Paying £2880 into pension when retired

Dazed_and_C0nfused

vixen1500 said:

Time to stop paying into SIPP?

Now savings interest rates are going up, is it nolonger worth paying into SIPP for tax relief?

The money withdrawn from the SIPP will count as income, so will reduce the amount of tax free interest I can receive.

Have I got this right???

Thanks 

As ever it almost certainly depends on the specific for each person.

But a basic rate payer makes 6.25% (in a very short space of time) from turning £2,880 into £3,600 and then paying basic rate tax on the taxable element.

The best savings rate is 6.2% but you have to tie the money up for a year to get your 6.2%..

dealyboy

Hi @Dazed_and_C0nfused and @vixen1500 ...

I have reached the point of my personal allowance (£12,570) being fully allocated, however I will still invest £2,880 into my SIPP and of course it will receive £720.

If I now invest £3,600 for a 10-year horizon (as I intend to) and let's say that investment increases to £10,000 value I will have gained (if my maths is correct) £500 over what I would have made from just £2,880 invested, all things being equal*.

*Assumes 25% TFLS, 20% income tax, no capital gains tax and ignores the additional SIPP cost.

Doctor_Who

vixen1500 said:

Time to stop paying into SIPP?

Now savings interest rates are going up, is it nolonger worth paying into SIPP for tax relief?

The money withdrawn from the SIPP will count as income, so will reduce the amount of tax free interest I can receive.

Have I got this right???

Thanks 

As Dazed_and_C0nfused says, it will depend on your specific circumstances. If you currently benefit from the starter savings rate band of upto £5000 at 0% this could be reduced if you take the taxable income from your £3600 gross SIPP contribution (i.e. £2700 taxable income). Hence, you could end up paying more tax your savings interest.

Audaxer

vixen1500 said:

Time to stop paying into SIPP?

Now savings interest rates are going up, is it nolonger worth paying into SIPP for tax relief?

The money withdrawn from the SIPP will count as income, so will reduce the amount of tax free interest I can receive.

Have I got this right???

Thanks 

If you are paying in £2,880, leaving it as cash, and withdrawing the lot by UFPLS when tax relief is added, that is £180 profit after basic rate tax (6.25%). Although you can get around 6% interest on a savings account for a year, you are getting 6.25% from your SIPP after only two months, so in my view it's definitely still worth moving £2,880 from your savings into a SIPP once a year for a couple of months.  

vixen1500

Dazed_and_C0nfused said:

vixen1500 said:

Time to stop paying into SIPP?

Now savings interest rates are going up, is it nolonger worth paying into SIPP for tax relief?

The money withdrawn from the SIPP will count as income, so will reduce the amount of tax free interest I can receive.

Have I got this right???

Thanks 

As ever it almost certainly depends on the specific for each person.

But a basic rate payer makes 6.25% (in a very short space of time) from turning £2,880 into £3,600 and then paying basic rate tax on the taxable element.

The best savings rate is 6.2% but you have to tie the money up for a year to get your 6.2%..

We have been doing this for a few years now, thanks to reading about it on the forum.  

But next year I will start getting £11,000 pension and work part time approx £7,000, so just under the £18,570.  If I continue paying into the SIPP and withdrawing it after the tax relief is added, this will wipe out the additional £5,000 savings allowance.   

Unsure if this is right,  but was what I was querying 

Doctor_Who

vixen1500 said:

Dazed_and_C0nfused said:

vixen1500 said:

Time to stop paying into SIPP?

Now savings interest rates are going up, is it nolonger worth paying into SIPP for tax relief?

The money withdrawn from the SIPP will count as income, so will reduce the amount of tax free interest I can receive.

Have I got this right???

Thanks 

As ever it almost certainly depends on the specific for each person.

But a basic rate payer makes 6.25% (in a very short space of time) from turning £2,880 into £3,600 and then paying basic rate tax on the taxable element.

The best savings rate is 6.2% but you have to tie the money up for a year to get your 6.2%..

We have been doing this for a few years now, thanks to reading about it on the forum.  

But next year I will start getting £11,000 pension and work part time approx £7,000, so just under the £18,570.  If I continue paying into the SIPP and withdrawing it after the tax relief is added, this will wipe out the additional £5,000 savings allowance.   

