Is a SIPP for me ?

bearaboy

Greeting everyone,
This is always my first port of call for anything I am trying to get my head around!

I am 56, took early retirement last year and am in receipt of a lump sum and a final-salary pension of £20k pa, I immediately started work elsewhere for £60k pa (although I did not expect it to last a year and still going ...)

I have used up my ISA allowance and was looking for another tax-efficient vehicle for some money.

Would it be sensible to open a SIPP, invest, say £20k?
a) How would the 40% tax get accrued (is 20% uplifted to my SIPP and 20% claimed back from HMRC?
b) When could I start taking my pension from it ?
Would I be able to withdraw 25%then?
Can I have 25% lumpsum and do a 'drawdown'?


Are my maths correct ... I invest £20k, 20% tax is uplifted, making the fund £24k, I pay 20% (higher rate tax) less in PAYE - £4k less.

So the fund is £24k ... costs me £16k real money. When I come to take pension I can withdraw 25% tax-free (£6k) so I have really paid £10k and the fund has £18k???

Obviously doesn't take into account fluctuations of funds.

Ohh it's a minefield ! I have to get it sorted before the Alzheimers sets in and the next tax year !!
Cheers for any help,

Jack

jem16

bearaboy wrote: »

Are my maths correct ... I invest £20k, 20% tax is uplifted, making the fund £24k,

£20k paid into the pension means a gross payment of £25k, not £24k, Tax relief is always worked out on the gross figure.

You would then apply to HMRC for the other 20%. If you are earning £60 and pay in £25k not all of it would be entitled to higher rate tax relief - only £16,125 of it would be. 20% of that is £3225.

kidmugsy

Jem, he's earning £60k p.a. but there's also his £20k p.a. pension.

property.advert

If I understand it, if you want 20k in your pension (how is a different matter depending on how you are paid etc.) then the net cost is 12k as you would have lost that other 8k in 40% taxation. My understanding is that you can immediately take 25% as a lump sum (5k) leaving 15k to purchase an annuity or to keep invested etc.

Thus net net, you would have had 12k in cash but you now have 5k in cash and 15k invested.

As I said, that is as I understand it.

jem16

kidmugsy wrote: »

Jem, he's earning £60k p.a. but there's also his £20k p.a. pension.

You're right - forgot that bit.