Paying £2880 into pension when retired

SVaz

Instead of keeping it in cash and getting 3.5%,  buy into a short term money market fund and get 5%+,  interest rates don’t look to fall below 4% any time soon.  

It would be better to front load it yearly with £2880,  do it now AND in April and you benefit even more.  

Linton

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

It is as worth doing prior to 55/57 as it is after. Your £2880 is raised to £3600 by HMRC even though you are not a tax payer. Then if invested sensibly it could usefully rise in value until you can access it at 57.  Of course when you withdraw the money you could be liable to income tax but you do get 25% of the total tax free.

scoobydoo8

SVaz said:

Instead of keeping it in cash and getting 3.5%,  buy into a short term money market fund and get 5%+,  interest rates don’t look to fall below 4% any time soon.  

It would be better to front load it yearly with £2880,  do it now AND in April and you benefit even more.  

Interesting idea, but wouldn't buying a money market fund incur charges both on initially buying the fund then the ongoing fund management charges? Would that wipe out the increase in interest rate from buying a fund rather than leaving it as cash as holding cash in HL in a SIPP is free?

slacko2

Hi

I am due an inheritance some of which will land in my account before the 1st of April. We are at the closing of 2023/24 tax year so I am a little unsure what to do.

My only income come 1st April will be PIP which them makes my personal tax allowance for a year £12,570 (18570) I believe. Other moneys will go into savings accounts but interest will be below 5000 I think.

As I read it I am allowed to invest £2880 and the govt then add £720 to this figure totalling £3600 per tax year.  This £2880 should go into a cash sipp.

When the full £3600 is totalled in my sipp I can withdraw it BUT I should leave £1000 in to avoid closure charges.

Do I need a new Sipp every year like an isa or do I run with the one I open ?

If I have just the one do I simply put in another £2880 with the £1000 I have left behind year after year withdrawing the £3600 when it is available

Assuming I put in £2880 before end of 23/24 and another beginning 24/25 can you help me with how that might play out please

I am only a little way into this thread so will return I am sure.

Thank you

MallyGirl

A SIPP would continue- you just keep paying in to the same one each year. The amount you need to leave in will depend on the provider- their requirements will be different 

xylophone

BUT I should leave £1000 in to avoid closure charges.

You need to look at the terms and conditions of the SIPP you have in mind.

See

https://forums.moneysavingexpert.com/discussion/comment/80677598/#Comment_80677598

xylophone

Let's go with the example of the HL SIPP.

Suppose you opened it in this tax year and paid in £2880.  The provider will claim the tax relief and add it to the pot. This can be up to six weeks later.

You could then add another £2880 in the new tax year and wait for the tax relief to be added.

There is then £7200 in the pot.

You can apply to access the whole (or perhaps leave a small amount in as appropriate).

25% of what you take out is tax free, the balance counts as income in the tax year you take it out.

You would probably find that tax had been deducted BUT as your income would be so far below your taxable income, you would apply to HMRC to have the tax refunded.

See

https://www.which.co.uk/news/article/overpaid-pension-tax-are-you-owed-a-refund-aXVx03e59qLY

In the end, you will receive back what you paid in plus a nice little gift from the government!

harz99

xylophone said:

Let's go with the example of the HL SIPP.

Suppose you opened it in this tax year and paid in £2880.  The provider will claim the tax relief and add it to the pot. This can be up to six weeks later.

You could then add another £2880 in the new tax year and wait for the tax relief to be added.

There is then £7200 in the pot.

You can apply to access the whole (or perhaps leave a small amount in as appropriate).

25% of what you take out is tax free, the balance counts as income in the tax year you take it out.

You would probably find that tax had been deducted BUT as your income would be so far below your taxable income, you would apply to HMRC to have the tax refunded.

See

https://www.which.co.uk/news/article/overpaid-pension-tax-are-you-owed-a-refund-aXVx03e59qLY

In the end, you will receive back what you paid in plus a nice little gift from the government!

Or if you don't want to faff about reclaiming tax from HMRC just set it up via drawdown to repay you a monthly sum at a rate that won't attract tax until it is cleared.

poseidon1

scoobydoo8 said:

SVaz said:

Instead of keeping it in cash and getting 3.5%,  buy into a short term money market fund and get 5%+,  interest rates don’t look to fall below 4% any time soon.  

It would be better to front load it yearly with £2880,  do it now AND in April and you benefit even more.  

Interesting idea, but wouldn't buying a money market fund incur charges both on initially buying the fund then the ongoing fund management charges? Would that wipe out the increase in interest rate from buying a fund rather than leaving it as cash as holding cash in HL in a SIPP is free?

Can confirm that on a couple of recent money market fund investments i made the increase in HL fees noticeably erodes the 5% nominal yield, will therefore be dumping them as soon as the 1st quarterly divs are received. Holding funds in HL is a bit of a mug's game if low risk income is your preference. 
Funds make far more sense with the Interactive Investors platform and their fixed fees irrespective of portfolio size. 

FIREmenow

poseidon1 said:

scoobydoo8 said:

SVaz said:

Instead of keeping it in cash and getting 3.5%,  buy into a short term money market fund and get 5%+,  interest rates don’t look to fall below 4% any time soon.  

It would be better to front load it yearly with £2880,  do it now AND in April and you benefit even more.  

Interesting idea, but wouldn't buying a money market fund incur charges both on initially buying the fund then the ongoing fund management charges? Would that wipe out the increase in interest rate from buying a fund rather than leaving it as cash as holding cash in HL in a SIPP is free?

Can confirm that on a couple of recent money market fund investments i made the increase in HL fees noticeably erodes the 5% nominal yield, will therefore be dumping them as soon as the 1st quarterly divs are received. Holding funds in HL is a bit of a mug's game if low risk income is your preference. 
Funds make far more sense with the Interactive Investors platform and their fixed fees irrespective of portfolio size. 

HL tends to be recommended on this thread as most people want to hold cash and then withdraw most of it asap, which is fee-free.

Vanguard has announced they are also no longer charging fees on cash held in any accounts on the vanguard platform, so unless they have a very large pot, someone who wants fee-free cash and to invest in MMFs would now probably be better off at Vanguard than HL - platform fee is 0.15% versus 0.45%.

Vanguard would also probably be better than ii up to about a £100k pot if happy with Vanguard's offering.

Might vary depending on total assets held across all accounts on a platform.