Small pension tax free?

Chickereeeee

We have previously not bothered in putting money into my wife's pesnion as she was either not working or a basic rate taxpayer. The pension restrictions did not seem to make it worthwhile (caped drawdowm, taxed triviality etc).

Now, (or rather when the changes come in) am a right in thinking that she would get basic rate tax relief (even if not paying tax) on any contributions, and then, in a couple of years time, withdraw the lot, tax-free, up to the £10k pa personal allowance limit? Asuming no other income, of course.

If so, it would seem quite a good rate of return....
(Both over 55 yrs old.)

atush

Correct, but given she always had a personal allowance, it would have made some sense int he past for her to at least have a smallish pension pot as all the income would have been tax free for her?

But now is only more so.

Linton

You are correct, though the proposals may well change between now and 2015. You could in fact do it from April this year using the new stranded pots limit of £10K. However charges could be a significant % of the gain you make from the rebate of non-existant tax.

Chickereeeee

atush wrote: »

Correct, but given she always had a personal allowance, it would have made some sense int he past for her to at least have a smallish pension pot as all the income would have been tax free for her?.

As I understand it, the drawdown would have been capped, so with a small pension pot anyway, the monthly payment would have been to small to be worth bothering with.

atush

Could have had an annual payment.


But more importantly could have paid more into a pension for her, as even a non working spouse can pay in 2880 per year and have TR added up to 3600.

Chickereeeee

Annual or monthly doesnt matter.

My point is, drawdown/GAD would have limited payments to £2,940pa maximum anyway (example of £50k pot, current GAD and ignoring tfls)

The changes mean she could now pull out £10Kpa for five years, tax free. Much more attractive

atush

yes it is more atractive, IF she doesn't need an ongoing income/

Where it could fall down is, if she was a single pensioner with no other funds/income apart from SP and therefore would need that income as small as it is.

In both cases, it would be tax free fo her. So always should have been part of the plan.

For me, anyone in that situation before, would have benefited from a pension pot of 100-200K if ony to use all of their PA before state pension kicks in.

OldBeanz

Women in their fifties expected to retire at 60. There has never been a product suitable to fill the gap to their new retirement age of 65/66 given that wives are normally younger than their husbands. Our planning was built around me gaining flexible drawdown and using that money to support my wife for this period. The change in law means that the wife can now do this and use her allowance. We were never in position to bridge this gap through annuity or drawdown and I don't think many were given the average annuity is £23k.

amandajc

I understand your point oldbeanz. I am currently trying to find a way to fund the years between 60 and 66 when my LGPS and state pension kick in. Otherwise my husband (who is 6 years older than me) will be kicking his heels at home till he is 71 and I can join him.

Up until this week I was concentrating on feeding my S&S ISA in the hope that this would do the job for me but now I thinking about how best to exploit my existing (small) FSAVC as well and maybe set up a personal pension to help.

atush

OldBeanz wrote: »

Women in their fifties expected to retire at 60. There has never been a product suitable to fill the gap to their new retirement age of 65/66 given that wives are normally younger than their husbands. Our planning was built around me gaining flexible drawdown and using that money to support my wife for this period. The change in law means that the wife can now do this and use her allowance. We were never in position to bridge this gap through annuity or drawdown and I don't think many were given the average annuity is £23k.

Sorry but the main change to womens State pensions was decided many years ago now (nearly 20)? It came as no surprise to anyone who is literate.

atush

amandajc wrote: »

I understand your point oldbeanz. I am currently trying to find a way to fund the years between 60 and 66 when my LGPS and state pension kick in. Otherwise my husband (who is 6 years older than me) will be kicking his heels at home till he is 71 and I can join him.

Up until this week I was concentrating on feeding my S&S ISA in the hope that this would do the job for me but now I thinking about how best to exploit my existing (small) FSAVC as well and maybe set up a personal pension to help.

Check the costs of your Fsave and the investments allowed. you will most likely find a new PP is cheaper and or better if there is no salary sacrifice.