Paying £2880 into pension when retired

molerat

Yes, most certainly.  Put £2880 in and the taxman will give you another £720. What is not to like about free money ?

What other pension provision do you have ?

The big difference for us over 55s is that we can realise that £720 in hard cash almost immediately.

Zanderman

scoobydoo8 said:

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

Do you pay into a pension already? If not you should do, and if you earn 12k from rentals there's no need to restrict yourself to 2880 per year. The 2880 concept is primarily relevant if you have no income (though maybe rental income doesn't count for pensions possibly?). And yes, you can't draw anything out until you're 55+.

Edited to add:  my bad, rental income doesn't count as income for pension contribution - which seems a bit silly to me,

NoMore

Rental income (unless holiday let) doesn't count as relevant earnings for pension purposes.

scoobydoo8

molerat said:

Yes, most certainly.  Put £2880 in and the taxman will give you another £720. What is not to like about free money ?

What other pension provision do you have ?

The big difference for us over 55s is that we can realise that £720 in hard cash almost immediately.

I'm a bit confused about the implications of

a) going over the PSA allowance from next year onwards, say my rental income increases to £14,000 by 2025, I will have to pay taxes on the money I withdraw, along with the cash deposits sitting dormant with no interest for a few years as I cannot withdraw it yet. will that eat up the £720 I get from the taxman?

b) affecting my tax free savings interest allowances?

I only have a very very small company pension

arthurdick

Hi, I have been trying to read and understand about SIPPS, I have looked at this thread and other recent ones but I can still not get my head around it all.  I think I need telling how it would work for me with my situation.  
I took early retirement last year and have a small  (£4930) LGPS pension in payment, This is my only income but I have money from my house sale last year which will take me over the £10000 interest so I will have to do one of those self assessment tax forms.   From what I have read, there will be no tax at all to pay I am well below the limit when you take into account the £5000 starter rate and the £1000 on top.
My question is:  can I put £2880 into a SIPP before the end of this tax year and another £2880 the first week into the next tax year?.  Would that get me £1440 in top up's and could I after a month or two in the new tax year, take out £7000  tax free cash and leave a couple of hundred in there as not to close it?.
Cheers all.

dealyboy

@arthurdick said:

Hi, I have been trying to read and understand about SIPPS, I have looked at this thread and other recent ones but I can still not get my head around it all.  I think I need telling how it would work for me with my situation.  
I took early retirement last year and have a small  (£4930) LGPS pension in payment, This is my only income but I have money from my house sale last year which will take me over the £10000 interest so I will have to do one of those self assessment tax forms.   From what I have read, there will be no tax at all to pay I am well below the limit when you take into account the £5000 starter rate and the £1000 on top.
My question is:  can I put £2880 into a SIPP before the end of this tax year and another £2880 the first week into the next tax year?.  Would that get me £1440 in top up's and could I after a month or two in the new tax year, take out £7000  tax free cash and leave a couple of hundred in there as not to close it?.
Cheers all.

Yes as long as you're over 55 at the time of access (UFPLS).

Your taxable pension is £5k. Your SIPP access is £7k, 25% of that is tax free (£1,750) leaving £5,250 taxable. Total taxable £10,250 being well within a personal tax allowance, whether married or not. Of course this will trigger the MPAA to limit future contributions, if earning, to £10,000, and you will initially pay income tax and need to reclaim tax (your tax code will likely be cumulative).

I'm not sure there will be no tax to pay on interest on capital from your house sale.

molerat

scoobydoo8 said:

molerat said:

Yes, most certainly.  Put £2880 in and the taxman will give you another £720. What is not to like about free money ?

What other pension provision do you have ?

The big difference for us over 55s is that we can realise that £720 in hard cash almost immediately.

I'm a bit confused about the implications of

a) going over the PSA allowance from next year onwards, say my rental income increases to £14,000 by 2025, I will have to pay taxes on the money I withdraw, along with the cash deposits sitting dormant with no interest for a few years as I cannot withdraw it yet. will that eat up the £720 I get from the taxman?

b) affecting my tax free savings interest allowances?

I only have a very very small company pension

a) £720 will be added to the £2880 you put into the pension making £3600 in the pension irrespective of any tax you pay (or don't pay).  When you withdraw from a pension 25% is tax free, 75% taxable.  If you are a basic rate tax payer and withdraw that £3600 you will pay £540 in tax still leaving you a clear £180 in profit.

b) pensions do not affect your personal savings allowance.

molerat

arthurdick said:

Hi, I have been trying to read and understand about SIPPS, I have looked at this thread and other recent ones but I can still not get my head around it all.  I think I need telling how it would work for me with my situation.  
I took early retirement last year and have a small  (£4930) LGPS pension in payment, This is my only income but I have money from my house sale last year which will take me over the £10000 interest so I will have to do one of those self assessment tax forms.   From what I have read, there will be no tax at all to pay I am well below the limit when you take into account the £5000 starter rate and the £1000 on top.
My question is:  can I put £2880 into a SIPP before the end of this tax year and another £2880 the first week into the next tax year?.  Would that get me £1440 in top up's and could I after a month or two in the new tax year, take out £7000  tax free cash and leave a couple of hundred in there as not to close it?.
Cheers all.

You can pay £2880 in each tax year and £720 would be added to each contribution.  75% of the withdrawal is simply taxable income added to your other income for the year.  Withdrawals will be treated the same as any other pay so you need to understand how PAYE works to avoid paying tax and having to reclaim it.  A 7K SIPP withdrawal (£5.2K taxable), £4.9K LGPS & £10K+ interest takes you around £2K into paying tax

arthurdick

Thanks Molerat and Dealyboy.  I sort of understand now,  just wondering if in the new tax year my LGPS will be just £5000 and interest from savings will be much lower next year as we  plan to buy a property with the money,  would the £7000 withdrawal from a SIPP in that new tax year, still be taxable?, I think it would be  but would have to claim it back, as total income next tax year would be at a guess, £5300 LGPS, less than £4000 interest and £7000 SIPP withdrawal.  Cheers both for your help.

dealyboy

... I'll leave it for my friend ...