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  • FIRST POST
    • nxdmsandkaskdjaqd
    • By nxdmsandkaskdjaqd 3rd Jan 17, 8:39 AM
    • 481Posts
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    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 24
    • Jakey30$
    • By Jakey30$ 22nd Nov 17, 9:48 AM
    • 3 Posts
    • 1 Thanks
    Jakey30$
    Jakey30$
    Hi, I seem to have gotten somewhat confused as to how these sipp's work. My wife is now 65 with only a state pension (retired at 62) as income £6984 pa. I opened up a H&L sipp in Feb 2016 and have now added 3 x £2880 the cash balance (including the tax rebate) is now £10,800. My confusion arises as some months ago I spoke to H&L about withdrawing some funds without putting the wife into a tax paying position i.e. above her tax free income but still putting in the £2880 every year until she is 75
    As I understood it, once we start to draw from this sipp it goes into "drawdown" and no more deposits into the account can be made? Rather a new sipp would have to be opened. Have I got this correct? Can anyone suggest the best way to retain the yearly £2880 investment by myself and draw funds also whilst taking advantage of the tax rebates. Thankyou
    • xylophone
    • By xylophone 22nd Nov 17, 10:41 AM
    • 23,613 Posts
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    xylophone
    Let's assume that your wife's only income in this tax year is her state pension of £6984. Her PA is £11,500.

    She wants to commence drawdown of the £10,800 in the SIPP.

    As I understand it (but check with HL):

    She can take her PCLS of 25% tax free. That will be £2,700.

    She can then take £4606 as an income payment - HL will deduct tax but she can reclaim this from HMRC as she is within the PA of £11,500.



    She will contact HL to say that she wishes to make a contribution of £2880 for the tax year 2018-19.

    It seems likely that the PA for 18/19 will be £12,000.

    Your wife's SP will be uprated in April.


    HL will open what you might call "new Sipp" and will claim the tax refund from HMRC.

    Your wife will be able to take a 25% PCLS from "new SIPP" - anything drawn over that amount will be taxed as income.

    She might choose to draw down the balance of "old SIPP" before taking any income from "new SIPP".

    She can proceed in a similar way up to age 75.
    Last edited by xylophone; 22-11-2017 at 10:44 AM. Reason: add bold
    • cogito
    • By cogito 22nd Nov 17, 11:52 AM
    • 2,925 Posts
    • 6,779 Thanks
    cogito
    Question re recycling rules. I have state pension and defined benefit pension which pay me just under the £11500 limit. I have a SIPP but am not taking income from it.

    My wife has a SIPP and is drawing £11500 per annum plus 25% of that as tax free cash. My wife is 57 and I am concerned that her pot will be depleted in about 12-15 years.

    Am I in order in taking £3600 from my SIPP, pay tax on it and then give my wife £2880 to pay into her SIPP? I believe that she would have to declare the source of the money.
    • xylophone
    • By xylophone 22nd Nov 17, 11:59 AM
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    xylophone
    Why should your wife have to declare the source of the money and even if she did "gift from spouse" should be quite acceptable.

    There is no reason why you should not make a cash gift to your spouse for her to use as she wishes.

    You could take your tax free PCLS (or have you done this already?) and gift that to your wife - you might wish to draw down taxable income from your SIPP and gift that to your wife.

    I do not see any problem with recycling?
    • ermine
    • By ermine 22nd Nov 17, 12:50 PM
    • 623 Posts
    • 924 Thanks
    ermine
    I believe that she would have to declare the source of the money.
    Originally posted by cogito
    Why? She hasn't earned it, either through selling her time for money or as a return on financial assets, it is a gift, so not income. Since you are her spouse she isn't even liable to IHT if you die within seven years of making the gift, so knock yourself out.
    • cogito
    • By cogito 22nd Nov 17, 12:57 PM
    • 2,925 Posts
    • 6,779 Thanks
    cogito
    She had an endowment which matured a couple of years ago and made a payment into her SIPP at that point. She had to make a declaration as to the source of the money. Recycling rules were given as the reason as she had taken some tax free cash a few weeks earlier.
    • Jerben
    • By Jerben 22nd Nov 17, 2:27 PM
    • 57 Posts
    • 27 Thanks
    Jerben
    Hi, I seem to have gotten somewhat confused as to how these sipp's work. My wife is now 65 with only a state pension (retired at 62) as income £6984 pa. I opened up a H&L sipp in Feb 2016 and have now added 3 x £2880 the cash balance (including the tax rebate) is now £10,800. My confusion arises as some months ago I spoke to H&L about withdrawing some funds without putting the wife into a tax paying position i.e. above her tax free income but still putting in the £2880 every year until she is 75
    As I understood it, once we start to draw from this sipp it goes into "drawdown" and no more deposits into the account can be made? Rather a new sipp would have to be opened. Have I got this correct? Can anyone suggest the best way to retain the yearly £2880 investment by myself and draw funds also whilst taking advantage of the tax rebates. Thankyou
    Originally posted by Jakey30$

