Paying £2880 into pension when retired

Rob749

https://thepeoplespension.co.uk/help/knowledgebase/differences-flexi-access-drawdown-ufpls. Better if you read this, explains better than I can. 

vixen1500

Rob749 said:

https://thepeoplespension.co.uk/help/knowledgebase/differences-flexi-access-drawdown-ufpls. Better if you read this, explains better than I can. 

Seems  like I have got it wrong  - again! 
SIPP  £7,200 Withdrawing  £6,200 
So the tax free is 25% of  the amount withdrawn =  £1,550
NOT 25% of the total value of the SIPP  = £1,800
I  assume you use UFPLS as you are paying into the SIPP each year

Rob749

Yes, that's right, I just pay in the max I can, or my wife does (non tax payer) - 2880, then withdraw 3600. 

jerrysimon

Ok ready to do this again for my wife who's income is only £2500/year. Is everyone still doing this in the current climate, maybe its just anxiety from what is going on ?

swindiff

Current climate has no impact on this at all as most people keep the money as cash, not invest it.

jerrysimon

Yes, that is all we do,  thanks.

molerat

HL have stopped paying interest on their cash investment accounts from yesterday -  can they actually do that with -1 day notice ?  I am really going to miss that 8p per month !

peteduk

Hello, I started to do this for my non tax paying wife last year (thank you for your advice) and now wish to do it for me. Please can you confirm my understanding below is correct, and if there's anything I may have missed / not thought of?
I am 59 and retired with a modest DB pension so a basic rate taxpayer (may get another job to help out in the future). My understanding is as follows:
I pay £2,880 to HL; I am credited with £720 to make £3,600 total.
I will create a HL drawdown account and transfer £2600 into it (leaving £1,000 in my SIPP to prevent possible HL closure charges)
I will withdraw £900 tax free and then make monthly withdrawls of the remaining £1,700 (£2,600-£900) on which I will pay 20% tax (i.e.~£189 per month less 20% tax over 9 months say)
Next year repeat.
In this way I will benefit by £180 p.a. less any fees charged by HL.

Summary after year 1:
Pay in: £2,880 + £720
Withdraw £900 tax free
Pay £540 tax (20%) on the remaining £2,700 as it is withdrawn yielding £2,160 net
Profit of £180 (= £900 + £2,160 - £2,880)
Thank you again,
Peter

Rob749

peteduk said:

Hello, I started to do this for my non tax paying wife last year (thank you for your advice) and now wish to do it for me. Please can you confirm my understanding below is correct, and if there's anything I may have missed / not thought of?
I am 59 and retired with a modest DB pension so a basic rate taxpayer (may get another job to help out in the future). My understanding is as follows:
I pay £2,880 to HL; I am credited with £720 to make £3,600 total.
I will create a HL drawdown account and transfer £2600 into it (leaving £1,000 in my SIPP to prevent possible HL closure charges)
I will withdraw £900 tax free and then make monthly withdrawls of the remaining £1,700 (£2,600-£900) on which I will pay 20% tax (i.e.~£189 per month less 20% tax over 9 months say)
Next year repeat.
In this way I will benefit by £180 p.a. less any fees charged by HL.

Summary after year 1:
Pay in: £2,880 + £720
Withdraw £900 tax free
Pay £540 tax (20%) on the remaining £2,700 as it is withdrawn yielding £2,160 net
Profit of £180 (= £900 + £2,160 - £2,880)
Thank you again,
Peter

Yes that's how I understand it, am doing the same thing at the moment. Only difference being I will be withdrawing the whole sum at once as opposed to drawdown.

Audaxer

peteduk said:

Hello, I started to do this for my non tax paying wife last year (thank you for your advice) and now wish to do it for me. Please can you confirm my understanding below is correct, and if there's anything I may have missed / not thought of?
I am 59 and retired with a modest DB pension so a basic rate taxpayer (may get another job to help out in the future). My understanding is as follows:
I pay £2,880 to HL; I am credited with £720 to make £3,600 total.
I will create a HL drawdown account and transfer £2600 into it (leaving £1,000 in my SIPP to prevent possible HL closure charges)
I will withdraw £900 tax free and then make monthly withdrawls of the remaining £1,700 (£2,600-£900) on which I will pay 20% tax (i.e.~£189 per month less 20% tax over 9 months say)
Next year repeat.
In this way I will benefit by £180 p.a. less any fees charged by HL.

Summary after year 1:
Pay in: £2,880 + £720
Withdraw £900 tax free
Pay £540 tax (20%) on the remaining £2,700 as it is withdrawn yielding £2,160 net
Profit of £180 (= £900 + £2,160 - £2,880)
Thank you again,
Peter

For a non-tax payer, I think the most straightforward way is to pay in £2,880, leave as cash, and once the £720 tax relief is added draw out the whole £3,600 by a UFPLS withdrawal, and repeat each year. For the first year however, you can only draw out £2,600 as you need to leave in £1,000 to keep the HL SIPP open. 

I think that even for a basic rate tax payer, taking a UFPLS withdrawal once the tax relief is added is still the best way to do it. You would still request a £3,600 UFPLS withdrawal and receive £3,060 after £540 tax is deducted, so still making the £180 profit.