Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • nxdmsandkaskdjaqd
    • By nxdmsandkaskdjaqd 3rd Jan 17, 8:39 AM
    • 474Posts
    • 45Thanks
    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 13
    • ermine
    • By ermine 10th Mar 17, 6:30 PM
    • 604 Posts
    • 881 Thanks
    ermine
    So, using the drawdown route, can you take 25% of the fund, each tax year?
    Originally posted by JohnB47
    When you take your 25% PCLS, your drawdown fund becomes a crystallised fund, and no more 25% tax free lumps sums for you from that fund.

    However, you can add £2880 the next year, and that you haven't drawn down. It goes into an uncrystallised fund. You can take your 25% PCLS of the £3600 (=£900) and the remaining £2700 then goes into your crystallised fund, along with whatever's left from the first lot. As usual, no more 25% PCLS from that

    Or you can leave your uncrystallised fund uncrystallised and continue to add to it, you then get to take a 25% PCLS on the accumulated uncrystallised fund at a later date, whereupon the remainder goes into your crystallised drawdown fund.

    You see the two funds as different entities in your SIPP.

    edit: Looks like jamesd just beat me to it
    • moneyfoolish
    • By moneyfoolish 10th Mar 17, 7:36 PM
    • 452 Posts
    • 261 Thanks
    moneyfoolish
    Just one last question on this old but very useful thread.

    You said "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..."

    So, using the drawdown route, can you take 25% of the fund, each tax year?

    I thought, with drawdown, you get one chance to take 25% of the fund tax free, then everything else taken out is liable to tax, for that tax year and all future ones.

    Ta.
    Originally posted by JohnB47
    Perfectly describes by jamesd and ermine. In fact, as an example of the 2 situations, we have recently opened a SIPP account in tax year 2016/17 for my wife (who is a non-taxpayer with her only income being a state pension plus a small amount of investment income) and have input £2880. The top up to £3600, I think, will only occur in tax year 2017/18 and not until after we have added another £2880 at the start of the tax year 2017/18. Once both top ups have been added she will withdraw £1800 from the accumulated £7200 (25%) and the rest of the fund will move into drawdown. The amount she will withdraw from the drawdown fund (which is taxable) in 2017/18 will depend on how much she can withdraw totally tax free according to her tax code. From tax year 2018/19 onwards she will add £2880 at the start of each tax year which will be rounded up to £3600 in the same tax year and she will then withdraw £900 (25%) immediately and the rest will be added into her drawdown account and she will again withdraw as much as she can totally tax free according to her tax code. Once she reaches 75 and can't add any more money into her SIPP, she will just withdraw as much as she can tax free according to her tax code until there is nothing left in the drawdown account. She would like to withdraw the money from the drawdown account each year as one payment but it would then be taxed under an emergency tax code but jamesd has advised that if a small amount was draw monthly then HL would be sent the correct tax code. I'm wondering if that would be the same situation if only a small lump sum (say £10) was withdrawn from the drawdown account soon after the 25% tax free amount has been taken and then a larger lump sum was taken at the end of the tax year? i.e. would 1 small lump sum withdrawal from the drawdown account prompt an accurate tax code being sent to HL from the Tax Office?
    Last edited by moneyfoolish; 10-03-2017 at 7:39 PM.
    • Sipowicz
    • By Sipowicz 10th Mar 17, 7:53 PM
    • 45 Posts
    • 15 Thanks
    Sipowicz
    Moneyfoolsh, that's exactly what I'm doing with my wife's SIPP, even down to the £10 hopefully generating a tax code from the tax office.
    • Dazed and confused
    • By Dazed and confused 10th Mar 17, 9:15 PM
    • 1,861 Posts
    • 829 Thanks
    Dazed and confused
    moneyfoolish

    As your wife doesn't have an existing pension (the state pension doesn't count here) the small initial payment will facilitate the provision of a tax code and then a larger payment can be drawn down but you are correct that it would have to be taken at the end of the year to avoid unnecessary tax taken up front.

    It would be different if she was only taking some of the maximum income available according to her tax code. For example tax code allows £6000 without tax having to be deducted and wife only wanted to draw down £4000 then she could take this in the eighth month of the tax year (Nov 6 to Dec 5) without having tax deducted by the pension company
  • jamesd
    £10 taken will cause them to be registered with HMRC a few weeks later and after that HMRC will send them a tax code. Once they have it you can take the rest.