    Jakey,
    You have misunderstood or been misinformed!
    We are currently doing exactly what you seem to want, for my partner, also with HL.
    Speak to them about a UFPLS. This is a withdrawal from a SIPP where 25% is tax-free and £75% is taxed.
    Your wife has about £4500 of her personal allowance unused.
    She can take a UFPLS of £6000 from HL at no admin cost!
    HL will tax the 75% (£4500), but you can reclaim this from HMRC.
    You do not have to open a new SIPP and you can continue to contribute the £2880 a year into the same SIPP.
    Adjust the numbers slightly each year, to keep within the PA and keep a minimum of £1000 in the SIPP so HL's admin don't close it!
    • xylophone
    • By xylophone 22nd Nov 17, 2:32 PM
    • 23,613 Posts
    • 13,749 Thanks
    xylophone
    It seems likely that the PA for 18/19 will be £12,000.
    I see that the Chancellor has announced £11,850.

    With regard to Jerben's post, that is a UFPLS arrangement - i described flexible drawdown.
    • Jakey30$
    • By Jakey30$ 24th Nov 17, 12:11 PM
    • 3 Posts
    • 1 Thanks
    Jakey30$
    It does appear from what you explain to be just what we are looking for, I will speak with H&L again to clarify and possibly put into practise although we are not desperate for the money at this stage as I am still working. Thanks to all for your advice
    • badmemory
    • By badmemory 24th Nov 17, 2:52 PM
    • 1,050 Posts
    • 1,108 Thanks
    badmemory
    If there is surplus money lying around at the moment why not use some of it to finance your wife's deferral of her state pension. If her SPA was before April 2016 then that would add 10.4% pa to her state pension (or 0.2% weekly).

    The more even the spread of income in retirement the better (lower) the tax paid but also the better the outcome for the lower income partner should their (better off) partner die first. On the really gloomy side the more even each share the better off the one who doesn't need to be in a care home would possibly be.
    Last edited by badmemory; 24-11-2017 at 2:57 PM.
    • Jakey30$
    • By Jakey30$ 30th Nov 17, 11:15 AM
    • 3 Posts
    • 1 Thanks
    Jakey30$
    Hi All,
    We have now had an illustration from H&L re my wife's SIPP based on taking a one off UFPLS payment of £7570 from the £10800 however as previously mentioned my intention was to carry on contributing the £2880 p.a. up to her 75th birthday and benefitting from the tax rebate but there is a paragraph on the illustration which I am not clear as to the meaning of "By taking a lump sum from your SIPP you will have flexibly accessed pension benefits. This means future contributions to all money purchase pensions will be limited to an annual allowance of £4000" can anyone explain what this means? does it affect anything?
    • xylophone
    • By xylophone 30th Nov 17, 11:50 AM
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    xylophone
    This means future contributions to all money purchase pensions will be limited to an annual allowance of £4000"
    The "MPAA" - once income has been taken from a DC pension, future contributions to a DC pension are limited to £4000 per annum.

    But your wife has no relevant earnings and is restricted to £3600 per annum anyway.

    The MPAA is not relevant to her circumstances.

    https://www.aegon.co.uk/support/faq/pension-technical/MPAA.html
    • kangoora
    • By kangoora 8th Dec 17, 11:44 AM
    • 492 Posts
    • 335 Thanks
    kangoora
    I have retired early a year ago and currently get a DB pension of about £5.6k p.a (this tax year around £4.7k). I also have some small part-time earnings from Ebay of an estimated £2k p.a based upon an April start this year.

