SIPP contribution

talexuser

I'm retired already drawing a final salary pension and started a SIPP (already ISAed to max) at £2880 a year as the maximum allowed for unearned income. Can I therefore now deduct £2880 from the total of my taxable income for the year, since this will stop me going into higher rate tax? thanks.

jem16

talexuser wrote: »

Can I therefore now deduct £2880 from the total of my taxable income for the year, since this will stop me going into higher rate tax? thanks.

You can deduct £3600 as that is the gross amount.

talexuser

Thank you, even better.

C_Mababejive

Sorry to jump in but i didnt want to start another thread and clutter up the board as its on more or less the same subject.

I am lucky and have a FS pension. In a few years time i will be 55 and could theoretically retire and draw then get another job etc etc or not.

I have often thought about pushing money into a SIPP but a number of questions keep arising and then i push it to one side.


If i open a sipp now..

Will it affect my current paye income tax status and overall status as investment income is driving me into the higher rate band.

How accessible would my sipp funds be?

What could i invest in that would provide some return at low risk?

Thanks

talexuser

I can only put in £2880 because not earning, grossed up to £3600. If you are still earning you can put in up to max of salary capped at 40K a year and a total pot of 1.25 mil reducing to 1 mil next tax year.

Your gross contribution can be deducted from total taxable income, as from jem's answer above, so you could put in enough to get under the 40% limit. But the advice is generally don't let the tax tail wag the investment dog.

I have decided on a good reliable manager income fund for the dividends but that is probably not low risk, that might be bond funds but even them in the present circumstances have risk. Eventually I might take the 25% tax free lump sum if it is needed and leave the rest for the estate and grandkids. Bear in mind the 75% will be taxed at your marginal rate if taken as lump sum or income, so that is a disadvantage compared to saving in an ISA, but you do get the tax relief up front.

dazziweht

I am already retired getting £6500 P.A State pension.

I have a SIPP with about £50K in it that I have not started drawing from yet.

I have no earned income.

If I start taking £6000 P.A from my sipp as an un-crystalised lump sum (1500 tax free + £4500 taxable) I would have a total taxable income of £11,000. P.A. below personal allowance so no tax to pay.

Am I allowed to continue to pay £2880 per year back into my Sipp to get the 20% tax refund in the sipp ?

If so I would be taking £6000 out each year, and putting £3600 back in for a net take of £1400
which means (ignoring interest) my £50,000 should last 35 years and would be getting £720 free money from the government each year.

This seems like it is too good to last/be true, have I made a mistake somewhere ?

LHW99

I think you can only do this until you are 75

talexuser

LHW99 wrote: »

I think you can only do this until you are 75

That is correct.

dazziweht

talexuser wrote: »

That is correct.

Only for 9 more years then, still I'm surprised that this has not had more publicity, it's over £10/week free for any pensioner that has less than the tax threshold income.

Zanderman

dazziweht wrote: »

I am already retired getting £6500 P.A State pension.

I have a SIPP with about £50K in it that I have not started drawing from yet.

I have no earned income.

If I start taking £6000 P.A from my sipp as an un-crystalised lump sum (1500 tax free + £4500 taxable) I would have a total taxable income of £11,000. P.A. below personal allowance so no tax to pay.

Am I allowed to continue to pay £2880 per year back into my Sipp to get the 20% tax refund in the sipp ?

If so I would be taking £6000 out each year, and putting £3600 back in for a net take of £1400
which means (ignoring interest) my £50,000 should last 35 years and would be getting £720 free money from the government each year.

This seems like it is too good to last/be true, have I made a mistake somewhere ?

Surely the net annual drawdown is 2.4K not 1.4K, So the 50K would only last about 20 years?

And this assumes the 50k (or what's left of as it draws down) retains its value - I assume it would remain invested in a pension fund?

Edited to add: And if the net drawdown is 2.4K pa, based on the 50K pot, what is the alternative that you might get by simply buying an annuity with the pot, which would have the benefit of being index linked and assured for life?

bigadaj

Zanderman wrote: »

Surely the net annual drawdown is 2.4K not 1.4K, So the 50K would only last about 20 years?

And this assumes the 50k (or what's left of as it draws down) retains its value - I assume it would remain invested in a pension fund?

Edited to add: And if the net drawdown is 2.4K pa, based on the 50K pot, what is the alternative that you might get by simply buying an annuity with the pot, which would have the benefit of being index linked and assured for life?

Think you are right about the drawdown, people can invest a sipp in many exotic things, including cash.

An annuity, index linked, at say age 60, would be paying less than £1000 a year, so it's a significant difference.