Stakeholder Pension Fund

Tweds

When I retired a few years ago I was advised to pay into a Stakeholder Pension for my wife who has no income. The fund is currently only worth about £6,000 and my wife will be 60 in a few months.

I believe she can have this out as a tax free lump sum (up to a maximum of £15,000) when she is 60 as she has no other pensions.

My question is this:- Is there anything to prevent me paying in a lump sum of say £4,000 a month or two before she is 60? The taxman adds £1,000 then my wife draws out the total of about £11,000 just after her birthday.

It seems too good to be true that the taxman will add his £1,000 to the pot then a short time later she can draw it out.

Am I missing something here? Any advice would be appreciated - thank you.

dunstonh

My question is this:- Is there anything to prevent me paying in a lump sum of say £4,000 a month or two before she is 60?

Yes. A nil earner can only pay £3600 gross per tax year. Apart from that, no.

It seems too good to be true that the taxman will add his £1,000 to the pot then a short time later she can draw it out.

It is too good to be true. 75% of the pot becomes taxable in the tax year it is taken. Only 25% is guaranteed to be tax free.

If you dont need the money, why not leave it in there until 75? Its tax free for growth, its paid out tax free on death (should she not make 75) and the annual allowance for triviality goes up most years (like most tax allowances). Its £17,500 currently.

EdInvestor

Of course if the 75% falls within her personal allowance, much of it may still be tax free.

Tweds

Thank you both for the advice - I'm sorry I have not replied earlier but I've been away.

I do have a couple more questions if you don't mind:

dunstonh - I'm sorry but I don't understand "A nil earner can only pay £3600 gross per tax year."

If I understand you both correctly, if we kept the pot at around £8,000 when she is 60 she can have it all out free of tax - 25% = £2,000 plus 75% = £6,000 which is within the personal allowance. I'm sorry if this is very simplistic but I'm just trying to understand something which is alien to me.

We probably will leave it there anyway and add to it when we can, but I was just curious as to the apparent benefits.

EdInvestor

Tweds wrote: »

dunstonh - I'm sorry but I don't understand "A nil earner can only pay £3600 gross per tax year."

It's your wife's pension and she's a nil earner, thus the max that can be paid in is £3,600 gross p.a.

At around £8k as you say, you should be able to get it all out tax free.

Tweds

Thanks Ed - got it now.

mad_bad_spender

Just to add to the above that it is more than likely the 75% will have tax deducted by the pension provider, this would then need to be claimed back with a P53 form from the tax office.

i do advise anyone taking payment via triviality to complete this form...