Transfer from Final Salary to SIPP?

Triumph13

A query on recycling if I may. I know that drawdown isn't counted as 'relevant earnings', so if the drawdown was your only income you couldn't recycle it (other than the standard £3600 pa), but is there any way you can set part of your personal allowance against the drawdown to make more of your salary taxable and thus increase the maximum tax relief available or do HMRC always apply the PA to earnings first?
Eg if my OH is on £15k pa and contributing the £5k which is above the PA, would she be able to increase her contributions above the £5k by drawdown recycling?

Linton

Triumph13 wrote: »

A query on recycling if I may. I know that drawdown isn't counted as 'relevant earnings', so if the drawdown was your only income you couldn't recycle it (other than the standard £3600 pa), but is there any way you can set part of your personal allowance against the drawdown to make more of your salary taxable and thus increase the maximum tax relief available or do HMRC always apply the PA to earnings first?
Eg if my OH is on £15k pa and contributing the £5k which is above the PA, would she be able to increase her contributions above the £5k by drawdown recycling?

Yes.

Personal allowance applies to all your taxable income added together. You can make gross payments into a pension of anything up to your gross earned income. So you could live off your drawdown and put the whole of your earned income into a pension. You just need to make sure that the amount of taxable income, both earned and unearned, left over after paying (gross) into your pension is not less than than your personal allowance.

jamesd

[STRIKE]If you have income outside earned income you can contribute up to that plus your earned income less the personal allowance and still get the tax relief.[/STRIKE] A person with £15,000 total income could only get tax relief on £15,000[STRIKE] minus the personal allowance[/STRIKE]. A person on £15,000 plus £5,000 or pension or investment income could get tax relief on £15,000 because that's their earned income [STRIKE] £20,000minus the personal allowance[/STRIKE].

A person on £15,000 earned income plus £15,000 of pension or investment income could get tax relief on only up to £15,000 because that is all of their earned income.

RebTech

I think I'd need to take advice about recycling my pension, is it possible without knowing more about my circs to suggest how much I should expect to pay for such advice?

Triumph13

One of the IFAs will be able to give you a ballpark number, but compared to the size of the pot the answer is probably 'a lot'

Unless some very unusual circumstances apply (eg being terminally ill) the final salary bit is in its rightful place and you'd be mad to move it.

You're then left with what can you do about the AVC portion. What might be best would be to put it into drawdown asap and recycle as much of it as possible, but that will very much depend on what you are able to do in the current scheme. What you would like to do is probably to leave the final salary bit alone until you can take it without commutation, but crystalise the AVC bit now. If you can't transfer the AVC on its own though then, you may well not be able to crystalise it either. You need to have a good read through the latest version of the scheme rules.
If you can treat them separately within the scheme AND if the scheme allows drawdown then you can start to think about recycling.
If drawdown is allowed but both parts have to be taken together then you need to look carefully to see whether any gains from taking the AVC early and recycling would outweigh the impact of commuting the final salary pension.

jamesd

RebTech, what aspect do you need advice about? This is just for the SIPP and it has the usual drawdown consideration of picking appropriate investments for your circumstances.

RebTech

Triumph13, thanks but you're forgetting about the SIPP, which is not awfully big but quite a bit bigger than the others.

jamesd, I'm not concerned about choosing investments, but rather the overall picture. To fill you in a bit, I'm self-employed, doing what I want to do, but on a very low income and living to a significant extent on capital. On the face of it, that seems a good scenario for pension income recycling, as I'm not currently using all of my personal allowance, but most or all online articles are aimed at more common scenarios, and I'm not confident of deciding for myself whether recycling would actually benefit me.

(Don't know whether it would help or not but I can't use the calculator you mention above because I don't have Excel, just OpenOffice, which doesn't do macros.)

atush

what benefits will you receive at scheme age with this small FS pension? why not leave it to grow thru indexation each year until you need it?










It is generally a poor idea to move/transferra FS pension, and the fact it would be condisered a missale to do so, means any IFA who agreed to do it would charge a very large amt.

RebTech

atush wrote: »

what benefits will you receive at scheme age with this small FS pension? why not leave it to grow thru indexation each year until you need it?...

atush, and any others who feel inclined to comment on this (it seems to be a popular topic), I decided as far back as post #6 to do exactly that.

zagfles

jamesd wrote: »

If you have income outside earned income you can contribute up to that plus your earned income less the personal allowance and still get the tax relief. A person with £15,000 total income could only get tax relief on £15,000 minus the personal allowance. A person on £15,000 plus £5,000 or pension or investment income could get tax relief on £20,000 minus the personal allowance.

A person on £15,000 earned income plus £15,000 of pension or investment income could get tax relief on only up to £15,000 because that is all of their earned income.

You can get tax relief on your entire earned income even if part of it is within the personal allowance, if you're using a RAS scheme (eg SIPP, personal pension). Basic rate tax relief at source is claimed by the scheme even if you paid no tax.

If your earned income is £15k and you have no other income, you can put the entire £15k into a pension and get basic rate tax relief on the lot.