Paying £2880 into pension when retired

Dazed_and_C0nfused

Xbigman said:

tempus_fugit said:

Audaxer said:

caro69 said:

Audaxer said:

caro69 said:

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.

@caro69, once your husband's Zurich pension is transferred into an HL SIPP, I would consider taking up to the maximum sum from the HL SIPP  up to his personal tax allowance of £12,570, plus the 25% tax free, and reinvesting that amount in similar funds in an S&S ISA in his name. As he is 64 he only has a couple of years to get as much as he can out of his SIPP tax free and transferred into an S&S ISA, because after he takes his State Pension most of the withdrawals he takes from the SIPP will be taxable. 

However also bear in mind that the annual withdrawal amount above will have to be reduced by £3,600 if he is also contributing £2,880 each tax year into the SIPP and withdrawing the £3,600 cash after the tax relief is added. Still worth doing in my opinion.

Golly never thought of this.  That is very interesting.  His pot is small, around £31000.  So he could take his 25% (£7750) plus his personal allowance £12570, total £20320, leaving only £10000 in his actual pension.   His state pension starts in January 2024 so we could pretty much get the vast majority of it out of the pension and into a S&S Isa.  

If he does that this year, is it OK to contribute £2880 back in to the pension, keep it as cash and take it back out once tax relief received?  I keep seeing references to pension recycling which spooks me a little.  

When he eventually withdraws money from his S&S isa to top up his state pension, this money is tax free?  

If he takes out the £3,600 after the tax relief is added, that is fine, but will use up £2,880 of his personal tax allowance, so he could only take out the difference up to a total of £12,570 each year, without being liable to pay any tax on it. 

However as his pot is only around £31k, I think he would be able to get all of it out this tax year and next tax year, before he gets his State Pension in Jan 2024. If he did that he would still be able to contribute the £2,880 in these two tax years, but would be subject to tax when taking it back out if he had already used up his personal allowance taking the rest of his main pension out.

However I'm just thinking that if he left the two years gross contributions of £3,600 each year, in the SIPP until after he gets his State Pension, he could still get that out tax free over subsequent years, as he will still have a bit of tax free allowance after he starts receiving his State Pension. 

Yes, once the money is in the S&S ISA it will definitely be tax free.

£2,700, surely? That's what happens with mine anyway.

You're thinking of a SIPP, the OP is moving the SIPP money into an S&S ISA.

Darren

But only £2,700 of if will be taxable income, not £2,880.

Throwaway1

I'm still trying to convince my mum to do this and she's starting to warm up to the idea after 2 years of me suggesting it. I've seen that you now only have to keep £50 in, rather than £1000 (this is why she is now open to it). I've seen that charges apply for investments but am I right in thinking that there is no charge for cash accounts?

molerat

Throwaway1 said:

I'm still trying to convince my mum to do this and she's starting to warm up to the idea after 2 years of me suggesting it. I've seen that you now only have to keep £50 in, rather than £1000 (this is why she is now open to it). I've seen that charges apply for investments but am I right in thinking that there is no charge for cash accounts?

With HL yes that is the case.

ossie48

Hi..We've just checked and £720 has appeared in my wifes Vanguard pension account on top of the initial contribution as well as some interest, so £3632 . To withdraw it she needs to phone them so we can also check if she needs to leave a small amount in there.

Before we do this, my wife has just retired. Her earnings YTD are £10309 tax code 1257L no other taxable income. If we withdraw this year will any of it be subject to tax or shall we just leave it until next April. 

molerat

She has £2261 tax free left this year and the pension has £2724 taxable. Does she already have a tax code allocated to this pension ?  If not and she wants to take some this year it might be easiest to take £1397 then no tax will be deducted at 1257LM1.  HMRC will then allocate a tax code and you can see where to go from there

ossie48

molerat said:

She has £2261 tax free left this year and the pension has £2724 taxable. Does she already have a tax code allocated to this pension ?  If not and she wants to take some this year it might be easiest to take £1397 then no tax will be deducted at 1257LM1.  HMRC will then allocate a tax code and you can see where to go from there

Thanks, no tax code added yet. I think we'll just leave it for the time being.  

molerat

If you are going to make this a regular annual thing you need to do a small dip first to get the tax code allocated, saves having to reclaim tax.

peteduk

After you have the code you can calculate the monthly tax free allowance and then the sum of any withdrawls up to that cumulative amount will be tax free each month. Eg Assuming a £10 previous withdrawls you can withdraw 6 months worth of the tax free allowance minus £10 in September, and it will be tax free.
To be safe I have done it a month in arrears.

where_are_we

ossie48 said:

Hi..We've just checked and £720 has appeared in my wifes Vanguard pension account on top of the initial contribution as well as some interest, so £3632 . To withdraw it she needs to phone them so we can also check if she needs to leave a small amount in there.

Before we do this, my wife has just retired. Her earnings YTD are £10309 tax code 1257L no other taxable income. If we withdraw this year will any of it be subject to tax or shall we just leave it until next April. 

Do not leave it until next April. It is important for her to utilise her full personal tax allowance of £12570 each year ("use it or lose it"). If she expects to receive no more earnings this tax year she has £2261 (£12570 - £10309) of unused allowance. There will no tax due on a "individual cash lump sum" (Vanguard`s UPFLS) withdrawal of £3012 made up of 75% taxable £2259 and 25% tax free £753. This must be taken before April 5th 2023. To avoid emergency tax being paid you can do as suggested and do an initial smaller UPFLS followed by the rest or you can do one withdrawal in March 2023 and claim the tax back from HMRC in April 2023. Remember this will trigger a reduction of  the Money Purchase Annual Allowance from £40K to £4K meaning she be restricted to putting maximum £4K in a pension each year. This is not an issue if she does not intend to work any more and still allows her to contribute £3600 into a pension each tax year until she is 75.

ossie48

molerat said:

If you are going to make this a regular annual thing you need to do a small dip first to get the tax code allocated, saves having to reclaim tax.

Hi just a quick update and to clear my head. 

I rang Vanguard to instigate a small withdrawal to get the tax code allocated and arranged a telephone appointment. They told me the interest rate on cash in the pension plan is 2.95% (minus 0.2% for costs)

As we don't need the money I guess there's no harm in leaving it for the forseeable, repeating the same in 2023 or 2024 even (as long as the interest rate remains favourable) and withdrawing the lot as long as its under her personal allowance as a non earner, then rinse repeat. The alternative for the funds would be a Santander e saver @ 2.75% so horses for courses.

They also suggested as a non earner she might want to allocate me £1260 of her personal allowance. 

Have I missed a trick here ?