SIPP as well as LGPS

okydoky

My wife has a small pension through LGPS which might be worth £1800 pa when she retires from her p/time job in 5 years time, aged 60. She has looked at AVC but this would involve taking it all when the LGPS is payable which is not perfect. So the question is this, if she takes out a SIPP and pays in £3600, will she still get the full 20% tax relief, even though she is only paying about £400pa tax meantime? This would also enable her to continue with the SIPP even after she retires at 60, and continue to benefit from the tax uplift?
Thanks in anticipation.

jem16

okydoky wrote: »

So the question is this, if she takes out a SIPP and pays in £3600, will she still get the full 20% tax relief, even though she is only paying about £400pa tax meantime?

What are her current earnings and how much does she currently pay into the LGPS? She is allowed to gain tax relief on £3600 or 100% of her earnings.

This would also enable her to continue with the SIPP even after she retires at 60, and continue to benefit from the tax uplift?
Thanks in anticipation.

She would be able to pay £3600 in and get tax relief even as a non-taxpayer.

okydoky

Thanks for quick reply, her salary is about £11500pa, pension payments about £650 and tax about £400pa.

jem16

okydoky wrote: »

Thanks for quick reply, her salary is about £11500pa, pension payments about £650 and tax about £400pa.

She has more than enough income to gain tax relief then.

okydoky

Sorry, but does that mean she can put 3600pa into a SIPP and it only costs her 2880? If she puts in more than this, does she get even more tax relief even if her tax bill is actually much less than this?
Thanks again.

jem16

okydoky wrote: »

Sorry, but does that mean she can put 3600pa into a SIPP and it only costs her 2880? If she puts in more than this, does she get even more tax relief even if her tax bill is actually much less than this?
Thanks again.

With £11,500 income pa she can get 20% tax relief on that whole amount. As she is already contributing £650pa she still has another £10,850 that she could contribute. So yes she could put £3600 into the SIPP and it only costs her £2880. Or she could more in up to £10,850.

However the strange anomaly is that she could not do this through her work as she already doesn't pay tax on the first £9440 so she can only get tax relief on £2060.

kidmugsy

Unless your wife is to have taxable income beyond her LPGS pension when she retires at 60 she'll have more than £8k p.a. personal allowance for income tax unexploited. So there is a case for bunging money into a SIPP on a large scale and then benefiting from tax-free income drawdown from 60. If you can't afford for her to contribute £10,850 gross for five years (= £8464 net) then contribute what can be afforded nearer her sixtieth birthday. That would leave you less exposed to any risk that the so-and-sos change the rules after you contribute and before you crystallise.

okydoky

Yes it is anomalous, that's what was confusing me!

Thanks for taking the time to clarify.

Paying in the full salary would be difficult as although attractive from a tax perspective, it is currently an important source of income for us and it would mean living off of savings or starting my own drawdown which I was hoping to defer for a couple of years.

Maybe the compromise is to go for the £3600 and build up a pot over the next ten years which will hopefully provide an income on top of state and works pension to ensure full use of tax free allowance once she is 66.

xylophone

She'll be drawing state pension under single tier rules so https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181237/single-tier-pension-fact-sheet.pdf might be worth a look for information.

okydoky

Sorry to drag out an old thread but just wanted some clarification as so many pension changes to consider...........
We did eventually set up a SIPP and have paid in all of OH's earnings after deducting her LGPS contributions and multiplying by 0.8 - the tax relief has been duly paid by HMRC.
So, with the intention of doing same for the next 3/4 years, is there anything we need to be aware of in light of the changes?
It will be our intention to drawdown from the fund up to OH's personal allowance once she gives up work, which will be several years before her SP kicks in.
Thanks

OldBeanz

You look ok. We are doing the same. My wife also had a small p/t job which allowed her to contribute to a LGPS AVC but the rising tax allowances next year means that she will then contribute virtually all her pay ((-5.5%)*(0.8))into her SIPP.