Paying £2880 into pension when retired

ossie48

We've just joined the club as recommended by  @Audaxer

Baby steps here as usual but as we're already heavily invested with Vanguard and I find the their platform easy to use (plus decent fees) my wife has opened a Vanguard SIPP (soon to be early retired non earner). We've put it in cash as appears to be recommended and the indicative amount is already showing. When the £725 actually arrives what do folk recommend ? 

Are we duplicating ourselves by taking it all out and putting it into her current S&S VLS60, could we just leave it in the SIPP but have that invested in VLS60 and repeat year on year.

Another question, if withdrawing how do Vanguard know she's not earning (from Oct) for tax purposes

edit ..she would have had earnings this tax year total £8750 with a £20k redundancy figure so will it be taxed ?

Dazed_and_C0nfused

Vanguard won't know her personal circumstances and even if they did they couldn't act on it.  They have to follow HMRC procedures.

Which means the emergency tax code (1257L) will be used on the first payment on a non cumulative basis.  So no tax would be deducted unless the taxable amount was over £1,048.

Once the first payment has been reported to HMRC then an updated tax code will be issued based on her circumstances at that point in time.

Sanxxx

I have £2880, now £3600, invested with HL this tax year. I will not be earning enough to pay tax this year and intend to take the full £3600 in the coming months. Note that this will be my first pension drawdown.

My question is what can I do to get the full £3600 this year and not have HL deduct 20% or some other amount under an emergency code which I would then have to reclaim and I assume not get until next year?

I did read that withdrawing a nominal amount would cause the IR to send a tax code to HL which they would then apply however I assume that they would still deduct 20% on a subsequent withdrawal.

Dazed_and_C0nfused

Sanxxx said:

I have £2880, now £3600, invested with HL this tax year. I will not be earning enough to pay tax this year and intend to take the full £3600 in the coming months. Note that this will be my first pension drawdown.

My question is what can I do to get the full £3600 this year and not have HL deduct 20% or some other amount under an emergency code which I would then have to reclaim and I assume not get until next year?

I did read that withdrawing a nominal amount would cause the IR to send a tax code to HL which they would then apply however I assume that they would still deduct 20% on a subsequent withdrawal.

Why do you think that?  

Don't you think HL operate PAYE correctly?

Notepad_Phil

Sanxxx said:

I have £2880, now £3600, invested with HL this tax year. I will not be earning enough to pay tax this year and intend to take the full £3600 in the coming months. Note that this will be my first pension drawdown.

My question is what can I do to get the full £3600 this year and not have HL deduct 20% or some other amount under an emergency code which I would then have to reclaim and I assume not get until next year?

I did read that withdrawing a nominal amount would cause the IR to send a tax code to HL which they would then apply however I assume that they would still deduct 20% on a subsequent withdrawal.

How much spare earnings do you have before you would have to pay tax?

If you have other earnings then it may be that you'll need to wait till much later in this tax-year before you can get the remainder out without your cumulative earnings in the year so far meaning that some tax is taken from your second drawdown.

Sanxxx

Dazed_and_C0nfused said:

Why do you think that?  

Don't you think HL operate PAYE correctly?

Fair point, misunderstanding on my part of the info sent by HR to HL, will withdrawing a nominal amount solve my issue ?

Notepad_Phil said:

How much spare earnings do you have before you would have to pay tax?

If you have other earnings then it may be that you'll need to wait till much later in this tax-year before you can get the remainder out without your cumulative earnings in the year so far meaning that some tax is taken from your second drawdown.

Bar a few hundred quid already earnt this so far this tax year, this will be my only earnings for the remainder.

Dazed_and_C0nfused

The emergency tax code (1257L) will be used on a non cumulative basis for the first payment so no tax would be paid on the first £1,048 (of taxable income).

Then once HMRC are notified of that by HL they will determine the correct tax code (which may still be the emergency one but on a cumulative basis).

Once you have that you can work out how much you can take without paying any tax up front.

caro69

Amazing thread but I may I ask some questions please.  Sorry if the answers are staring me in the face buy my head is swimming from all the info.

Hubby is 64 and not working. He wont' work again. I am a few years younger and still working and happily supporting us.
He has a modest non-flexible pension with Zurich which we are about to move to a HL Sipp.  We have no plans on taking anything from it at this stage and use it later in life to top up his state pension to keep him under the tax threshold.  I now realise that he could be contributing £2880 as a non earner to take advantage of the tax relief

If we move the pension to HL can we then use it to contribute £2880 into cash and then withdraw the £3660.  Or would we be better to open a SIPP with a different provider and keep things separate?  

I am also confused as to the benefits of contributing each year until the age of 75.  Surely once the state pension kicks in there won't be enough personal allowance left to get the whole amount out.  I am probably missing something I'm sure.

Dazed_and_C0nfused

As he is under transitional rules for the new State Pension it's impossible for us to know what he might receive unless you tell us.

You can check what he will get by looking at his forecast on gov.uk.  You must read it in full, not just the headline figure which makes certain assumptions.

He might get £55/week or £300/week.  More likely to be £150-£200 so even if has applied for Marriage Allowance he would have some unused Personal Allowance.

You cannot know how much spare Personal Allowance there will be without at least knowing what his State Pension will be.

It could be something like this,
Personal Allowance £11,310 less State Pension £9,627 = £1,683 unused allowances.

But irrespective of that even if he has a very high State Pension and was basic rate payer he would still be making a 6.25% profit (ignoring any inflation aspect and provider fees).

He pays £2,880.  The pension company adds £720, courtesy of HMRC, so he has a fund of £3,600.

He takes £900 as the 25% TFLS leaving £2,700 in taxable pension income.  He has to pay 20% tax on that meaning he comes out with £900 + £2,160 = £3,060.  Which is £180 more than the £2,880 he paid in in the first place.

NedS

caro69 said:

Amazing thread but I may I ask some questions please.  Sorry if the answers are staring me in the face buy my head is swimming from all the info.

Hubby is 64 and not working. He wont' work again. I am a few years younger and still working and happily supporting us.
He has a modest non-flexible pension with Zurich which we are about to move to a HL Sipp.  We have no plans on taking anything from it at this stage and use it later in life to top up his state pension to keep him under the tax threshold.  I now realise that he could be contributing £2880 as a non earner to take advantage of the tax relief

If we move the pension to HL can we then use it to contribute £2880 into cash and then withdraw the £3660.  Or would we be better to open a SIPP with a different provider and keep things separate?  

Your choice. You could open a SIPP with HL now to pay in the £2880 annually, and then transfer the in the Zurich pension when ready. What does he intend to do with the Zurich pension once transferred - leave it invested and draw upon it slowly?

caro69 said:

I am also confused as to the benefits of contributing each year until the age of 75.  Surely once the state pension kicks in there won't be enough personal allowance left to get the whole amount out.  I am probably missing something I'm sure.

Even once a tax payer, there is still a small advantage as you will receive tax relief on the way in, and 25% is tax free on the way out so you will still gain, just not the full £720 you would gain if a non-tax payer.