Paying £2880 into pension when retired

molerat

arthurdick said:

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.

  A £7000 SIPP withdrawal would be £5250 taxable + £5300 LGPS = £10550, well below your taxable allowance, leaving you room for up to £8020 tax free interest.

scoobydoo8

molerat said:

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.

The 'problem' I have is that it is over 5 years until I'm 55 so if I put in £2880 every year plus the £720, it would mean that there would be at least £18,000 not earning any interest until the day I can withdraw it. Which means that I would not be gaining that much from this, if I am understanding it correctly?

Dazed_and_C0nfused

scoobydoo8 said:

molerat said:

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.

The 'problem' I have is that it is over 5 years until I'm 55 so if I put in £2880 every year plus the £720, it would mean that there would be at least £18,000 not earning any interest until the day I can withdraw it. Which means that I would not be gaining that much from this, if I am understanding it correctly?

Well you've gained £3,600 in free money for a start.

You contributed £14,400 over 5 years but have a fund of £18,000.

A lot of SIPP's only seem to pay small amounts of interest but there are other very low risk options which don't involved trading in shares or equity funds.

scoobydoo8

Dazed_and_C0nfused said:

scoobydoo8 said:

molerat said:

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.

The 'problem' I have is that it is over 5 years until I'm 55 so if I put in £2880 every year plus the £720, it would mean that there would be at least £18,000 not earning any interest until the day I can withdraw it. Which means that I would not be gaining that much from this, if I am understanding it correctly?

Well you've gained £3,600 in free money for a start.

You contributed £14,400 over 5 years but have a fund of £18,000.

A lot of SIPP's only seem to pay small amounts of interest but there are other very low risk options which don't involved trading in shares or equity funds.

I wasn't aware they pay interest on cash on SIPPs and according to this, https://www.hl.co.uk/charges-and-interest-rates  HL pays 3.45% for cash held in a SIPP which is not too bad but you say they pay small amounts, so maybe I am looking at the wrong document as 3.45% is more that I would have expected?

If this is the case then definitely worth doing as you don't lose out too much on interest but you also get the 25% tax back.

xylophone

The 'problem' I have is that it is over 5 years until I'm 55 so if I put in £2880 every year plus the £720, it would mean that there would be at least £18,000 not earning any interest until the day I can withdraw it. Which means that I would not be gaining that much from this, if I am understanding it correctly?

For each £2880 contributed £720 tax relief is added to your pot - this in itself is equivalent to an interest rate of 25%!

In addition, if you choose not to invest but to stay in cash, a small amount of interest could be added.

https://moneytothemasses.com/saving-for-your-future/investing/investment-platforms-paying-the-highest-interest-rate-on-cash

Dazed_and_C0nfused

scoobydoo8 said:

Dazed_and_C0nfused said:

scoobydoo8 said:

molerat said:

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.

The 'problem' I have is that it is over 5 years until I'm 55 so if I put in £2880 every year plus the £720, it would mean that there would be at least £18,000 not earning any interest until the day I can withdraw it. Which means that I would not be gaining that much from this, if I am understanding it correctly?

Well you've gained £3,600 in free money for a start.

You contributed £14,400 over 5 years but have a fund of £18,000.

A lot of SIPP's only seem to pay small amounts of interest but there are other very low risk options which don't involved trading in shares or equity funds.

I wasn't aware they pay interest on cash on SIPPs and according to this, https://www.hl.co.uk/charges-and-interest-rates  HL pays 3.45% for cash held in a SIPP which is not too bad but you say they pay small amounts, so maybe I am looking at the wrong document as 3.45% is more that I would have expected?

If this is the case then definitely worth doing as you don't lose out too much on interest but you also get the 25% tax back.

It's all relative I guess, plenty wouldn't normally go near an account currently paying 3.45% but coupled with the tax relief it's not too shabby a deal 😃.

I hadn't realised it was as much as that though, HL must have increased rates following the multitude of BoE rate increases.

Also, you're not getting anything "back" in the sense of it being related to tax paid.  Plenty of people contribute thousands each year and receive tax relief without paying any tax.

dealyboy

FYI https://www.ajbell.co.uk/charges-and-rates/interest-rates

scoobydoo8

Thanks guys. I will go for it.

Is HL still the best platform to use? And is the best time for me to start my SIPP is around late Feb/early March 2024 so that I make most of the higher interest rates and also have enough time for HMRC to add the tax relief before the next financial year. (I'm assuming you can only do this once per financial year?)

harz99

scoobydoo8 said:

Thanks guys. I will go for it.

Is HL still the best platform to use? And is the best time for me to start my SIPP is around late Feb/early March 2024 so that I make most of the higher interest rates and also have enough time for HMRC to add the tax relief before the next financial year. (I'm assuming you can only do this once per financial year?)

read this, I'm pretty sure HL have a chart on their site somewhere giving relevant dates...
https://www.hl.co.uk/help/sipp,-drawdown-and-annuity/sipp/tax-relief/how-is-tax-relief-reclaimed-on-my-sipp-contributions

molerat

As long a

harz99 said:

scoobydoo8 said:

Thanks guys. I will go for it.

Is HL still the best platform to use? And is the best time for me to start my SIPP is around late Feb/early March 2024 so that I make most of the higher interest rates and also have enough time for HMRC to add the tax relief before the next financial year. (I'm assuming you can only do this once per financial year?)

read this, I'm pretty sure HL have a chart on their site somewhere giving relevant dates...
https://www.hl.co.uk/help/sipp,-drawdown-and-annuity/sipp/tax-relief/how-is-tax-relief-reclaimed-on-my-sipp-contributions

As long as you pay in this financial year it doesn't matter when the tax is added back as it is the pay in date that counts.  If you want to withdraw the whole lot this FY you need to pay in before 5 Jan for the tax to be added on 21st Feb.  You could leave it to before 5th Feb but 21st March tax addition leaves it a bit tight as the application is postal.