Paying £2880 into pension when retired

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  • missile
    missile Posts: 11,689 Forumite
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    edited 25 September 2017 at 10:51PM
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    tempus_fugit wrote: »
    I am retired with no taxable income so I have the full personal allowance to play with
    Do you have state pension?

    I would suggest the easiest way for you is to withdraw £900 TFLS and the balance as 12 monthly payments.

    Please note: HL will level a charge if you close the account within 12 months.
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  • tempus_fugit
    tempus_fugit Posts: 1,189 Forumite
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    Yes, I am aware of the early closure fee. I have done the £2600 withdrawal (with £198 tax as advised correctly by D&C) as I don't want to withdraw in 12 monthly payments.
    Retired at age 56 after having "light bulb moment" due to reading MSE and its forums. Have been converted to the "budget to zero" concept and use YNAB for all monthly budgeting and long term goals.
  • bioboybill
    bioboybill Posts: 3,426 Forumite
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    Ok, just looking at this for my wife. She is 56 and took voluntary severance at the end of July. She worked part time on a salary of c.£12,600 and was already getting a pension of c. £9K/yr from a previous job. She is deferring payment of her Local Government pension. As she already earned c. £4,200 in the current tax year on top of her pension that clearly takes her over her current PA.


    She is looking at putting £2,880 into a SIPP and keeping as cash for the tax relief of £720 next tax year, but I was thinking it still might be worth doing it this year. I have seen worked examples showing it being only worth £180 to a BR tax payer if you deposit £2880, get the £720 and withdraw the lot and I understand how that works out. However, unless my maths is wrong can't you make £330 by withdrawing just £2600 the first year to comply with HL need to leave £1000 in? My maths is as follows:


    Deposit £2880, get top up of £720 a couple of months later. Leave £1000 in HL. Withdraw £2600. £650 is tax free and pay 20% tax on the remaining £1950 (£390 tax). That way you have still got £330 more than you started with.


    When the next tax year comes around pay £2880 in again, get £720, but this time withdraw £3600, leaving the original £1000 in. £900 is tax free and assuming PA has risen to £12000 the rest is also within the PA.


    Is my maths correct?
  • tempus_fugit
    tempus_fugit Posts: 1,189 Forumite
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    edited 10 November 2017 at 5:58PM
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    Yes but remember that 75% of the remaining £1000 that you left in in the first year (£750) is also taxable, ie £150 tax to pay. £330 - £150 = £180. :)
    Retired at age 56 after having "light bulb moment" due to reading MSE and its forums. Have been converted to the "budget to zero" concept and use YNAB for all monthly budgeting and long term goals.
  • mark1959
    mark1959 Posts: 553 Forumite
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    If your wife is receiving circa £9k and only that next tax year the she can put £2880 in and draw circa £3000 out, tax free, subject to the pension providers rules. Her P.T.A. will be either £11500 or £12000 next tax year. No tax free pension this year tho, as she is already over the £11500 threshold.
  • pip895
    pip895 Posts: 1,178 Forumite
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    I wonder how many more budgets this little scheme is going to last? I have been adding £2880 to my SIPP for the last 7 years just building up my SIPP in retirement - investing it not recycling.

    Its just I can't really see what up side there is for the government in leaving this open? - has there been any talk of closing the loop hole? How might they go about it? I'm hoping not by removing the £3600 yearly allowance. It would actually be really nice if it could go up a bit - as its been £3600 with no inflationary increase for a long time I think.
  • Alexland
    Alexland Posts: 9,653 Forumite
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    It's not a loophole but a genuine attempt to help low/no earners save into a pension to improve their position in retirement. It doesn't cost much and it can really help people and reduce benefit dependacy.

    People that already have decent pensions get marginal benefit as they will pay tax on 75% on the way out.

    Alex
  • pip895
    pip895 Posts: 1,178 Forumite
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    The loophole that allows you to withdraw the money straight away and then add it back in the next tax year though, doesn't seem to be encouraging saving in a pension. As a benefit its not too well targeted I would say.
  • bioboybill
    bioboybill Posts: 3,426 Forumite
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    mark1959 wrote: »
    If your wife is receiving circa £9k and only that next tax year the she can put £2880 in and draw circa £3000 out, tax free, subject to the pension providers rules. Her P.T.A. will be either £11500 or £12000 next tax year. No tax free pension this year tho, as she is already over the £11500 threshold.
    Yes, I understand she would pay tax on the £1950, but she would still get the first 25% (the £650) tax free wouldn't she?
  • Lily1
    Lily1 Posts: 190 Forumite
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    Another question, if I sent up a small monthly direct debit ( to help in my search for more dds after the Tesco change next April ). Could I then put the remainder in towards the end of the financial year by debit card?
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