Unsure if this is right,  but was what I was querying 

Once the pension starts you will loose the £5K starter savings band that is taxed at 0% and will be left with just the £1K PSA (also taxed at 0%). So if you have significant savings interest you will pay more tax on this. The taxable SIPP withdrawal (£2700) won't make any difference to the starter savings band after the £11K pension starts.

https://www.moneysavingexpert.com/savings/tax-free-savings/

Dazed_and_C0nfused

vixen1500 said:

Dazed_and_C0nfused said:

vixen1500 said:

Time to stop paying into SIPP?

Now savings interest rates are going up, is it nolonger worth paying into SIPP for tax relief?

The money withdrawn from the SIPP will count as income, so will reduce the amount of tax free interest I can receive.

Have I got this right???

Thanks 

As ever it almost certainly depends on the specific for each person.

But a basic rate payer makes 6.25% (in a very short space of time) from turning £2,880 into £3,600 and then paying basic rate tax on the taxable element.

The best savings rate is 6.2% but you have to tie the money up for a year to get your 6.2%..

We have been doing this for a few years now, thanks to reading about it on the forum.  

But next year I will start getting £11,000 pension and work part time approx £7,000, so just under the £18,570.  If I continue paying into the SIPP and withdrawing it after the tax relief is added, this will wipe out the additional £5,000 savings allowance.   

Unsure if this is right,  but was what I was querying 

What @Doctor_Who said.  You've already lost the ability to use the savings starter rate by having pension income of at least £17,570.

Taking additional income from the SIPP won't have bearing on that.

vixen1500

Doctor_Who said:

vixen1500 said:

Dazed_and_C0nfused said:

vixen1500 said:

Time to stop paying into SIPP?

Now savings interest rates are going up, is it nolonger worth paying into SIPP for tax relief?

The money withdrawn from the SIPP will count as income, so will reduce the amount of tax free interest I can receive.

Have I got this right???

Thanks 

As ever it almost certainly depends on the specific for each person.

But a basic rate payer makes 6.25% (in a very short space of time) from turning £2,880 into £3,600 and then paying basic rate tax on the taxable element.

The best savings rate is 6.2% but you have to tie the money up for a year to get your 6.2%..

We have been doing this for a few years now, thanks to reading about it on the forum.  

But next year I will start getting £11,000 pension and work part time approx £7,000, so just under the £18,570.  If I continue paying into the SIPP and withdrawing it after the tax relief is added, this will wipe out the additional £5,000 savings allowance.   

Unsure if this is right,  but was what I was querying 

Once the pension starts you will loose the £5K starter savings band that is taxed at 0% and will be left with just the £1K PSA (also taxed at 0%). So if you have significant savings interest you will pay more tax on this. The taxable SIPP withdrawal (£2700) won't make any difference to the starter savings band after the £11K pension starts.

https://www.moneysavingexpert.com/savings/tax-free-savings/

Thanks for the link.   

Seems like my maths is worse than I thought,  I forgot to add on the amount of interest received to my calculations.

vixen1500

Audaxer said:

vixen1500 said:

Time to stop paying into SIPP?

Now savings interest rates are going up, is it nolonger worth paying into SIPP for tax relief?

The money withdrawn from the SIPP will count as income, so will reduce the amount of tax free interest I can receive.

Have I got this right???

Thanks 

If you are paying in £2,880, leaving it as cash, and withdrawing the lot by UFPLS when tax relief is added, that is £180 profit after basic rate tax (6.25%). Although you can get around 6% interest on a savings account for a year, you are getting 6.25% from your SIPP after only two months, so in my view it's definitely still worth moving £2,880 from your savings into a SIPP once a year for a couple of months.  

Many thanks, for your explanation of how it works.  Waiting for this year's tax relief to be paid later this month.  

scoobydoo8

Hi all,

I've read most of this mammoth thread in the last 2 days but I was flagging towards the end so might/will have missed details!

All of the posts were about people over 55 doing this but what about people under 55? Is it still worth it?

I am late 40s and my only income is rental income which is about £12,000 (and savings interest) and will probably rise to over the PSA over the next few years.

From what I understand, if I put in the £2880 every year, I won't be able to withdraw anything until 55 (or 58 from 2028?)

Is it worth doing this for someone in my situation?

Thanks