »i thought the annual allowance was £4000?
Different thing0 -
Thanks.
While "on the way in" you get 20% added, it will then be taxable "on the way out" when you draw it later on. So you are taking a gamble that at the time you draw it, the basic rate of tax is less than 20% or you are a low earner below the tax threshold so some or all of it may be tax free.
Doesn't seem like much of a gamble if you know you wont be earning !I only have a short window between my expected retirement age (60 when my largest final salary pension starts to pay out) and when my state pension pays out 7 years later (which will definitely make me a tax payer again) I plan to draw down the remainder of this pension in that time meaning at least some of it will be free of tax. I will struggle to get all of what is already there out in that "tax free window" so I know any more I pay in would be taxable at the basic rate on the way out.
Even if you pay tax on the £3600 you still end up (IIRC) £120 better off EDIT FIX £180 . Better than a slap in the face with a wet salmon.
Like you I wont be earning next few years so no tax to be paid at all on what i take out as long as its below the annual limit.
UPDATE EDIT:
ps I spoke to HL, if you want to pay more money in, they open back up your original SIPP and thats what you pay the new money into. That way it can be kept segregated. Thats what I've just done.0 -
On the way in, you get credited with £720. When you draw your £3600 tax at 20% = £720 so you are no better offAnotherJoe wrote: »Even if you pay tax on the £3600 you still end up (IIRC) £120 better off. Better than a slap in the face with a wet salmon..
I guess you will have had that £720 on free loan for however many years so any gain that has made will be yours so probably worthwhile.
I will have money to invest in a few years so this is something to look into along with ISA's etc.0 -
AnotherJoe
Maybe in your universe, In mine, it equals £3600
Your right Joe, maths aint my strongest subject but then again i do suffer from Dyscalculia (Google it)
ProDdave
While "on the way in" you get 20% added, it will then be taxable "on the way out" when you draw it later on. So you are taking a gamble that at the time you draw it, the basic rate of tax is less than 20% or you are a low earner below the tax threshold so some or all of it may be tax free.
As a non-earner surely the £3600 is the correct figure and as long as you stay below your tax threshold on withdrawals you will be ok?0 -
On the way in, you get credited with £720. When you draw your £3600 tax at 20% = £720 so you are no better off
I guess you will have had that £720 on free loan for however many years so any gain that has made will be yours so probably worthwhile.
I will have money to invest in a few years so this is something to look into along with ISA's etc.
25% of the £3,600 is tax free so, no, you don't pay £720 tax.0 -
Only £2700 of the £3600 is taxable income so most will pay £540 (£567 from April) in tax but will have received £720 in tax relief.
And outside Scotland it will still be £540 for basic rate payers after 5 April 2018.0 -
Bingo, it makes sense now.25% of the £3,600 is tax free so, no, you don't pay £720 tax.
So you get £720 tax relief on the way in, pay 540 tax on the way out, so "gain" £180 in the exercise. So a gain of 8% of what you put in.
What I had missed was this is additional input to the SIPP so qualifies for the 25% tax free. So certainly when I get my lump sum to invest in a few years it looks to be worth putting more int the SIPP0 -
If you're a non-taxpayer or only withdraw a sum less than your allowance then you gain the full amount0
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