Getting a SIPP and then cashing it in.

ausanglier

Can anyone answer this query?

I'm age 63 working and earning £34,000 per year. I am also receiving a work pension of £20,500 per year.

Can I open a SIPP or Stakeholder pension pay in £1000 per month for say one year. Will I receive the 40% income tax paid on this money back, making the SIPP worth £16800.

Can I then cash it in as a trivial amount pension (under £18000) and receive a quarter tax free £4200 plus the rest taxed at 20% (assuming I'm no longer working) leaving £10080 plus the £4200 making the original £12000 = £14280 a return of 19% on my original money.

sleepless_saver

You can't use triviality. All your pensions need to be worth less than £18k and you have more than this when you include the one in payment. http://www.pensionsadvisoryservice.org.uk/workplace-pension-schemes/final-salary-schemes/cashing-in-pensions-%28triviality%29

bigadaj

OP your thinking is sound but you mention triviality which I think confuses the issue. You can do everything else, ie get the higher rate tax relief now and then pay a lower rate of tax when you stop working. I'm not sure whether the tfls is available for all pots though, had a thought it might be limited but cold be wrong.

Camdoon

Having a pension of over £20k you will be able to use flexible drawdown. This would allow you to do similar to what you intend but you must have finished paying into pensions when you begiin the drawdown.

http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm09103590.htm for rules

jem16

ausanglier wrote: »

Can I open a SIPP or Stakeholder pension pay in £1000 per month for say one year. Will I receive the 40% income tax paid on this money back, making the SIPP worth £16800.

If you pay £12,000 net into the pension, you will have tax relief added by the provider giving you £15k. You would then claim an additional 20% from HMRC which would be £3k. This would mean that the pension payment has cost you £9k.

Can I then cash it in as a trivial amount pension (under £18000) and receive a quarter tax free £4200 plus the rest taxed at 20% (assuming I'm no longer working) leaving £10080 plus the £4200 making the original £12000 = £14280 a return of 19% on my original money.

You wouldn't be able to use Trivial Commutation as has already been said. However with your work pension already paying over £20k, you could use Flexible Drawdown to get the whole pot. £3,750 would be tax free and the remaining £11,250k would be taxed at 20% which leaves you £9,000. So £12,750 from your original £9k.

That gives a return of 41.6%.

mania112

Things to be aware of with Flexible:

* you can make no further contributions to any pension once in Flexi DD.

* a 'quirk' of the PAYE system means that you'd be taxed at 40% if you took £11,250 as a one-off lump, as suggested above. (PAYE assumes you'll be taking that much each month) so you'll have to reclaim the difference.

* many providers (I can't say all because I haven't checked) require you to hold the money with them for a specific term before you can take over x% of the fund.

* You can't start flexible until after a year in which you make a contribution

kidmugsy

mania112 wrote: »

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* You can't start flexible until after a year in which you make a contribution

Can you tell me; what is the penalty if you make a pension contribution early in a tax year and then change your mind and start Flexible Withdrawal later in that year?