SIPP drawdown

Mylene_2

I retired in December with a pension of £23000 pa. Can I take out a SIPP now to avoid paying higher rate tax this financial year? If so, under the new rules in April, can I draw it all out next year and pay 20% tax? It wouldn't go into the higher band and I wouldn't want a slow drawdown over many years.

Loughton_Monkey

You have until 5th April to contribute as much as you like [up to certain limits that probably might not affect you] and save tax at your marginal and base rate tax. The actual amount depends upon your PAYE earnings for 2010/11. Basically, you can invest all of that (less what contributions you have already made) into a pension scheme [including SIPP if that's what you want].

From 6th April 2011, you will be restricted to topping this up at no more than £2,880 (Net) per tax year and still get 20% tax relief.

If you really want to be 'efficient', then you must use 'Flexible Drawdown' as you will be entitled to use given that you have more than £20K plus in secured pension. I would mention:

1. To do this for any 40% tax earnings you have had this tax year, it is almost a brainless 'must' to put it into pension, provided you can live with the 'cash flow' implications of this.

2. To do it for any 20% tax earnings this year is also 'efficient' provided you take the 25% tax free lump sum.

Remember, though, that if you do this, there are simply two relevant points:

1. By invoking flexible drawdown, you will not be allowed to use your £2,880 net allowance every year from now on.

2. To maximise the deal, you may not be able to [efficiently] withdraw all of the additional pension in the tax year 2011/12. You would simply withdraw as much as you can so that this, plus your £23K private pension, takes you to 1 penny below the 40% tax band. The remainder would be left until 6th April 2012. This all depends upon how much you squirrel away.

Cook_County

I suspect that the drawdown will not be possible without an IFA. I'd find out how much that would cost.

Do bear in mind that only a minorityof pension providers have yet said for certain that they will offer flexible drawdown.

Coeus

Loughton_Monkey wrote: »

You have until 5th April to contribute as much as you like [up to certain limits that probably might not affect you] and save tax at your marginal and base rate tax. The actual amount depends upon your PAYE earnings for 2010/11. Basically, you can invest all of that (less what contributions you have already made) into a pension scheme [including SIPP if that's what you want].

From 6th April 2011, you will be restricted to topping this up at no more than £2,880 (Net) per tax year and still get 20% tax relief.

If you really want to be 'efficient', then you must use 'Flexible Drawdown' as you will be entitled to use given that you have more than £20K plus in secured pension. I would mention:

1. To do this for any 40% tax earnings you have had this tax year, it is almost a brainless 'must' to put it into pension, provided you can live with the 'cash flow' implications of this.

2. To do it for any 20% tax earnings this year is also 'efficient' provided you take the 25% tax free lump sum.

Remember, though, that if you do this, there are simply two relevant points:

1. By invoking flexible drawdown, you will not be allowed to use your £2,880 net allowance every year from now on.

2. To maximise the deal, you may not be able to [efficiently] withdraw all of the additional pension in the tax year 2011/12. You would simply withdraw as much as you can so that this, plus your £23K private pension, takes you to 1 penny below the 40% tax band. The remainder would be left until 6th April 2012. This all depends upon how much you squirrel away.

Loughton Monkey - colour me impressed! Are you an IFA? If not I would love to know where you learned all about pensions! Quite a youthful chap here so knowing all I could know in advance would have it's benefits

I know the basics what have you, but your post was a form of financial art! Books, websites, experience? Pray do tell...

Loughton_Monkey

Coeus wrote: »

Loughton Monkey - colour me impressed! Are you an IFA? If not I would love to know where you learned all about pensions! Quite a youthful chap here so knowing all I could know in advance would have it's benefits

I know the basics what have you, but your post was a form of financial art! Books, websites, experience? Pray do tell...

Definitely not an IFA!

Career over 34 years basically started in General Insurance - but a bit of basic Life Assurance. Then moved on to analysis, product development, statistics and planning. Then into Life & Pensions Operations - ending up MD Operations in Asian countries.

Back to UK to retire. Have had to understand my own pensions (Final Salary and Money Purchase) and investment generally, otherwise how can I live?