Drawing pension - can a Sipp still be opened?

happyhero

Hi I am asking this question for my sister in law, she is 63 and receiving a private pension and I think her state pension. She has Funds invested in Hargreaves Lansdown in an ISA and she is wondering about the benefits of transferring the ISA funds to a SIPP with them to get the 20% top-up.

Can she open a SIPP even though she is drawing a pension elsewhere?

Does transferring the Funds from the ISA to a SIPP make sense?

If this is ok to do, when would she be able to change the SIPP to the situation whereby she could take 25% tax free and maybe use it as a drawdown pension, is this something she could do straight away or would there be a time before this was allowed?

The obvious question to me which possibly I have mixed up is what is to stop someone opening a SIPP to get the top up and then drawing on it straight away, for example couldn't you put in £8000 let them top it up to £10,000,
then take £2500 as the 25% and
then draw the remaining £7500 over the shortest period, lets say a year paying tax at 20% giving you £6000 after tax
and a total for that year of

£2500 + £6000 = £8500 from the initial £8000 put in

I know it seems not a massive gain but I used £8000 as the example whereas it could be much more to start with an thus much more interesting.... ....assuming you are allowed to do that in the first place of course, are you?

xylophone

If your sister in law has no earned income, or earnings of less than £3660 a year, she is limited as to the amount she can invest in a pension plan.

http://www.hl.co.uk/pensions/sipp/how-much-can-i-invest

dunroving

happyhero wrote: »

Hi I am asking this question for my sister in law, she is 63 and receiving a private pension and I think her state pension. She has Funds invested in Hargreaves Lansdown in an ISA and she is wondering about the benefits of transferring the ISA funds to a SIPP with them to get the 20% top-up.

Can she open a SIPP even though she is drawing a pension elsewhere?

Does transferring the Funds from the ISA to a SIPP make sense?

If this is ok to do, when would she be able to change the SIPP to the situation whereby she could take 25% tax free and maybe use it as a drawdown pension, is this something she could do straight away or would there be a time before this was allowed?

The obvious question to me which possibly I have mixed up is what is to stop someone opening a SIPP to get the top up and then drawing on it straight away, for example couldn't you put in £8000 let them top it up to £10,000,
then take £2500 as the 25% and
then draw the remaining £7500 over the shortest period, lets say a year paying tax at 20% giving you £6000 after tax
and a total for that year of

£2500 + £6000 = £8500 from the initial £8000 put in

I know it seems not a massive gain but I used £8000 as the example whereas it could be much more to start with an thus much more interesting.... ....assuming you are allowed to do that in the first place of course, are you?

I don't know about the time limits for withdrawing, but from what you have written I think the following applies:

Only work-related earnings are eligible for the 20% top-up, not pension income.

The exception is that anyone who is unemployed and under 75 can put £3,600 gross into a SIPP. They put in £2,880 and the government tops up by £720, even though they never paid any tax on any work-related income.

I'm sure the experts will be along to fill in the blanks I missed. Hopefully they won't tell me I said anything wrong!

happyhero

Does her current pension income count as income as far as the amount she can invest into a SIPP, i.e. if she is getting £10,000 in pension income it seems she could then invest £10,000 into a SIPP, have I got that bit right?

xylophone

No - see above re earned income - "relevant earnings" in HMRC parlance.

http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm05200060.htm

"For the avoidance of doubt a pension is not classed as earnings and cannot be included in the definition of relevant UK earnings."

xylophone

And see post 2 above and link.

dunroving

dunroving wrote: »

I don't know about the time limits for withdrawing, but from what you have written I think the following applies:

Only work-related earnings are eligible for the 20% top-up, not pension income.

The exception is that anyone who is unemployed and under 75 can put £3,600 gross into a SIPP. They put in £2,880 and the government tops up by £720, even though they never paid any tax on any work-related income.

I'm sure the experts will be along to fill in the blanks I missed. Hopefully they won't tell me I said anything wrong!

happyhero wrote: »

Does her current pension income count as income as far as the amount she can invest into a SIPP, i.e. if she is getting £10,000 in pension income it seems she could then invest £10,000 into a SIPP, have I got that bit right?

No - see above. By work-related income I meant income from working, not work-related pensions. The terminology can get confusing at times.