Paying £2880 into pension when retired

jamesd

german_keeper said:

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.

Well, it's fairly novel to recognise that there's a potential for short term gain but yes, regular monthly contributions and regular monthly payments are routine enough that just about any place will support that. Charges vary, though, and it could be free at one place and quite expensive at another.

jamesd

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.

£720 is what a person with enough unused personal allowance can make. You can't because you'll be paying at least basic rate tax on the withdrawn money. That means the most you can make is £180. If you go into higher rate income tax paying you'll make less than £180.

Your basic rate band is increased by the gross value of the pension contributions, so add £3,600 to it if paying in £2,880 net. On the way out, 25% of the £3,600 is tax free and the remaining 75% £2,700 is added to your taxable income for the year.  That means you get a small increase in how much rental income you can have within basic rate while doing this because you benefit from the higher basic rate band by the £900 difference.

vixen1500

Have I got this right?

Pay in  £2880
Plus       £720  uplift

Withdraw £3600

25% £900 tax free

£2700 Taxable at 20% basic rate = £540

Better off by £180

Currently you can do this until 75.

Dazed_and_C0nfused

Basically yes but this part is entirely dependent on your personal circumstances so won't be correct for everyone.

£2700 Taxable at 20% basic rate = £540

Audaxer

vixen1500 said:

Have I got this right?

Pay in  £2880
Plus       £720  uplift

Withdraw £3600

25% £900 tax free

£2700 Taxable at 20% basic rate = £540

Better off by £180

Currently you can do this until 75.

Yes, and for those whose income is well below their Personal Tax Allowance for the year, they would be able to get it all out tax free.

FIREmenow

Hi Everyone, thanks for this really useful thread.  I have read huge chunks of it!

I am getting ready to explain this to some relatives, but think they have slightly missed the optimum time for this.

Would you say HL is still the best platform to do this on if holding in cash and taking back out as soon as possible (whilst trying to be tax efficient)? If it was more efficient tax-wise to leave it in longer and drip-feed it out staying within PA and therefore invest some of it, would that change the optimum platform because of charges to purchase funds?

If they were to open a HL (or another platform if cheaper) SIPP today, from what I've read here it is pretty certain the tax relief wont come until the next tax year, but they could draw out the original amount whilst the relief is in the pipeline (with 25% of that being tax free and leaving anything required to keep the account open without penalty).  But with the admin involved in setting up drawdown, can anyone comment if it would be possible get any money back out before the end of this tax year?  One of them will turn 65 next tax year so they will have a lot less PA to play with so they might not think it is worth the hassle in the future, and one of them will turn 74 next tax year, so the window is closing for them.

Many thanks for your thoughts.

Thaddeus_Wagstaff

I've tried doing the cash recycling thing with my Vanguard account. If I put in £2880 as cash, it shows no tax relief "uplift" at the debit card confirmation stage. If I go back and choose an investment product instead, it does show the uplift. Does this just mean that the uplift to a cash deposit would be applied later?

NedS

Thaddeus_Wagstaff said:

I've tried doing the cash recycling thing with my Vanguard account. If I put in £2880 as cash, it shows no tax relief "uplift" at the debit card confirmation stage. If I go back and choose an investment product instead, it does show the uplift. Does this just mean that the uplift to a cash deposit would be applied later?

Not sure about Vanguard, but I think it is normal for it to take 6-8 weeks for the tax relief to be added. If I make a contribution to my SIPP before 6th of the month, the tax relief is added on 21st of the following month, some six and a half weeks later, and that's the quickest it's added. Make that contribution 1 day later, and you can add another month to that. I assume those dates are fixed for all SIPPs (certainly are for the 2 different providers I've used)

Malchester

I add £2880 each year on 6 April and the tax refund is added almost immediately. My pension is with PensionBee

booveedoo

Malchester said:

I add £2880 each year on 6 April and the tax refund is added almost immediately. My pension is with PensionBee

Being cheeky, is this all that you use PensionBee for? Was thinking about PensionBee for this, and at some stage move my pension into it. Others have recommended Hargreaves Lansdown for this one off "gain"? Personal choice I guess.