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Paying £2880 into pension when retired

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  • edited 22 November 2017 at 10:44AM
    xylophonexylophone Forumite
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    edited 22 November 2017 at 10:44AM
    Let's assume that your wife's only income in this tax year is her state pension of £6984. Her PA is £11,500.

    She wants to commence drawdown of the £10,800 in the SIPP.

    As I understand it (but check with HL):

    She can take her PCLS of 25% tax free. That will be £2,700.

    She can then take £4606 as an income payment - HL will deduct tax but she can reclaim this from HMRC as she is within the PA of £11,500.

    She will contact HL to say that she wishes to make a contribution of £2880 for the tax year 2018-19.

    It seems likely that the PA for 18/19 will be £12,000.

    Your wife's SP will be uprated in April.

    HL will open what you might call "new Sipp" and will claim the tax refund from HMRC.

    Your wife will be able to take a 25% PCLS from "new SIPP" - anything drawn over that amount will be taxed as income.

    She might choose to draw down the balance of "old SIPP" before taking any income from "new SIPP".

    She can proceed in a similar way up to age 75.
  • cogitocogito Forumite
    4.9K posts
    Question re recycling rules. I have state pension and defined benefit pension which pay me just under the £11500 limit. I have a SIPP but am not taking income from it.

    My wife has a SIPP and is drawing £11500 per annum plus 25% of that as tax free cash. My wife is 57 and I am concerned that her pot will be depleted in about 12-15 years.

    Am I in order in taking £3600 from my SIPP, pay tax on it and then give my wife £2880 to pay into her SIPP? I believe that she would have to declare the source of the money.
  • xylophonexylophone Forumite
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    Why should your wife have to declare the source of the money and even if she did "gift from spouse" should be quite acceptable.

    There is no reason why you should not make a cash gift to your spouse for her to use as she wishes.

    You could take your tax free PCLS (or have you done this already?) and gift that to your wife - you might wish to draw down taxable income from your SIPP and gift that to your wife.

    I do not see any problem with recycling?
  • ermineermine Forumite
    752 posts
    Tenth Anniversary 500 Posts
    cogito wrote: »
    I believe that she would have to declare the source of the money.

    Why? She hasn't earned it, either through selling her time for money or as a return on financial assets, it is a gift, so not income. Since you are her spouse she isn't even liable to IHT if you die within seven years of making the gift, so knock yourself out.
  • cogitocogito Forumite
    4.9K posts
    She had an endowment which matured a couple of years ago and made a payment into her SIPP at that point. She had to make a declaration as to the source of the money. Recycling rules were given as the reason as she had taken some tax free cash a few weeks earlier.
  • Jakey30$ wrote: »
    Hi, I seem to have gotten somewhat confused as to how these sipp's work. My wife is now 65 with only a state pension (retired at 62) as income £6984 pa. I opened up a H&L sipp in Feb 2016 and have now added 3 x £2880 the cash balance (including the tax rebate) is now £10,800. My confusion arises as some months ago I spoke to H&L about withdrawing some funds without putting the wife into a tax paying position i.e. above her tax free income but still putting in the £2880 every year until she is 75
    As I understood it, once we start to draw from this sipp it goes into "drawdown" and no more deposits into the account can be made? Rather a new sipp would have to be opened. Have I got this correct? Can anyone suggest the best way to retain the yearly £2880 investment by myself and draw funds also whilst taking advantage of the tax rebates. Thankyou

    You have misunderstood or been misinformed!
    We are currently doing exactly what you seem to want, for my partner, also with HL.
    Speak to them about a UFPLS. This is a withdrawal from a SIPP where 25% is tax-free and £75% is taxed.
    Your wife has about £4500 of her personal allowance unused.
    She can take a UFPLS of £6000 from HL at no admin cost!
    HL will tax the 75% (£4500), but you can reclaim this from HMRC.
    You do not have to open a new SIPP and you can continue to contribute the £2880 a year into the same SIPP.
    Adjust the numbers slightly each year, to keep within the PA and keep a minimum of £1000 in the SIPP so HL's admin don't close it!
  • xylophonexylophone Forumite
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    It seems likely that the PA for 18/19 will be £12,000.

    I see that the Chancellor has announced £11,850.

    With regard to Jerben's post, that is a UFPLS arrangement - i described flexible drawdown.
  • Jakey30$Jakey30$ Forumite
    4 posts
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    It does appear from what you explain to be just what we are looking for, I will speak with H&L again to clarify and possibly put into practise although we are not desperate for the money at this stage as I am still working. Thanks to all for your advice
  • edited 24 November 2017 at 2:57PM
    badmemorybadmemory Forumite
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    edited 24 November 2017 at 2:57PM
    If there is surplus money lying around at the moment why not use some of it to finance your wife's deferral of her state pension. If her SPA was before April 2016 then that would add 10.4% pa to her state pension (or 0.2% weekly).

    The more even the spread of income in retirement the better (lower) the tax paid but also the better the outcome for the lower income partner should their (better off) partner die first. On the really gloomy side the more even each share the better off the one who doesn't need to be in a care home would possibly be.
  • Jakey30$Jakey30$ Forumite
    4 posts
    Third Anniversary
    MoneySaving Newbie
    Hi All,
    We have now had an illustration from H&L re my wife's SIPP based on taking a one off UFPLS payment of £7570 from the £10800 however as previously mentioned my intention was to carry on contributing the £2880 p.a. up to her 75th birthday and benefitting from the tax rebate but there is a paragraph on the illustration which I am not clear as to the meaning of "By taking a lump sum from your SIPP you will have flexibly accessed pension benefits. This means future contributions to all money purchase pensions will be limited to an annual allowance of £4000" can anyone explain what this means? does it affect anything?
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