Paying £2880 into pension when retired

OldBeanz

merlin321 said:

Another query for this thread. I have a modest DB pension of £8040/yr, and intend to add the £2880 to get the upgrade. I have taken the full tax free portion of the DB pension
So when I withdraw up to my annual allowance from my Sipp, do I use the full £16660 minus the £8040 DB pension. Or is it less than this because I have received my 25% on the DB pension.  Don't think I have worded that very well but just want to use my full personal allowance before state pension kicks in.

You pay in max of £2880 that will get made up to £3600. To not pay Tax you can draw (12500-8040)/3*4 =£5946

merlin321

Thanks for that, have to remember that little calc.

NottinghamKnight

etienneg said:

ezhiki said:

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%?

It's been pointed out that the "effective rate" is 25%, not 20%. This is true for the first year only of any contribution. You add £2880 and get 25% of that added in tax relief. But if you leave this money into a second year you get no further "effective interest" on that money. So it's not true to say "it accumulates at an effective rate of 25%".

That's why I'm not a fan of "effective interest rates", as they are calculated under a particular set of conditions but it's all too easy to forget this, think of them as "interest rates" and compare them with genuine interest rates.

I think you may have misunderstood, The 'trick' is to deposit the £2880 get the 25% uplift and then withdraw, with 25% of the withdrawal tax free and the remainder (potentially) taxable. THe same process will then be repeated in the next tax year, with the exception of a small sum left o keep in the account for it ot remain open and reduce time and administration. None of this translates to any actual form of interest rate.

NottinghamKnight

merlin321 said:

Another query for this thread. I have a modest DB pension of £8040/yr, and intend to add the £2880 to get the upgrade. I have taken the full tax free portion of the DB pension
So when I withdraw up to my annual allowance from my Sipp, do I use the full £16660 minus the £8040 DB pension. Or is it less than this because I have received my 25% on the DB pension.  Don't think I have worded that very well but just want to use my full personal allowance before state pension kicks in.

It is a but fiddly where you have other income. You need to take your earnings away from the personal allowance and then increase that number by 33%, in your case that means you have £4460, so 33% of that is £1,486. So that would be the maximum you could contribute and pay no tax. ie £5,946. That would be the maximum you could do each year and pay no tax, however you are limited to the £3,600 gross if you have no relevant earnings. If you have a funded sipp and are just looking to max withdrawals and pay no tax then he £5,946 figure should be correct. If you withdraw that on one amount then some tax will probably be withheld and you'll have to reclaim it. (Edited for correction to 25% tax free on gross not net).

Dazed_and_C0nfused

NottinghamKnight said:

merlin321 said:

Another query for this thread. I have a modest DB pension of £8040/yr, and intend to add the £2880 to get the upgrade. I have taken the full tax free portion of the DB pension
So when I withdraw up to my annual allowance from my Sipp, do I use the full £16660 minus the £8040 DB pension. Or is it less than this because I have received my 25% on the DB pension.  Don't think I have worded that very well but just want to use my full personal allowance before state pension kicks in.

It is a but fiddly where you have other income. You need to take your earnings away from the personal allowance and then increase that number by 25%, in your case that means you have £4460, so 25% of that is £1,115. So that would be the maximum you could contribute and pay no tax. ie £5,575. That would be the maximum you could do each year and pay no tax, however you are limited to the £3,600 gross if you have no relevant earnings. If you have a funded sipp and are just looking to max wihdrawals and pay no tax then he £5,575 figure should be correct. If you withdraw that on one amount then some tax will probably be withheld and you'll have to reclaim it.

Your maths has gone a bit awry.

The op has existing pension of £8,040.

Assuming they have not applied for Marriage Allowance they will have a Personal Allowance of £12,500 leaving £4,460 unused.

If they opt for UFPLS then they can take £5,946.  £1,486 TFLS and £4,460 taxable income.

£4,460 + £8,040 = £12,500

twiglet98

Probably a silly question but if the deposit into the SIPP can be withdrawn after the uplift in tax relief, and reinvested the following year, why does this not count as pension recycling?

Dazed_and_C0nfused

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/pensions-recycling/

ezhiki

Thank you to everyone answering questions, one last one from me if I may.

My wife has passed her 'tax allowance' to me as she doesn't work and has no income, age 62. If she takes out a SIPP, only adding £2880 and taking out the max allowed each year as we are discussing here, will this complicate things?

Dazed_and_C0nfused

No, according to your post her only taxable income would be £2,700 so no tax will be payable as she will still have a Personal Allowance of £11,250.

Your Personal Allowance remains £12,500 but you get £250 deducted from any tax liability arising on your total taxable income.

Rob749

I'm in the same situation, as long as her income doesn't exceed her reduced tax allowance, there's no problem, she can still draw the whole amount tax free.