Paying £2880 into pension when retired

NoMore

dealyboy said:

Apologies if this has been discussed before but it came as a bit of a shock to me when I added £2,880 to my SIPP with AJ Bell Youinvest earlier this year. People need to be aware.

After the tax relief of £720 had been added I fully expected to be able to access £3,600 from the Manage My SIPP page, however the amount available for a UFPLS was only about £3,500. In addition the amount varied on a daily basis down to £3,400 and up to £3,900, currently £3,545.

Apparently the reason is that AJ Bell Youinvest maintain a percentage split between the crystallized and uncrystallized SIPP value rather than holding separate pots. The percentage is recalculated whenever cash is added, drawdown is performed, UFPLS taken, or PCLS taken. The 'accessed' figures are updated at 06:00 GMT each day and in a falling market invested crystallized funds value will decrease and therefore the uncrystallized value will decrease proportionately according to the split percentage. However in a rising market the accessible uncrystallized value increases, therefore a higher PCLS or UFPLS can be taken.

I should point a strong proviso out that I am no expert, that this is as I understand it and that I am currently in discussions with AJB regarding the accuracy of the figures displayed.

I can understand this is you have invested it in the same things as are in your crystallised portion, but why would it affect cash ? Or have you invested it and its not in cash ?

dealyboy

Hi NoMore

I'll give you the breakdown (round figures):
- total value £40,000
- invested £25,000 (single fund HSBC Global Dynamic)
- cash £15,000 (includes £2,880 + £720) recently added
- not accessed £3,500 (available for UFPLS)
- accessed £26,500 (in drawdown)

Cash added and units purchased periodically as one-offs since SIPP started in 2018. I took a UFPLS last year of £3,600 when the not accessed figure was about £3,620. This year I added £2,880 25th April (£720 tax relief added 25th June), I bought £12,000 units on 13th June). I noticed that the 'not accessed' figure on the 'Manage My SIPP' page was consistently below £2,880 in May (falling markets).

I calculate that 91% is crystallized.

dealyboy

correction: accessed £36,500 (in drawdown)

jeelz

Dazed and Confused said…. 

 “If you have to pay higher rate tax on it you are worse off overall.”

Does the fact that you have made a pension contribution not raise the threshold at which you pay the higher rate tax? Effectively negating that “loss”?

Audaxer

dealyboy said:

Hi NoMore

I'll give you the breakdown (round figures):
- total value £40,000
- invested £25,000 (single fund HSBC Global Dynamic)
- cash £15,000 (includes £2,880 + £720) recently added
- not accessed £3,500 (available for UFPLS)
- accessed £26,500 (in drawdown)

Cash added and units purchased periodically as one-offs since SIPP started in 2018. I took a UFPLS last year of £3,600 when the not accessed figure was about £3,620. This year I added £2,880 25th April (£720 tax relief added 25th June), I bought £12,000 units on 13th June). I noticed that the 'not accessed' figure on the 'Manage My SIPP' page was consistently below £2,880 in May (falling markets).

I calculate that 91% is crystallized.

I think if you are paying in £2,880 each year and drawing out £3,600 after the tax relief is added, it is probably best to do that in a separate SIPP, rather than one that is already in drawdown. It seems to work well putting the £2,880 in a separate SIPP with HL and subsequently drawing the £3,600 out via a UFPLS.

Dazed_and_C0nfused

jeelz said:

Dazed and Confused said…. 

 “If you have to pay higher rate tax on it you are worse off overall.”

Does the fact that you have made a pension contribution not raise the threshold at which you pay the higher rate tax? Effectively negating that “loss”?

That was in relation to the funds being withdrawn at a later date.

For example pay in £2,880 of your own money as a basic rate payer and you have a fund of £3,600.

Take that £3,600 out in a different tax year when you are a higher rate payer and you get £900 TFLS plus £1,620 of the remaining £2,700 after paying 40% tax on it.

Total returned = £2,520 (out of the £2,880 originally paid in).

zagfles

Dazed_and_C0nfused said:

jeelz said:

Dazed and Confused said…. 

 “If you have to pay higher rate tax on it you are worse off overall.”

Does the fact that you have made a pension contribution not raise the threshold at which you pay the higher rate tax? Effectively negating that “loss”?

That was in relation to the funds being withdrawn at a later date.

For example pay in £2,880 of your own money as a basic rate payer and you have a fund of £3,600.

