Paying £2880 into pension when retired

Audaxer

NannaH said:

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?  

I think it's better just to keep a separate HL SIPP in cash for this. You can always invest the £720 tax relief in an S&S ISA each year if you want, or keep it as cash to add to your income.

SomeMadeUpName

Dazed_and_C0nfused said:

Yes, that is the maximum you can contribute now.

& yes, you will get the £720 added by HMRC if you do.

MK62

Of course, if you get eg. a part time job, paying more than £3600pa, you can contribute that pay all the way up to £4000pa (the MPAA) - a whole £400 (gross) extra.......how's that for an incentive ?......

drumtochty

RangeRat said:

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?

You can take £16,760 from I assume a money purchase pension per year up until April 2026 and then say £16,760 plus inflation after 2026 if the chancellor increases personal allowance by inflation by then. £16760 is £4190 from your tax free lump sum and £12,570 from taxable income but no tax is due as you have that as a personal allowance.

Therefore there is an under tax free withdrawall in total. Can you comment on that gap of £760.

If we assume that the actual withdrawal was £16,760, then there is an issue.

Yes you get £720 added to a pension contribution of £2,880 but if you take the new £3,600 total out of a SIPP, yes the tax free amount is £900 but if you are living in England or Wales and you withdraw the remaining £2,700 as taxable income, you pay £540 in tax, therefore the prize that you get is not £720 a year but is only £180.

Unless you are going to leave the taxable sum in the pension pot to be taken out in future years but when you reach 67 you will have a state pension of say £11,000 by then assuming 2.5% inflation until 67 on the state pension.

Therefore you run out of taxed income personal allowance as the state pension is paid tax free.

Assuming you get the full new state pension at 67 and with the freeze in personal allownces until 2026, the tax free room to take advantage of the £2,880 pension contribution and £720 tax relief added is getting to be less than the headline numbers. Still worth the trouble to do it but with the catch shown above.

jamesd

NannaH said:

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?  

Do it whichever way is convenient or cheapest. I'd probably use the existing one instead of setting one up just for this. That's because it's more convenient to pay in monthly and take monthly income payments when there's plenty of spare investments or cash in the account and I think monthly in and monthly out is a nicely matching combination.

RangeRat

drumtochty said:

RangeRat said:

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?

You can take £16,760 from I assume a money purchase pension per year up until April 2026 and then say £16,760 plus inflation after 2026 if the chancellor increases personal allowance by inflation by then. £16760 is £4190 from your tax free lump sum and £12,570 from taxable income but no tax is due as you have that as a personal allowance.

Therefore there is an under tax free withdrawall in total. Can you comment on that gap of £760.

If we assume that the actual withdrawal was £16,760, then there is an issue.

Yes you get £720 added to a pension contribution of £2,880 but if you take the new £3,600 total out of a SIPP, yes the tax free amount is £900 but if you are living in England or Wales and you withdraw the remaining £2,700 as taxable income, you pay £540 in tax, therefore the prize that you get is not £720 a year but is only £180.

Unless you are going to leave the taxable sum in the pension pot to be taken out in future years but when you reach 67 you will have a state pension of say £11,000 by then assuming 2.5% inflation until 67 on the state pension.

Therefore you run out of taxed income personal allowance as the state pension is paid tax free.

Assuming you get the full new state pension at 67 and with the freeze in personal allownces until 2026, the tax free room to take advantage of the £2,880 pension contribution and £720 tax relief added is getting to be less than the headline numbers. Still worth the trouble to do it but with the catch shown above.

It was just 16000 I’ve taken, not the full 16,760. I’m not intending to take any more out this tax year, I’m just trying to ascertain if I will get the 720 tax relief paid in to the pension when I pay the 2880 now, and then take another 16k next tax year again to use my personal allowance.

chris107

I would like some confirmation about how paying £2880 into a Sipp affects a person's tax.
I am close to (a few hundred pounds below) the 40% tax threshold with income from a pension and rental income.  If I put £2880 into a Sipp and gain the £720 uplift and then withdraw £3600, will this put me above the 40% threshold?
If so, would I be able/better to pay £3600 into a Sipp and ask for no uplift and gain the £720 via the self assessment tax return that I complete each year?  Thanks for any help.

Dazed_and_C0nfused

chris107 said:

I would like some confirmation about how paying £2880 into a Sipp affects a person's tax.
I am close to (a few hundred pounds below) the 40% tax threshold with income from a pension and rental income.  If I put £2880 into a Sipp and gain the £720 uplift and then withdraw £3600, will this put me above the 40% threshold?
If so, would I be able/better to pay £3600 into a Sipp and ask for no uplift and gain the £720 via the self assessment tax return that I complete each year?  Thanks for any help.

You are getting a bit confused.

If you contribute £2,880 to a pension using the relief at source method it will have £720 basic rate tax relief added making a gross pension contribution of £3,600.

If you take all of this out it will be £900 TFLS and £2,700 taxable pension income.

And your basic rate tax band will be increased by £3,600, becoming £41,300 instead of £37,700).

If you complete a Self Assessment return you have to declare all taxable income and all relief at source pension contributions. 

german_keeper

jamesd said:

NannaH said:

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?  

Do it whichever way is convenient or cheapest. I'd probably use the existing one instead of setting one up just for this. That's because it's more convenient to pay in monthly and take monthly income payments when there's plenty of spare investments or cash in the account and I think monthly in and monthly out is a nicely matching combination.

Wasn't going to ask this yet but as you've mentioned it. We won't be going to drawdown for a couple of years yet but the plan would be to put £2,880 pa into both our DC pensions. Am I right in assuming that monthly withdrawals and monthly deposits adding up to £2,880 pa is fairly standard or would it be something we would have to check. Certainly both support drawdown but I haven't fully investigated yet.

drumtochty

RangeRat said:

It was just 16000 I’ve taken, not the full 16,760. I’m not intending to take any more out this tax year, I’m just trying to ascertain if I will get the 720 tax relief paid in to the pension when I pay the 2880 now, and then take another 16k next tax year again to use my personal allowance.

Yes you will receive £720 tax relief from HMRC around 8 to 10 weeks after you make the £2,880 annual contribution to your SIPP.

As you have advised you will only take out £16,000 pa which is a taxable £12,000 and £570 short of your personal allowance. In most circumstances there is an argument to remove the extra £570 per anumn in taxable pensions and use up the remainder of your personal allowance rather than loose it.

If you carry on doing this when your state pension starts which I assume will amount to £11,000 pa., in that case you will only have a tax free personal allowance of say £1,600 to take payments from your SIPP. In that case if you keep on paying in £2,880 until you are 75 years old. That will leave an amount of say £15,000 in the SIPP that will take until say 90 years of age to get out tax free.