Paying £2880 into pension when retired

jamesd wrote: »

Using UFPLS a chunk can be anything up to the whole balance. 25% of whatever is taken out will be tax free.

UFPLS is not suitable for a person who is still earning and may want to pay more than £4,000 gross into a pension each tax year. Because it is taking taxable money it causes the annual allowance to be reduced to £10k under current rules, likely soon the £4k mentioned ed in the consultation last year.

Such a person should either only take the 25% tax free lump sum, letting the 75% go into flexible drawdown to be taken after work, or might consider the small pot rule instead. Small pot rule lets people take all of the money out of a pension pot with up to £10k in it up to three times a lifetime without triggering the reduction.

Thanks. So you're saying that, for a person still earning, to avoid the 'pay in' allowance dropping to £10 (or £4k), they could withdraw 25% in the first year tax free but would have to let the fund go into drawdown, even though they had no initial intention of drawing funds? They could then add this 25% to new funds and add that to the SIPP, then do the same next year etc?

What I'm getting at is, if an earner wants to be able deposit the maximum they could (up to 80% of taxable earnings) in a cash SIPP each year, how much can they take out of existing SIPP funds, tax free, to invest in the next tax year? And can this be done year after year?

I've requested a booklet on this from HL, pity it's not a download. Actuall I've downloaded a UFPLS factsheet from HL and it says:

"The money purchase annual allowance
is £10,000 for the 2016/17 tax year. The
government has proposed this will reduce to
£4,000 from the 2017/18 tax year. In contrast,
you will only trigger the reduced contribution
limit from drawdown in this way when you
start to take an income: taking tax-free cash via
drawdown does not in itself trigger the reduced
contribution allowance."

Does that not suggest that, even someone earning can take out the 25% tax free amount of the fund each year without effecting the contribution limit? Sorry to be a bit thick here. All new to me.

(I'm presuming here that the tax mans contribution, each year, is based on the value of deposits made in the year, not the overall fund value).

Thanks again for bearing with me.

JohnB47 wrote: »

.... Thanks again for bearing with me.

Please be advised:
1.You deposit into a SIPP account. Funds can be invested or held as cash.
2.You can transfer all or some of the SIPP funds to a SIPP Drawdown account.
3.You can withdraw 25% tax free
4.You can drawdown as much or as little as you wish. Tax will be deducted per your tax code.

JohnB47 wrote: »

Thanks missile.
I can't help thinking of you having a stern look on your face as you typed that :-)
.

Hi John,
Not at all, sorry if I gave that impression.:o

Please be advised, I started the thread referred to in post No1 back in March 2016. I am very grateful for the advise given by Jamesd :T and others:A. I was trying to pass on my own experience.

As an engineer, I try to Keep It Simple and hope my comments were helpful?

JohnB47 wrote: »

Absolutely, thanks. No apologies needed.

I am about to start a cash SIPP for my wife, just before the budget. I've also just received a booklet from HL on UFPLS and on reading it, the penny has finally dropped on the difference between:

1. taking 25% of a fund out tax free and going into drawdown

2. using UFPLS to take funds out and keeping the fund intact (not
going into drawdown).

If you use UFPLS, whatever sum you take out, it's 25% of that amount that is tax free. (I was thinking that they both involved taking out 25% of the fund tax free and therefore I couldn't see why anyone would want to take the option that forced the fund into drawdown).

I'm pretty sure that that's what people have been telling me in replies to my posts but the subtle difference didn't really sink in.

Still, the SIPP will be started today and that gives me plenty of time (around four years during which the wife will remain a non tax payer) to think of future strategy.

Thanks again for the help.

Like you, John, I was struggling with the difference between the 2 options although for anybody in my wife's position as a non-taxpayer with only a state pension as income and limited to £2880 per year to add to the SIPP, I cannot see any reason to use UFPLS because you can do virtually the same with drawdown if you take the 25% tax free amount each year and withdraw the taxable money whenever you want to ensure that it is within the range to maintain paying zero tax.

You have two accounts/pots:

1. Uncrystallised money. You can still take 25% tax free from this, either using UFPLS or taking 25% tax free and moving the 75% to the drawdown account. You can do this for any portion of the pot, doesn't have to be all at once.

2. Crystallised money drawdown account. All money in this is taxable when taken because you've already had your 35% tax free on it.

What moneyfoolish was referring to was paying in a new 2880 each tax year and taking out 25% tax free from the new 3600 that ends up being. Not taking out any more tax free money from the crystallised drawdown account.