    It was always my intention to withdraw up to my personal allowance in March from my DC pension pot, when I will know reasonably exactly what the final total is of Ebay earnings so I can get this amount correct.

    I have not taken anything from my DC pension pot yet and, apart from drawing up to my annual allowance, don't see any need to take any more money out of it at this time.

    So,
    1. Given the above, can I still contribute £2880 into my existing DC pension (for ease) and yet still withdraw from that pension up to my personal allowance? This would be in the region of £4.8k.
    2. Reason I ask this is everyone on this thread seems to set up an small independent SIPP to do this and only for £2880. Is there any particular reason not to use an existing DC pension?
    3. Do my ebay earnings allow me to contribute any extra? I presume not, as I will still be a non-taxpayer.

    Additional info:

    In 4 1/2 years time my DB pensions will increase to circa £12k p.a. so my annual allowance will be completely used up (ish).
    • xylophone
    • By xylophone 8th Dec 17, 12:17 PM
    • 23,613 Posts
    • 13,749 Thanks
    xylophone
    I will still be a non-taxpayer.
    A person could be in a situation where his only income was relevant earnings of £11,500 - he would not be paying tax but he could still contribute £9200 to a personal pension and receive tax relief of £2,300.

    A person with no relevant earnings ( or relevant earnings under £3,600) can contribute £2880 to a personal pension and receive tax relief of £720.

    http://www.pruadviser.co.uk/content/knowledge/technical-centre/tax_relief_members_contributions/
    • Linton
    • By Linton 8th Dec 17, 12:25 PM
    • 8,603 Posts
    • 8,564 Thanks
    Linton

    So,
    1. Given the above, can I still contribute £2880 into my existing DC pension (for ease) and yet still withdraw from that pension up to my personal allowance? This would be in the region of £4.8k.
    2. Reason I ask this is everyone on this thread seems to set up an small independent SIPP to do this and only for £2880. Is there any particular reason not to use an existing DC pension?
    3. Do my ebay earnings allow me to contribute any extra? I presume not, as I will still be a non-taxpayer.

    Additional info:

    In 4 1/2 years time my DB pensions will increase to circa £12k p.a. so my annual allowance will be completely used up (ish).
    Originally posted by kangoora
    1) Yes you can contribute £2880 into an existing DC pension unless the rules of the scheme stop you (eg an ex-employers scheme)
    2) I guess most people asking about the option on this Board are not experienced investors and dont already have a SIPP/personal pension.
    3) Ebay trading profits are capital gains rather than earned income so dont help with the pension linits. I guess you could set up an ebay trading company and pay yourself a director's pension. Perhaps not worth the effort for £2K.
    Last edited by Linton; 08-12-2017 at 1:17 PM.
    • Dazed and confused
    • By Dazed and confused 8th Dec 17, 12:31 PM
    • 1,936 Posts
    • 872 Thanks
    Dazed and confused
    As the eBay income is only likely to be 2k it won't make any difference* but surely "trading" income/profits are earnings/self employed income for both income tax and pension contribution purposes.

    How do you arrive at this being a capital gain?

    *would be different if it took you over £3600 in earnings for pension contribution purposes
    • Linton
    • By Linton 8th Dec 17, 1:14 PM
    • 8,603 Posts
    • 8,564 Thanks
    Linton
    As the eBay income is only likely to be 2k it won't make any difference* but surely "trading" income/profits are earnings/self employed income for both income tax and pension contribution purposes.

    How do you arrive at this being a capital gain?

    *would be different if it took you over £3600 in earnings for pension contribution purposes
    Originally posted by Dazed and confused
    mmm interesting point. Having checked this through I think you are right. So the OP would need to register as self employed with HMRC. Given sufficient income NI would also be due.

    But as you say, with only £2K income it doesnt make any difference for pension contributions.
    • kangoora
    • By kangoora 9th Dec 17, 1:09 AM
    • 492 Posts
    • 335 Thanks
    kangoora
    Thanks very much for replies
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