Nearing 55 with a defined benefit pension - is a SIPP a good idea?

cisamcgu

Hello,

The situation is as follows :

My wife and I both have pensions with the Local Government Pension Scheme (Final Salary); she is 54 and I am 50. We are both high rate tax payers, although I am only just over the threshold. We are thinking of putting extra money into a SIPP/Stakeholder pension.

If my wife starts a H&L SIPP (just for example) with £5000 I believe that it will get boosted by 20% automatically thereby creating a SIPP pot of £6000. The first question is; does she need to fill out a self assessment tax form at the end of the year to get the extra 20% given she is a high rate tax payer, or is there a simpler form that one can fill in ?

The second question is; can she keep doing this year after year, increasing the pot by, say, £5000+40% each year so after 5 years there would be £35,000 in the pot from a £25,000 outlay ? [assuming no growth/loss in the pension fund]

Third question; In a year she will be 55 (poor old dear:D) could she then, if she wanted, draw from the SIPP even if she keeps working and paying into the LGPS ? If she did, I presume the drawdown would be taxed at 40% ?

I'm not really all that "au fait" with financial matters, but I do run an S&S ISA with H&L so I think I could cope. The reason we will use my wife rather than me for these 'shenanigans' is that if, for some reason, we both lose our jobs, we would be able to access this money as soon as she became 55 - it would be a 5 years wait for me.

Is this a sensible idea ? Do we need to see an IFA/tax advisor ? The £5000 would be money we would otherwise put into an ISA or S&S ISA.

I'm sure there are a thousand things I am not thinking about, but if anyone has any advice that would be superb.

Thanks, Andrew

atush

It is a great idea to open Sipps (or PPs) for both of you. So you can retire early w/o taking your DB pensions with an actuarial reduction.

She can put all of her HRTax income into a pension and get 40% TR if she likes? Basically she has an allowance (both of you do) of up to 40K PA.

You call HMRC and tell them about the pension payments. If they a re to be regular then tell them that too. So if she doesn't already fill out a SA then she wont have to.

xylophone

http://www.lincolnshire.gov.uk/pensions/members/active-members/changes-to-taxation-of-pension-benefits/120877.article

If you google HL SIPP Higher rate tax payer, you will find a deal of reading - otherwise you can telephone HL for information regarding SIPPS and tax.

Had you thought of AVCs through LGPS?

http://www.pru.co.uk/rz/localgov/england-wales/avcs/

cisamcgu

I don't believe you can have access to AVC's before retirement i.e. cannot get at them when you are 55. We are worried that should a catastrophe hit we would have lost access to this cash until we are 65+

kidmugsy

cisamcgu wrote: »

My wife and I both have pensions with the Local Government Pension Scheme (Final Salary); she is 54 and I am 50. We are both high rate tax payers, although I am only just over the threshold. We are thinking of putting extra money into a SIPP/Stakeholder pension.

If my wife starts a H&L SIPP (just for example) with £5000 I believe that it will get boosted by 20% automatically thereby creating a SIPP pot of £6000.

It gets boosted to £6250 because £6250 x 0.8 = £5000.
Meantime she also claims back more from HMRC for herself because she's a higher rate taxpayer.

cisamcgu wrote: »

The second question is; can she keep doing this year after year, increasing the pot by, say, £5000+40%

You add 25% to the net contribution to get the gross contribution, not 40%: see above. But yes, year after year. As already remarked, some of the tax benefit ends up in her own hands not in the pension "pot". If that's not what you want the remedy is for her to contribute more in the first place, and then compensate herself with the money that returns to her hands.

cisamcgu wrote: »

Third question; In a year she will be 55 (poor old dear:D) could she then, if she wanted, draw from the SIPP even if she keeps working and paying into the LGPS ? If she did, I presume the drawdown would be taxed at 40% ?

Yes, she'd pay 40% tax on the bit that is not tax-free lump sum. So she might like to confine her drawdown to all or part of that 25% tax-free lump sum. That would anyway be wise because if she draws down a penny more it restricts her annual allowance for pension contributions to £10k gross, which might prove irksome some day.

xylophone

I don't believe you can have access to AVC's before retirement i.e. cannot get at them when you are 55. We are worried that should a catastrophe hit we would have lost access to this cash until we are 65+

http://www.pru.co.uk/pdf/LAVK0846.pdf

See page 18.

chiefie

Doing just what you propose and have done for the past year or so. creates some flexibility and I know I can at least take the lump sum at 55 should I need it.