Paying £2880 into pension when retired

molerat

Audaxer said:

molerat said:

Devonjem said:

Thanks very much for the replies.  In January 2021 I opened the SIPP and in the same month paid into it £2880.  Government added the tax in March 2021 and I then withdrew all but £50.  So I will pay a further £2880 in the next few weeks.   Is there any benefit in doing this early in the tax year or later in the tax year?  Thanks

The biggest consideration is the tax treatment of the withdrawal.  I pay mine in April and withdraw as soon as the tax credit is added as it is taxed at BR so it doesn't matter when it is done, 

So just to clarify, if I have a BR tax code on my HL SIPP, does that definitely mean my £3,600 withdrawal will not be hit with excess tax if drawn out early in the tax year? 

With a BR code they will simply deduct 20% tax whenever you take it, there is no 1/12ths tax allowance to take into account.

Dazed_and_C0nfused

Bobinyorkshire said:

Apologies in advance. Can I also ask a quick question which is probable already covered, but I can’t easily see? My wife has a 10k pension per annum and adds £2880 to a HL cash SIPP. Could she withdraw £2570 without incurring a tax bill (personal allowance) per year or more if taking into account TFLS? Could she do this every year too, reducing the withdrawal amount to take into account her increasing DB pension and static personal allowance?

Providing she hasn't applied for Marriage Allowance and has no other taxable earnings or pension income in the same tax year then yes, she could take £2,570 extra taxable pension and not have any tax to pay.

If she has applied for Marriage Allowance then her Personal Allowance is only £11,310 so she could only take an extra £1,310 taxable pension income before tax would be payable.

Bobinyorkshire

Thank you. I have her marriage allowance at mo, but will swap back when she reaches 55. Advice is appreciated

sparky0138

where_are_we said:

Devonjem said:

Thanks very much for the replies.  In January 2021 I opened the SIPP and in the same month paid into it £2880.  Government added the tax in March 2021 and I then withdrew all but £50.  So I will pay a further £2880 in the next few weeks.   Is there any benefit in doing this early in the tax year or later in the tax year?  Thanks

There is a very small benefit in paying £2880 into your HL SIPP as soon as the tax year starts compared to paying it in at the end, assuming you have no earned income and are between 55 and 75.

It feels wrong pointing this out but there is one thing worth considering, especially if the person contributing to the SIPP is in ill health. If they happen to pass away before making the contribution, any heirs won't benefit from the tax relief.

where_are_we

Bobinyorkshire said:

Apologies in advance. Can I also ask a quick question which is probable already covered, but I can’t easily see? My wife has a 10k pension per annum and adds £2880 to a HL cash SIPP. Could she withdraw £2570 without incurring a tax bill (personal allowance) per year or more if taking into account TFLS? Could she do this every year too, reducing the withdrawal amount to take into account her increasing DB pension and static personal allowance?

To be clear, she could withdraw £3427 and pay no income tax. If you take a UFPLS each tax year 75% is taxable and 25% tax free. The £2570 is the 75% taxable part and £857 is the 25% tax free part. Remember that when she reaches state pension age her total pensionable income will probably be more than the personal allowance and she won`t have the above advantage. When that time comes she could consider deferring her state pension for a few years providing she is in good health and doesn`t need the money. She would then get the 5.8% annual state pension uplift plus more than £500 annual gain of doing a completely tax free UPFLS.

Dazed_and_C0nfused

where_are_we said:

Bobinyorkshire said:

Apologies in advance. Can I also ask a quick question which is probable already covered, but I can’t easily see? My wife has a 10k pension per annum and adds £2880 to a HL cash SIPP. Could she withdraw £2570 without incurring a tax bill (personal allowance) per year or more if taking into account TFLS? Could she do this every year too, reducing the withdrawal amount to take into account her increasing DB pension and static personal allowance?

To be clear, she could withdraw £3427 and pay no income tax. If you take a UFPLS each tax year 75% is taxable and 25% tax free. The £2570 is the 75% taxable part and £857 is the 25% tax free part. Remember that when she reaches state pension age her total pensionable income will probably be more than the personal allowance and she won`t have the above advantage. When that time comes she could consider deferring her state pension for a few years providing she is in good health and doesn`t need the money. She would then get the 5.8% annual state pension uplift plus more than £500 annual gain of doing a completely tax free UPFLS.

Although at the moment (whilst she has an application for Marriage Allowance in place) it would be £1,746, of which £,1,310 would be taxable and £436 the TFLS.

Bobinyorkshire

Again, really appreciate this useful advice

NannaH

Is it better, when using the £3600 ‘trick’  on retirement,  to use a separate Sipp to just continually add/withdraw the money yearly and keep it in cash or to draw down the £3600 from another DC pot and invest the extra contributions  to build another pot from 62 until age 75 then use UFPLS or FaD? 
I will be a non tax payer (unless widowed)  before and after SP age so gain the full £720 tax relief, DH should pay no tax from 62-67, then will pay basic rate tax once SP kicks in. 

I can’t figure out which way is better, or does it make no difference?  

RangeRat

I have a question on this.

I’ve retired, age 60, and have taken 16000 UFPLS in this tax year from my pension, have no other income so used up my personal tax allowance to effectively get this lump sum tax free.

I know I’ve triggered MPAA.

So if I pay in 2880 to my pension this tax year, will I still get the 720 tax relief?

Dazed_and_C0nfused

Yes, that is the maximum you can contribute now.