Pensions tax relief

Blackgang

Looking at the pension rules is there anything to stop a non-taxpayer over the age of 55 putting a lump sum into a stakeholder pension and then, say, withdrawing it with the added tax relief 3 months later? Am, I missing something here or is it a handy way to make some free money?
I think there used to be something called an immediate vesting pension which would work along similar lines but not sure if such schemes exist any longer.
I'd appreciate anyone's comments on this issue.
Thanks. Blackgang

bigadaj

Not really.

You have to be mindful of providers charges, as if these are excessive then it can cancel out much of the benefit accrued.

Once you take a pension it can limit further contributions to no more than £10000 per year, which is still significant, and recycling rules could come into it but again only if you are talking about significant sums above the £10000 level.

zagfles

Plus the "lump sum" would be limited to £3600 or 100% of earnings if higher, as the gross amount, ie £2880 net if earnings below £3600.

dunstonh

Looking at the pension rules is there anything to stop a non-taxpayer over the age of 55 putting a lump sum into a stakeholder pension and then, say, withdrawing it with the added tax relief 3 months later? Am, I missing something here or is it a handy way to make some free money?

Pensioners have been doing this for nearly 20 years. Except using it for drawdown or annuity in their 70s (i.e. contribute the £3600 in their 60s and wait until their 70s before crystallising). Now you can use UCPLS but its actually better for most to pay in and leave it there until later.

jamesd

There's nothing in the rules to stop it and the gain is £720 a year. It's something I routinely mention here.

There is a penalty of sorts. The annual pension contribution allowance is reduced from £40k to £10k per year and carry-forward of unused allowance is prohibited. This makes no difference to a person only able to pay in £3600 gross.

All you'd be doing is taking the money as you go instead of accumulating it for later.

where_are_we

My wife and I have been doing this for the last 2 tax years with a Fidelity Sipp but last December they introduced a £45 annual service fee if your Sipp fall below a value of £7500 - this makes them expensive for this process. Who are now the cheapest providers in for this tax year for £3600 pension contributions?

jamesd

Virgin will charge nothing. There are others with similar charging.

Blackgang

Thanks all for this. Very useful.
Blackgang