    If there is no tax code and you take a lot near the end of the tax year it won't be long until you get a refund after telling HMRC about your income via your personal tax account online. So matters less then.
    • moneyfoolish
    • By moneyfoolish 10th Mar 17, 10:16 PM
    • 452 Posts
    • 261 Thanks
    moneyfoolish
    Moneyfoolsh, that's exactly what I'm doing with my wife's SIPP, even down to the £10 hopefully generating a tax code from the tax office.
    Originally posted by Sipowicz
    Excellent. I'd be interested to know how long after you draw the £10 it takes the tax office to give your wife a code.
    • moneyfoolish
    • By moneyfoolish 10th Mar 17, 10:27 PM
    • 452 Posts
    • 261 Thanks
    moneyfoolish
    £10 taken will cause them to be registered with HMRC a few weeks later and after that HMRC will send them a tax code. Once they have it you can take the rest.

    If there is no tax code and you take a lot near the end of the tax year it won't be long until you get a refund after telling HMRC about your income via your personal tax account online. So matters less then.
    Originally posted by jamesd
    As my wife's tax status will never change, once the tax code is initially given to HL, is it maintained (or altered according to any tax rule changes and allowances) for the the following years or is an emergency code used each year for the first withdrawal from drawdown?
    • Dazed and confused
    • By Dazed and confused 10th Mar 17, 11:05 PM
    • 1,861 Posts
    • 829 Thanks
    Dazed and confused
    It shouldn't be an emergency code in the second or subsequent years but the way PAYE works would mean a payment drawn earlier in the year is more likely to be taxed

    If wife's tax code allowed 6000 without tax that is 500/month which builds up over the year to 6000 by the final month of the tax year so if she took 6000 in April she would normally pay tax on 5500 as the PAYE system would assume she was going to get 72000 that year
    • hogweed
    • By hogweed 14th Mar 17, 12:36 PM
    • 88 Posts
    • 14 Thanks
    hogweed
    How it applies when living off cash reserves...
    First of all, I want to thank everybody who has put so much into this thread in an effort to help people like me who have no financial expertise. My situation is perhaps a little unusual so, having read through hoursí worth of this and other threads, I THINK I understandÖ ishÖ but hope someone will be kind enough to comment on my calculations, as Iím prone to committing howlers, especially when my life depends on it.

    I am 62, currently working for the NHS, so will draw their pension when 65. Said pension is not very big, as I only earn £16,000 a year. However, I had planned to retire to N Ireland when 65, manage somehow for a year, then get my state pension too when 66, and be reasonably OK financially Ė I donít spend much

    The plan has had to change for various reasons, and Iíll be retiring early, some time around August this year. I can do this because the difference in what Iíll get for my house in England, and a similar one Iíll buy in NI, is potentially £50,000. Take away moving expenses etc and I should have £40,000 to live on for 2Ĺ years (simply by spending the cash Ė no interest or other complications, as it seems practically impossible to earn any nowadays).

    So Ė my question. My current annual salary is £16,000. If I pay that amount into a SIPP (I have that amount of cash in savings) before 6/4/17:

    1. The government will make it up to £20,000 Ė correct?
    2. And I can then withdraw £5,000 as a tax free lump sum?
    3. Of the £15,000 left, I can withdraw £11,000 without being taxed, as that is equivalent to my PA, and I wonít have any other earnings, as Iím purely going to be living off my cash?
    4. After a year, I can close the SIPP without penalty?
    5. In each of the two years 2018 & 2019, when I will have no earnings, I can still pay £2880 (from the house proceeds) into a new SIPP (Iím guessing you have to do this each year, rather than just using the old one?), and will receive a £720 prezzie from the government each year for doing so?

    Or am I wrong about the £16,000Ö? My net earnings are about £13,200Ö


    Thanks, very much appreciated
    • Dazed and confused
    • By Dazed and confused 14th Mar 17, 12:55 PM
    • 1,861 Posts
    • 829 Thanks
    Dazed and confused
    You are wrong about taking £11000 without being taxed. As you are earning £16000 tax would be due on the entire £11000.

