Paying £2880 into pension when retired

jamesd · 30 January 2017 at 6:48PM

That's the formal rule but they do exercise discretion.

I think that the real purpose comes from their charge for exiting in the first year. To stop people gaming that by leaving in a penny forever to save the £200 they can close at £1k.

flightinfo · 31 January 2017 at 12:21PM

This thread has been very helpful (as have previous threads.) I just wanted to check a couple of things. I am currently on zero rate tax band.

I paid in to my first SIPP on 1 April 2016 so last tax year but the tax credit was paid in June 2016 (so this tax year). If I make a payment today, I will hopefully receive the tax credit in March 2017. Am I allowed to receive 2 tax credits in the same year or do I need to make this year's payment in March so the credit is in tax year 2017 - 18?

In a couple of years time I will become a BR taxpayer receiving a monthly pension. Once this happens, am I correct in stating there will not be much benefit in continuing to make the payment as I will receive the tax credit but would pay tax when I withdraw the money. Sorry, I know this has been covered already but reading through the thread I just need to clarify my understanding.

jamesd · 31 January 2017 at 6:51PM

The tax relief counts for the year you paid the money in, not the year when HMRC paid it. You can make as many payments as you want and can receive up to one combined tax relief payment a month from HMRC. No problem to pay in just before midnight on 5 April.

You will still benefit from the tax relief on the tax free lump sum.

minty777 · 31 January 2017 at 7:47PM

So can i for example,invest in a SIPP(held as cash only) today with £2880(not working and non tax payer) then in march when tax incentive is added to make my cash balance £3600

At this point can i withdraw £2880 from my SIPP leaving the £720 tax incentive in the SIPP.

Then on 6th april i can put the £2880 back into the SIPP cash account and get another £720?

Lets say the SIPP is with H&L

AlanP_2 · 31 January 2017 at 7:52PM

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minty777 wrote: »

So can i for example,invest in a SIPP(held as cash only) today with £2880(not working and non tax payer) then in march when tax incentive is added to make my cash balance £3600

At this point can i withdraw £2880 from my SIPP leaving the £720 tax incentive in the SIPP.

Then on 6th april i can put the £2880 back into the SIPP cash account and get another £720?

Lets say the SIPP is with H&L

Yes you can, and repeat until you are 75.

Snowbelle · 12 February 2017 at 2:09PM

Thanks to everyone that has posted on this thread as I've learnt a lot. Am I right in thinking that if someone was to pay in £2880 now in order to gain the £720 from HMRC for tax year 2016/2017 but is not 55 for a few years yet then there is no rush to pay in another £2880 for tax year 2017/2018? Would it be better to wait until close to April 2018 to pay in another £2880?

fabsaver · 12 February 2017 at 3:23PM

Snowbelle wrote: »

Thanks to everyone that has posted on this thread as I've learnt a lot. Am I right in thinking that if someone was to pay in £2880 now in order to gain the £720 from HMRC for tax year 2016/2017 but is not 55 for a few years yet then there is no rush to pay in another £2880 for tax year 2017/2018? Would it be better to wait until close to April 2018 to pay in another £2880?

Yes you can pay in any time within the tax year. It depends if you have the funds available or have a better use for them elsewhere.

Like any investment the earlier you invest the earlier you will benefit from the associated dividends or growth. Conversely you could put the full amount in at the start of the tax year and then the market crashes.

Personally I put in £240 a month by direct debit.

SweetnSavvy · 14 February 2017 at 10:28AM

Thanks to everyone for all the information given.

I spoke to HL yesterday who said that anyone putting in the £2880 now would not get the £720 tax relief put in until late April. They confirmed however that you would still be able to withdraw £2600 in this tax year (16/17) and only leave £280 in account. They would not close account in the knowledge that the tax relief would arrive in late April leaving the £1000 balance.

Also said that current account closing fees are £295 + vat if closed in first 12 months thereafter £25 + vat.

SnS

Snowbelle · 16 February 2017 at 12:00PM

I'm not sure if I'm over-thinking this and confusing myself with regards to the 25% tax free element.
I get that £900 of the £3600 will be tax free so will 25% of each withdrawal be tax free or will the first £900 withdrawn be tax free?

bowlhead99 · 16 February 2017 at 12:18PM

Snowbelle wrote: »

I'm not sure if I'm over-thinking this and confusing myself with regards to the 25% tax free element.
I get that £900 of the £3600 will be tax free so will 25% of each withdrawal be tax free or will the first £900 withdrawn be tax free?

You can choose to do it either way.

Traditionally, people would take a tax free "pension commencement lump sum" of 25% at the beginning, and then they would know that all the rest of it (75%) was taxable, and draw that remaining amount, taxable, over time. So in a £100k pot, take £25k out now tax free and then the £75k+ growth will give you ongoing taxable income over your chosen timescale.

However, the other way to do it is:
-if you have a big stack of money in your pension account that has not yet been "crystallized" (i.e., you have say £100k in the account and you have never taken a tax free sum or any taxable drawings from it), you are able to partition off just a little bit of it (e.g. £10k) and pull it out right now(£2.5k tax free and £7.5k taxable), and then leave the remaining £90k completely untouched, non-crystallized.

That remaining £90k is treated as if it is just a smaller pot which has never had any tax free money or taxable drawings taken out of it. It is raw and un-crystallized. It can sit around and grow (maybe back up to £100k, £200k or more)... and in the future you will still have the choice of (a) taking a big 25% lump tax free and leave the rest as taxable income, or (b) again grabbing a chunk out of it and having just that chunk be received as 25% tax free and 75% taxable.

So on your £3600 if you want £900 taken out of it you have a choice: you could take out £900 up front and later draw down the remaining taxable £2700 ; or take out, say, £900 of which £225 tax free and £675 taxable and the remaining £2700 you can take a decision on later.

That latter option of just grabbing a chunk of uncrystallized funds and having it 25% taxfree and 75% taxable and leaving all the rest behind un-crystallized, is sometimes known as taking an "Uncrystallized Funds Pension Lump Sum", with a 25/75 split of its taxability. As opposed to taking the traditional 25% tax free pension commencement lump sum at the beginning and then eventually drawing the rest of the 75% all taxable over your chosen timetable.

Paying £2880 into pension when retired

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