Can a pension invest in a new pension

pass11

Sorry above should read - Can you invest pension income into a new pension

Hi
Silly question.
Is it possible for someone who is earning only a pension to invest their money into a private pension?

My father is 63 and is retired from work. He draws 2 pensions from his former employers - pensions total to about £8k per year. He has no other income although he has savings.

If he wanted to could he put some of his money into a private pension e.g with HL? I believe that non earners than invest upto £2880 per year into a pension. I was thinking that he could invest upto £2880 into a pension he will get the 20% tax rebate and then he could withdraw the money. However I read someone that if someone is only earning a pension i.e they have no other income they cannot use their pension income to invest into another pension.

Can someone please advise.

dunstonh

Can you invest pension income into a new pension

yes. Subject to caveats.

I believe that non earners than invest upto £2880 per year into a pension.

The amount is £3600 gross.

I was thinking that he could invest upto £2880 into a pension he will get the 20% tax rebate and then he could withdraw the money.

Why would he want to draw it immediately? Why not leave it in the pension to enjoy tax free growth and be outside of the estate for IHT purposes and no tax on death if that occurs before 75

However I read someone that if someone is only earning a pension i.e they have no other income they cannot use their pension income to invest into another pension.

There are limits imposed but he is well below that limit with £3600

bigadaj

Dunstonh has described things well, you lay in the £2880 and the pension provider claim the tax uplift to get a total of £3600.

You can withdraw the funds nearly immediately, and due to his low Income this would be reasonable, though leaving in the pension would be better than taking it out and saving or investing it elsewhere.

You need to be careful in charges in doing this, many companies have closure fees which would obviously hit the potential profit hard.

Others have mentioned virgin as a useful option, believe that they charge a high percentage fee but with this small sum then it would be minimal in pound terms.

xylophone

One way of doing it could be to open a SIPP with HL and make an immediate contribution of £2880 - after a couple of months, £720 tax relief would appear in the account.

He could choose to withdraw most of this (NOT ALL or there would be an early closure fee) at this point - he would almost certainly pay too much tax but he could either make an in year tax claim or wait until after the end of the tax year when HMRC would automatically refund the overpaid tax.

He could do the same in the following tax year.

HL staff are very helpful on the telephone and produce helpful literature - you or your father could telephone for a full discussion before entering into any arrangement.

Has he had a new state pension statement? If not, he should get one.

https://www.gov.uk/check-state-pension

jamesd

There are caps on recycling pension tax free lump sums but they are too high to matter to his situation, so he can ignore them. There are no restrictions on using pension income to make pension contributions and no restrictions on paying into a pension when receiving money from a pension. Except, perhaps, some workplace defined benefit pensions, mainly in the public sector, that have restrictions of various sorts if someone wants to pay into that work defined benefit pension again. Irrelevant for his situation.

He can make £720 a year from paying in 2880 net then taking the money out and he should do this. Virgin have no charges for it. HL charge a high account closure fee if the account is closed within a year and there is a minimum amount that hss to be kept in or they could choose to close it themselves then charge the fee even if he doesn't want them to. They are a nice choice for a person who wants to start with lump sum in the first year but from the taxable part take regular monthly income that they then use to fund regular monthly contributions to build up the lump sum for the following tax year.