Paying £2880 into pension when retired

Rob749

Audaxer said:

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Pay £540 tax (20%) on the remaining £2,700 as it is withdrawn yielding £2,160 net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. 

Yep, this is what I do 

Mnd

I use HL to do this. Slightly different in as much as I deposit 3200 pa as I earn over 4k. However part of this deposit I make as a monthly direct debit of £20 This means HL keeps the SIPP open with no need to keep the £1000 tied up

peteduk

Thank you to all for your replies.
I proposed Draw Down because that is how I do the admin for my wife. I became confused by the difference between Draw Down and UFPLS (still am TBH) when setting her account up so went with what seemed the easiest based on this thread at the time.

When using Draw Down the 1st income taken is seen as a monthly income which is why I withdraw monthly for my wife, to avoid tax charges. Does this still apply to UFPLS? If not then this would seem simpler for both of us going forward.

Also, I have no other dealings with HL apart from the SIPP. If I open and close a HL SIPP account each year by withdrawing the full £3,600 how would HL react to that. It doesn't seem fair that they work for what in effect would be no reward at all.

Please advise comments / thoughts etc.
Thank you,
peter

Audaxer

peteduk said:

Thank you to all for your replies.
I proposed Draw Down because that is how I do the admin for my wife. I became confused by the difference between Draw Down and UFPLS (still am TBH) when setting her account up so went with what seemed the easiest based on this thread at the time.

When using Draw Down the 1st income taken is seen as a monthly income which is why I withdraw monthly for my wife, to avoid tax charges. Does this still apply to UFPLS? If not then this would seem simpler for both of us going forward.

Also, I have no other dealings with HL apart from the SIPP. If I open and close a HL SIPP account each year by withdrawing the full £3,600 how would HL react to that. It doesn't seem fair that they work for what in effect would be no reward at all.

Please advise comments / thoughts etc.
Thank you,
peter

I have used UFPLS for this for the past few years after reading this thread, and apart from having to get a UFPLS form from HL each year and completing and sending it back, it seems to me more straightforward than going into drawdown. The first few years I was under the personal tax allowance, and after the tax relief was added, the full amount came into my bank account with no tax deducted. 

You don't need to open and close a SIPP each year if you leave £1,000 in it. For the benefit you are getting, I think it's worth it to leave £1,000 in the SIPP to keep it open.

peteduk

Thanks Audaxer.
I agree with leaving the £1,000 - may simplify things if they make changes in future too, you never know.
I'm still unsure about UFPLS and withdrawl in one lump sum:
If HMRC tax it as if it is 1 month's income with the expectation that the same will be received in the following months then it will l be an unnecessary complication for my wife as I would have to apply for her tax refund.
Still the important thing this month is to deposit the money in.....
Cheers

Audaxer

peteduk said:

Thanks Audaxer.
I agree with leaving the £1,000 - may simplify things if they make changes in future too, you never know.
I'm still unsure about UFPLS and withdrawl in one lump sum:
If HMRC tax it as if it is 1 month's income with the expectation that the same will be received in the following months then it will l be an unnecessary complication for my wife as I would have to apply for her tax refund.
Still the important thing this month is to deposit the money in.....
Cheers

I've been tending to pay the money into my SIPP in January and take the UFPLS withdrawal after the tax relief is added in March. As just before the end of the tax year, it's less of a problem regarding tax, as even if you do get taxed too much, you should be able to claim it back pretty soon at the start of the next tax year.

peteduk

Thank you Audaxer, clear for me.
I am making our deposits now so will have another look at UFPLS but if unsure will probably stay with draw down
Cheers

molerat

If you have no tax allowance allocated elsewhere there is a fair chance HMRC will allocate it to the pension provider for the second year.  MrsM has her full allowance allocated to HL so will add £2880 to the existing £1000 before 5 May, wait for the tax to be added on 22 Jun and withdraw £3600 paying no tax.

topcat105

Hi all
This is the first time I have done this so I was wondering how I withdraw the funds after tax relief has been added.
I messaged HL and they replied that I have to do a "risk assessment" then fill in a withdrawal form sending copies of driving licence and/or passport and a bank statement.
Is this what normally happens ?
Cheers

AlwaysLearnin

topcat105 said:

Hi all
This is the first time I have done this so I was wondering how I withdraw the funds after tax relief has been added.
I messaged HL and they replied that I have to do a "risk assessment" then fill in a withdrawal form sending copies of driving licence and/or passport and a bank statement.
Is this what normally happens ?
Cheers

You need to request an illustration. I would recommend that you complete the risk assessment questions whilst doing so to save time too.

Info and link here:

https://www.hl.co.uk/retirement/drawdown/how-it-works