Take that £3,600 out in a different tax year when you are a higher rate payer and you get £900 TFLS plus £1,620 of the remaining £2,700 after paying 40% tax on it.

Total returned = £2,520 (out of the £2,880 originally paid in).

Indeed, although probably an unlikely scenario. Probably more likely is those who will exceed the LTA. They definitely shouldn't be recycling £3600, that will almost certainly make them worse off overall.

dealyboy

Audaxer said:

dealyboy said:

Hi NoMore

I'll give you the breakdown (round figures):
- total value £40,000
- invested £25,000 (single fund HSBC Global Dynamic)
- cash £15,000 (includes £2,880 + £720) recently added
- not accessed £3,500 (available for UFPLS)
- accessed £26,500 (in drawdown)

Cash added and units purchased periodically as one-offs since SIPP started in 2018. I took a UFPLS last year of £3,600 when the not accessed figure was about £3,620. This year I added £2,880 25th April (£720 tax relief added 25th June), I bought £12,000 units on 13th June). I noticed that the 'not accessed' figure on the 'Manage My SIPP' page was consistently below £2,880 in May (falling markets).

I calculate that 91% is crystallized.

I think if you are paying in £2,880 each year and drawing out £3,600 after the tax relief is added, it is probably best to do that in a separate SIPP, rather than one that is already in drawdown. It seems to work well putting the £2,880 in a separate SIPP with HL and subsequently drawing the £3,600 out via a UFPLS.

Understood Audaxer (I meant to reply earlier but my internet was down)

In practice I will probably be taking out less than £3,600 each year wanting to fully utilize my personal tax allowance but not wanting to unnecessarily pay income tax. It had been my plan to take out £3,600 but now with a 10% increase to the state pension anticipated next year (to £11,000 in my case) and frozen tax thresholds (who knows what new chancellor / PM will do) I would be paying tax on about £1,200.

Thinking about it, could there be an advantage if the platform uses the percentages method? As investments generally add value over time then the uncrystallized portion goes up in value and more is available for UFPLS / PCLS.

If you take my case of £25,000 investments and £11,500 cash in the crystallized portion (£36,500 accessed), if there were a 10% gain in the price of HSBC Global in a year, the uncrystallized SIPP would go from £3,500 to £3,825 and the crystallized cash would go down to £11,175. If the crystallized cash were invested at the beginning of that year, the uncrystallized part of the SIPP would increase to £3,928.50 including £428.50 investments. Ignoring SIPP costs.

And in the scenario of someone who has £100k invested in their SIPP, all crystallized (PCLS taken) adding £10k cash (£8k + £2k earned), giving a 10:1 split, gains £909 uncrystallized, albeit invested, if the fund price has gone up 10% after one year.

WBCPB

Audaxer said:

sheslookinhot said:

molerat said:

It only really becomes an issue in the annual pay £2880 in take £3600 out scenario where everything generally needs to be completed in the same tax year for effective tax management purposes.

In what circumstances does it become an issue ?

If you want to take out the whole £3,600 in the same tax year, you need to ensure you allow time for the tax relief to be added to your SIPP, it usually takes about 8 weeks, and then ensure you get the UFPLS processed in time to withdraw the £3,600 before the end of the tax year.

I opened my SIPP and transferred the £2,880 on Jan 14 2021 and they added the £720 on 22nd March, i then applied for the UFPLS on this same day but H&L did not process anything until 6th April so everything got pushed back into the next tax year.

molerat

WBCPB said:

Audaxer said:

sheslookinhot said:

molerat said:

It only really becomes an issue in the annual pay £2880 in take £3600 out scenario where everything generally needs to be completed in the same tax year for effective tax management purposes.

In what circumstances does it become an issue ?

If you want to take out the whole £3,600 in the same tax year, you need to ensure you allow time for the tax relief to be added to your SIPP, it usually takes about 8 weeks, and then ensure you get the UFPLS processed in time to withdraw the £3,600 before the end of the tax year.

I opened my SIPP and transferred the £2,880 on Jan 14 2021 and they added the £720 on 22nd March, i then applied for the UFPLS on this same day but H&L did not process anything until 6th April so everything got pushed back into the next tax year.

The first one often does take a bit longer and leaving it that late is risky. For MrsM we pay in before 6 Jan so tax added on 21st Feb then start the ball rolling and send withdrawal form  6 March to ensure cash received by end of year.  My last one was paid in 28 April, tax added 21 June, questionnaire completed same day, withdrawal form received 23 Jun, posted off 27 Jun, money in bank 1 Jul.