    This may differ depending on when you take the £11000 but you have given no specifics as to when that would be and the reference to £11000 presumably relates to the current tax years personal allowance.

    From what you have said you would need to wait until 06:04:2018 before £11000 was likely to incur no tax.

    By that point however it may be possible to take £12000 and pay no tax if you genuinely have no other income in that tax year (2018:19) as the personal allowance is on an upward trend, £11500 for 2017:18 and more after per Conservative election promises
    • hogweed
    • By hogweed 14th Mar 17, 1:00 PM
    • 88 Posts
    • 14 Thanks
    hogweed
    You are wrong about taking £11000 without being taxed. As you are earning £16000 tax would be due on the entire £11000.
    Originally posted by Dazed and confused
    Sorry - no matter how many times I check what I'm about to post, it's always obvious afterwards I've made something less than clear!

    After the current FY, I will have no income, and will be living entirely off the capital I raise from selling my house (actually I might continue to earn for 2-3 months, in which case obviously I'd subtract that from the calculations).

    Thanks
    • Linton
    • By Linton 14th Mar 17, 1:01 PM
    • 8,488 Posts
    • 8,425 Thanks
    Linton
    Your understanding of your lump sum payment is incorrect.

    You cannot contribute more than your gross salary into all your pensions in any tax year. I assume you currently pay a employee contribution into your NHS pension. So you can only get £16K minus NHS pension contribution into your SIPP. The process is that you actually pay in 80% of this figure and HMRC refund 20% (25% of 80%).

    So if your NHS pension contribution/year is £1K you can get £16K-£1K=£15K into a SIPP. You pay in 80% of £15K=£12K and HMRC add in 25% of £12K=£3K giving a total of £15K in your pension.

    Your understanding of the £2880 contribution when you aren't working is correct. Though depending on your SIPP provider you may have to wait a year before withdrawing all the money to avoid penalty charges.
    • xylophone
    • By xylophone 14th Mar 17, 1:04 PM
    • 23,419 Posts
    • 13,611 Thanks
    xylophone
    How much have you already contributed to your pension(s) in 2016-17?
    • moneyfoolish
    • By moneyfoolish 14th Mar 17, 1:07 PM
    • 452 Posts
    • 261 Thanks
    moneyfoolish
    You are wrong about taking £11000 without being taxed. As you are earning £16000 tax would be due on the entire £11000.

    This may differ depending on when you take the £11000 but you have given no specifics as to when that would be and the reference to £11000 presumably relates to the current tax years personal allowance.

    From what you have said you would need to wait until 06:04:2018 before £11000 was likely to incur no tax.

    By that point however it may be possible to take £12000 and pay no tax if you genuinely have no other income in that tax year (2018:19) as the personal allowance is on an upward trend, £11500 for 2017:18 and more after per Conservative election promises
    Originally posted by Dazed and confused
    So in the case of my wife who has only a state pension worth approx £7500 and a personal allowance next year of £10,000 (£11500-£1500 which she has transferred to me) am I correct in assuming she could take £2500 without paying tax? If she also had savings interest of £1000 per year would that mean she could only take £1500 without paying tax?
    • Dazed and confused
    • By Dazed and confused 14th Mar 17, 1:08 PM
    • 1,861 Posts
    • 829 Thanks
    Dazed and confused
    In your original post you said retiring around August this year.

    Do you mean stop working for the NHS on salary of £16000 in August?

    If so you will have NHS income of approx £7000 in your next tax year so draw down of £11000 would leave tax due of at least £1300 for the year
    • Dazed and confused
    • By Dazed and confused 14th Mar 17, 1:15 PM
    • 1,861 Posts
    • 829 Thanks
    Dazed and confused
    moneyfoolish

    Unless earning over £100k you cannot have personal allowance of £10000 next year. Do you mean £10350 (11500 - 1150 marriage allowance)?

    I fear you are getting confused over all the different tax rates/bands. If allowance is 10350 due to marriage allowance transfer to you then she can have up that amount in pension/wages with no tax.

    She could also have upto £5000 savings interest taxed at the savings rate (0% this tax year and next). This £5000 is reduced if her pension/wages exceed her personal allowance.

    After that she could have another £1000 savings interest taxed at 0% (personal savings allowance).

