Have I got this right?

foreversummer

So, hubby is 58. He has an old pension but has not paid into it for years (ex Allied Dunbar). He is currently working earning around £8500 salary from his own limited company on top of which he takes dividends (low amount around £4000 pa).

Am I right in thinking that he can open a Sipp with Hargreaves Lansdown and put £6800 into it immediately from personal savings. Tax relief then tops it up to £8500. He can either leave it there (either in a cash fund or a fund with lowish risk as he's quite risk adverse) and then he can either add a similar amount to it next year (and get the tax relief again) or even withdraw it after say six months.

Seems a bit good to be true. Are there any pitfalls or ways that things can go wrong.

Many thanks

foreversummer

Actually, I've just realised that it would not be a good idea to withdraw it too soon as he would have to pay tax on it. But if he could add £6800 each year to get the £1700 tax relief each year that would be better than he's earning on cash savings at present. I know there would be fees of course. Not sure how much these would be. I'm probably missing something here.

xylophone

Does he intend to have the AB pension transferred into the SIPP as well?

He can pay up to his net earned income into the SIPP (subject to annual/lifetime allowance) and receive tax relief.

HL charges are not excessive for funds etc in a modest SIPP and there is no charge for holding cash.

As he is over 55 he could go into drawdown on the SIPP and draw enough to keep him within his personal tax free allowance.

He can continue to contribute to the SIPP but if he takes income from it as opposed to simply the lump sum he will be limited as to the amount he can continue to contribute to a pension.

https://www.gov.uk/tax-on-your-private-pension/annual-allowance

HL produce some helpful literature and will discuss your queries on the telephone.

foreversummer

Thank you xylophone for your helpful reply.

We would like to do that with the Allied Dunbar pension but it is so expensive to transfer it. According to his latest annual review it says the value of his non-protected rights is £15314 and the protected rights is £4130. Then it says if he transfers elsewhere the amount available would be £14991. So does that really mean that they will take £4453, that's about 23% of the pot?

Foreversummer

greenglide

With your on limited company you should make employers contributions from the company in preference to making them from his own income.

Pension contributions are an allowable business expense and meant there is no corporation tax due.

foreversummer

Thank you greenglide.

The thing is we don't pay an awful amount of corporation tax. I work out that he would receive more tax relief at 20% from his savings than he would save in corporation tax. I don't suppose you get both corp tax savings and tax relief?

Sorry to be so vague but I'm trying to get to grips with the basics and any help is much appreciated.

greenglide

If the company doesn't have enough profits to offset the pension payments then I aways thought you could carry forward the loss to following years?

This obviously depends on the company having the funds to source this. Might be worth talking to your accountant?

xylophone

http://www.thisismoney.co.uk/money/pensions/article-2148311/Fees-worst-pensions-leave-savers-130k-worse-off.html

It may pay your husband to consult an IFA.

http://www.thepfs.org/yourmoney/find-an-adviser/

foreversummer

xylophone wrote: »

http://www.thisismoney.co.uk/money/pensions/article-2148311/Fees-worst-pensions-leave-savers-130k-worse-off.html

It may pay your husband to consult an IFA.

http://www.thepfs.org/yourmoney/find-an-adviser/

I've seen a lot of figures bandied around for the cost of financial advice. Has anyone got any idea of the likely cost bearing in mind we are talking a very modest pension and income? Can you ask an adviser what they charge before you consult them?

greenglide

Can you ask an adviser what they charge before you consult them?

You normally have an initial meeting so you can see whether you can work with them and they should lay out the sort of things they do and their costs. It isnt "cheap" but value for money does depend on how much money is involved. A transaction valued at £6,800 wouldnt make economic sense for an IFA as they would end up taking a huge chunk of it?

foreversummer

greenglide wrote: »

You normally have an initial meeting so you can see whether you can work with them and they should lay out the sort of things they do and their costs. It isnt "cheap" but value for money does depend on how much money is involved. A transaction valued at £6,800 wouldnt make economic sense for an IFA as they would end up taking a huge chunk of it?

Yes this is pretty much what I thought. And the old Allied Dunbar pension with c £20,000 is valuable to us, but not very valuable to a IFA. It doesn't seem to make sense to transfer it and lose so much. Maybe we just leave it where it is, at least its growing. Then one day take the hit and pay the tax to take it as a lump sum. Probably lose less that way.

As for putting money into a new pension, I'll keep reading around the forum. Small amounts as you say are not going to be of interest to an IFA so I will try to get more clued up.

Thank you to everyone who has responded to my thread.

Foreversummer