Paying £2880 into pension when retired

peteduk

Hello Notepad_Phil,
Thank you for that - your advice is exactly what I thought so I'll do that
Re the inflation aspect, the £180 tax relief (I expect to remain a 20% taxpayer even if working) will more than offset that, at least for the next year or two.
I'll consider inputting into the SIPP again next year but that will depend on circumstances at the time.
Thank you again,
Peter

jamesd

There are two ways to draw personal pension lump sums without triggering the Money Purchase Annual Allowance £4,000 limit:

1. the small pot rule allows all of  a pot of up to £10,000 to be taken, you can transfer to create the pot. 25% tax free, 75% taxable, can be done three times per lifetime.
2. take  the 25% tax free lump sum from any portion of the pot and leave the taxable 75% untouched until you're willing to trigger the MPAA.

jamesd

sparky0138 said:

she finished work in April. She'll only be earning around £900 this tax year.

OK, so £3,600 gross it is. 3600 - 75.22 because net pay is deducted before income tax so no further tax relief is due, it's gross regardless, even if no tax would have been deducted anyway. Leaves £3524.78 gross. Deduct the gross 225 to Fidelity leaves £3299.78 gross.

80% or divided by 1.25 if you prefer leaves £2639.82 net equivalent. £2639.82 x 1.25 with tax relief = £3299.77 gross.

Your mistake was "20% of £3299.78 = £824.94". 3299.78 x 0.20 = £659.96, not £824.94 so you deducted too much in the next step. £824.94 is 25.25%, not 20%.

peteduk

Thank you james d,
That's useful to know. If I understand correctly
I can close this SIPP and open and close 2 more - In theory if I earn enough I could add more money to each, up to £10,000 too.
Or
Add more to this SIPP each year and then before it reaches £10,000 withdraw the money. And could do it twice more. 
I assume I would have to talk to HL about treating it as a small pot rather than draw down. Is that right?
Thank you again,
Peter 

sparky0138

jamesd said:

Your mistake was "20% of £3299.78 = £824.94". 3299.78 x 0.20 = £659.96, not £824.94 so you deducted too much in the next step. £824.94 is 25.25%, not 20%.

Thank you, jamesd. I just knew I would have made a mistake somewhere and it's not the first time that 20/25% has tripped me up.

jamesd

peteduk said:

I can close this SIPP and open and close 2 more - In theory if I earn enough I could add more money to each, up to £10,000 too.
Or
Add more to this SIPP each year and then before it reaches £10,000 withdraw the money. And could do it twice more. 
I assume I would have to talk to HL about treating it as a small pot rather than draw down. Is that right?

With HL you don't even need to create a small pot, you can tell them that you want to use the small pot rule with say 12k or 500k in a pot and they will move 10k for you and pay you.

peteduk

ok, great, thanks jamesd, I'll contact them when the time's right, cheers

Pyewacket69

Realised this thread is mainly about using HL so have moved this post, thanks. 

trickydicky14

£3600 scenario, in a pickle can you help?

As a retired non tax payer, I started the HL SIPP thing (£2880 topped up to £3660 draw it down)

My first payment was March 2019 just before the end of the tax year. I then payed in again in April of 2019, both payments got topped up so far so good.

I then applied to go into drawdown and continued to take money out throughout 2019, I purposely left £1000 in the account due to HL closing accounts with no money in them during the first year.

So, April 2020 I contacted HL and asked them to ‘re-activate’ my account so I could continue to pay money in, this they did and I payed in again for this tax year.

I now have two accounts, one SIPP with £3600 in and one SIPP in drawdown with £1000 in.

I have just attempted to take money out of the drawdown account and a message stated this account would be closed if I dropped below £1000? As the account has been opened for over a year, why would they close it as the one-year rule does not apply?

Secondly, if it did get closed, would I have to go through the palaver of requesting to put this year’s money into drawdown?

And thirdly, I could have this wrong but did I read somewhere I can only go into drawdown three times? If this was the case, what would I do when I want to put my SIPP I have with Vanguard and my main pension with Zurich into drawdown in the years to come.

I Know someone will say why not ring HL and ask, well I just feel this whole malarkey of using HL for this tax break is taking the Pxxx a bit so I thought I would ask on the forum first.

Thanks for any help.

bowlhead99

To get money out of a pension you don't need to 'put it into drawdown' (where you take the tax free lump sum and some income and leave the remaining crystallised funds to be taken as income in the future).

Instead you could have simply taken 2600 as an 'Uncrystallised Funds pension lump sum' (UFPLS) of which 25% was tax free cash and the remaining 75% taxable income; and that would have left £1000 in the account still all as 'un-crystallised funds', and when you added new money this tax year (including tax relief on the new money) it would have increased the uncrystallised funds to 4600 all in one place.   Uncrystallised funds is money from which you haven't taken a drawdown. 

Due to the fact that last year you put the first pot of money 'into drawdown' it will now remain as a separate pot with a different character from your 'fresh' new money - because you have not taken a tax-free lump sum from the fresh stuff, but you have from the drawdown pot.

There is no rule that you can only go into drawdown three times.  Some people might have ten pension pots from lots of different employers and personal schemes over the years, and they're not prohibited from drawing down on all of them.

The 'three pots' rule that you might be thinking of, refers to the fact that once you draw down income from a pension you are generally going to be restricted on how much you can put into pensions each year even if you are still working and want to contribute large amounts - because the restricted 'money purchase' annual allowance (MPAA) kicks in and means your max contributions are £4k gross instead of the usual £40k gross.  This would be annoying for people still working who wanted to make large pension contributions. An exception is that for three 'small pots' (under £10k each) over your lifetime you are allowed to pull all the money out of them under the 'small pot' rule without it restricting your annual future contributions to the MPAA level.    However in your case you are already only contributing £3600 (2880 net) each year, so are presumably not bothered about the fact that if you take income outside the 'small pots' rule it would restrict your annual contributions allowance to £4000 a year... because you don't have enough earned income (e.g. from a job) to be able to contribute more than the £3600 anyway.

In your shoes, I would probably
- draw the rest of remaining £1000 income out of the drawdown pot ;
- if you want to take out more cash, take it from the £3600 pot as a UFPLS (25% taxable, 75% not taxable) by filling out a UFPLS suitability questionnaire and UFPLS application form.
- for the rest of the £3600 that you don't take, leave it uncrystallised at HL and then add fresh money to it, and use UFPLS to withdraw from it in future years as necessary.

Your exact tax situation might make one method a bit more optimal than another, but it does seem to be a bit of a faff to have some crystallised funds in drawdown and some uncrystallised funds not in drawdown, when the overall balance is still pretty small. So I wouldn't bother with 'drawdown' and simply use UFPLS instead.