Paying £2880 into pension when retired

Devonjem

Hello
I have a question about this £2880 SIPP payment arrangement.  I am retired with no earned income and receive some child tax credits.  I am trying to work out if the child tax credits we receive might be impacted if I set up a SIPP and pay in yearly £2880 then withdraw £3600 each year.  As far as I can tell, pension income will be counted as household income for child tax credit purposes however gross pension contributions are deducted - so it seems to have a neutral effect.  Does anyone know if that sounds right?  thanks

garmeg

Devonjem said:

Hello
I have a question about this £2880 SIPP payment arrangement.  I am retired with no earned income and receive some child tax credits.  I am trying to work out if the child tax credits we receive might be impacted if I set up a SIPP and pay in yearly £2880 then withdraw £3600 each year.  As far as I can tell, pension income will be counted as household income for child tax credit purposes however gross pension contributions are deducted - so it seems to have a neutral effect.  Does anyone know if that sounds right?  thanks

The £3,600 (grossed up for tax relief) going in is a deduction from income.

The £2,700 taxable coming out counts as income. The PCLS of £900 coming out is not taxable income and does not impact tax credits.

So your taxable income overall goes down by £900 (£3,600 - £2,700) so your annual tax credits will go up by 41% of this, i.e. £369.

Devonjem

Thanks very much

WBCPB

I have just opened my first cash SIPP with H & L, i spoke to customer service via telephone before i did the deposit and was also advised that the minimum funding requirement needed to keep the account open in year 1 and going forward would be £50.
Regards

molerat

WBCPB said:

I have just opened my first cash SIPP with H & L, i spoke to customer service via telephone before i did the deposit and was also advised that the minimum funding requirement needed to keep the account open in year 1 and going forward would be £50.
Regards

Would be nice if they put that in writing somewhere.  All their documentation still states £1K.

ezhiki

I'm just trying to understand the timeline, I've opened my first SIPP today with Vanguard. I'm 67 retired and put in £2880, I have a good company pension plus state pension. When should I cash in this SIPP, should I wait a week or so, or just before the end of the tax year, or does it matter? After April 6th I'll open another one or add to this one?

Also, my wife is 62, has no income at all, can she open a SIPP and benefit? And same question, if she opened today with £2880 when can she withdraw £3600?

where_are_we

I do not know Vanguard SIPP rules - please let us know what they are. I use HL for an annual £2880 contribution which is grossed up after about 6 weeks by HMRC to £3600. As WBCPB states HL have a £50 minimum funding requirement. You should contact Vanguard about their minimum funding requirement so that you can make a maximum withdrawal and avoid having to open a new one in the next tax year. A basic rate tax payer (age 55-75) can gain about 6% (£180) on £2880 every tax year by withdrawing  £3600 once HMRC have grossed up your contribution. I use a UFPLS and keep the SIPP in cash. Make sure you do not become a higher rate taxpayer because of the additional £3600 income.

Your wife (non taxpayer) can make a 25% gain (£720) on a £2880 contribution. She needs to open her SIPP as soon as possible to enable her to get the HMRC addition and make a withdrawal before 6/4/21. If she will have no income in 21-22 the withdrawal timing is not so important. Once she reaches State pension age she will remain a non taxpayer as long as her state pension income plus her SIPP withdrawal does not exceed the Personal Tax allowance currently £12500.

Xbigman

Just to point out that the 2nd to 5th of April is the Easter bank holiday weekend. Anything tax year related probably wants sorting out before the end of March and not left that late.


Darren 

ezhiki

Thank you for the replies to my questions.

I've had the documents from Vanguard now and it says the HMRC contribution is usually credited to the SIPP by 8 weeks, so that timeline should be OK. It does say you can close your pension pot withdraw it all it as cash, isn't this what I want to do? I can then open another one in the next tax year, I thought this was the idea?

I've tried to search the thread to get the answers, so apologies if I've missed this point.

ezhiki

PS I'm probably over thinking this. If I don't need the money I can just leave it running from one year to the next adding £2880 each year and let it accumulate at an effective rate of 20%?