    If total income, including all taxable savings interest, is less than £16500 in the forthcoming tax year then it is unlikely your wife will benefit from the personal savings allowance (which is what i guess your reference to £1000 referred to?)
    Last edited by Dazed and confused; 14-03-2017 at 1:20 PM.
    • moneyfoolish
    • By moneyfoolish 14th Mar 17, 1:33 PM
    • 452 Posts
    • 261 Thanks
    moneyfoolish
    moneyfoolish

    Unless earning over £100k you cannot have personal allowance of £10000 next year. Do you mean £10350 (11500 - 1150 marriage allowance)?

    I fear you are getting confused over all the different tax rates/bands. If allowance is 10350 due to marriage allowance transfer to you then she can have up that amount in pension/wages with no tax.

    She could also have upto £5000 savings interest taxed at the savings rate (0% this tax year and next). This £5000 is reduced if her pension/wages exceed her personal allowance.

    After that she could have another £1000 savings interest taxed at 0% (personal savings allowance).

    If total income, including all taxable savings interest, is less than £16500 in the forthcoming tax year then it is unlikely your wife will benefit from the personal savings allowance (which is what i guess your reference to £1000 referred to?)
    Originally posted by Dazed and confused
    Sorry. I'm a twerp! I got the marriage allowance transfer figure wrong. I had it in my it was £1500 instead of £1150! So, if I follow you correctly and she has no income other than approx £7500 state pension plus £1000 savings interest then she would be able to take £2850 (£10350-£7500) as income without incurring any tax as her savings interest is well under the £5000?
    • Dazed and confused
    • By Dazed and confused 14th Mar 17, 1:38 PM
    • 1,861 Posts
    • 829 Thanks
    Dazed and confused
    Basically yes.

    Pension income would be covered by the remaining personal allowance so no tax due on £10350.

    If that was her only pension/wages type income she would have the full savings rate band available so the £1000 savings interest would all be taxable but at a rate of 0% so ultimately no tax to pay (based on 2017:18 allowances and rates).

    If pension income (in 2017:18) increased to £15350 plus £1000 savings interest she would have no savings rate band available so would then have to rely on the personal savings allowance rate band (also 0%) so still no tax to pay on the savings interest.
    NB. £1000 tax would be due the pension income in this situation
    Last edited by Dazed and confused; 14-03-2017 at 1:42 PM.
    • moneyfoolish
    • By moneyfoolish 14th Mar 17, 1:42 PM
    • 452 Posts
    • 261 Thanks
    moneyfoolish
    Basically yes.

    Pension income would be covered by the remaining personal allowance so no tax due on £10350.

    If that was her only pension/wages type income she would have the full savings rate band available so the £1000 savings interest would all be taxable but at a rate of 0% so ultimately no tax to pay (based on 2017:18 allowances and rates)
    Originally posted by Dazed and confused
    Many thanks for all your help on this topic Dazed and confused.
    • hogweed
    • By hogweed 15th Mar 17, 9:21 AM
    • 88 Posts
    • 14 Thanks
    hogweed
    Sorry guys, I really am confused Ė and to make matters worse, Iíve over-simplified a few things in the interests of clarity, but the eagle-eyed amongst you have spotted this, and rightly highlighted inaccuracies.

    OK Ė and thanks, thanks so much for your patience Ė the situation, as accurately as I can state it, is this:

    For the current tax year, I will earn £16000 gross. I donít know what my pension contributions will have been, nor how to find them out Ė have you ever tried getting information out of the NHS bureaucracyÖ so. My net annual salary is £13,200 (sorely tempted to take an opportunity here to rant to anybody whoíll listen about how underpaid I am, but hey Ė you've heard it all before).

    So firstly, I want to invest the maximum allowable into a SIPP for this tax year, and I havenít much time left, which is why Iím rushing a bit and getting even more confused than usual. Is it safe for me to assume that the net figure on my payslip, ie £1100 a month, £13200pa, is at least near as dammit the maximum figure I can invest for this tax year? Should be net of both tax and pensions contributions, right?

    And if so, as soon as the government pay the £3000 or whatever it is in, I can withdraw that again next tax year as a tax-free lump sum, leaving the balance to sit till I need it, after another year or so?

    Thanks
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

112Posts Today

2,704Users online

Martin's Twitter