Paying £2880 into pension when retired

DeepSporran

jerrysimon wrote: »

I put in the £2880 last march 2nd 2018 for my wife who does not pay tax and its now at £3600 with tax added.

I assume I can draw it all out after 2/3/19 without penalty payment i.e. you need to leave it in for 12 months ?


I am aware she will be taxed on it when I draw it out but that is easily reclaimed.


I will then open another one for her for 2019/20 and do the same thing, i.e. rinse repeat

If you take it all out after March 2 2019 then (assuming we're talking about HL) the account may get closed, but the fee for closure will be £25 +VAT rather than the punitive £295 + VAT if you'd closed it in the first year. The suggested way round this is to only take out £2600 as early as you can (no need to wait 12 months), leaving £1000 in the account to prevent HL closing it.


Then you can subscribe with a further £2880 into the same account in the next year, and this time you can take out the full £3600 as soon as you can - the leftover £1000 from the previous year will still be there to keep the account open.

vixen1500

jerrysimon wrote: »

I dont think you can add the two figures together as my wife also earns £2500 but I can only put in the £2880 so in your case I dont think you could put in the total of £3000 + £2880 and get tax back on £5880.


Of course if I am wrong someone will correct me I am sure.

On looking into this further it appears you can only pay in extra if you were already in a pension - so that rules me out

zagfles

vixen1500 wrote: »

On looking into this further it appears you can only pay in extra if you were already in a pension - so that rules me out

In any case it would appear you are looking at the annual allowance rules - low earners are not restricted by the annual allowance, they are restricted by the 100% of earnings/£3600 rule which has no carry forwards.

bioboybill

My wife opened a SIPP with HL on 30/1/19 and added the £2880 and kept as cash to get the £720 tax relief, which the account states will be added on 21st March. She only has around £9300 a year income from a DC pension, so wants to withdraw £2600. This would presumably be £650 as a TFLS and the rest of the amount would be within her personal tax allowance. I messaged HL on her behalf asking if she could be paid the £2600 on 28th March after the tax relief has been added and asked if it would all be paid tax free or whether she would have to pay tax and claim back from HMRC. I expected them to say they would send out a form to be completed as per advice I had seen on here. I assume she needs to get the money out before April 6th to be counted as this tax year's income?

Their reply has me more confused than anything. Why does she need to complete a risk assessment before they can carry out her wishes? She is clearly not investing the money, but taking the £720 tax relief. Why are they talking about April and monthly income? She wants the money in one go in March.:

Thank you for your email.

You are right, you can take an Uncrystallised Fund Pension Lump Sum (UFPLS) once your tax relief is received. Furthermore, the minimum balance to leave the account open is £1,000.

Taking an UFPLS, there is a formal procedure to follow. I have ran your personal UFPLS illustration and this will be with you in the coming working days. With the illustration comes a set of risk questions that will need to be completed also. Once you are in receipt please complete them and return to our address below. Alternatively, give us a call and we can run through the risk questions over the telephone and then email or post the necessary application form.

As this is your first income withdrawal and we do not hold a tax code on record, we will apply an emergency tax code. Emergency Month 1 means the individual is assumed to be receiving that lump sum, or income amount, in April and will then receive the same amount for each of the next eleven months of the tax year, and is taxed on that sum accordingly.

In practice this would usually mean one twelfth of the standard personal allowance is available tax free, one twelfth of the standard basic and higher rate bands then apply and the remainder is taxed at the additional tax rate of 45%. Note there can be other factors (such as the effective reclaim of the personal allowance for deemed annual payments above the ‘income limit for personal allowance’ threshold) which can complicate matters further.

The result of an emergency month 1 tax code will mean there is a high likelihood of individuals – especially non-taxpayers or basic rate taxpayers – significantly overpaying tax initially. Unfortunately this is not something Hargreaves Lansdown, or other pension providers, have any control over. Any over (or under) payment of tax should be settled with HMRC directly.

What you do with your pension is an important decision. Therefore, we strongly recommend you understand your options and check your chosen option is suitable for your individual circumstances: take appropriate advice or guidance if you are at all unsure.

Pension Wise, the Government's pension guidance service, provides a free impartial service to help you understand your options at retirement. It's available at https://www.pensionwise.gov.uk, by calling 0800 138 3944 or face to face.

I hope this has been of assistance. If you have any further queries, please do not hesitate to contact our Pensions Helpdesk on 0117 980 9926. Our telephone lines are open 8am-7pm, Monday-Friday (6pm Friday) and 9.30am-12.30pm on Saturday.

Kind regards

Alex Ormerod
Pensions Helpdesk Consultant
Hargreaves Lansdown
One College Square South | Anchor Road | Bristol | BS1 5HL


I hope you find the information provided in this email helpful, however please note it should not be construed as personal advice

xylophone

If she has £3660 in the account,she can take 25% of it as a tax free lump sum.


Although to you and many others the "£2880 into pension" is merely a money saving exercise, HL are compelled to treat accessing the pension in the same way as they would if you were commencing drawdown of your life pension savings.

They will do this each time, illustration, acceptance, PCLS etc.

They are also pointing out that because of the "month one' tax, a person might well overpay (or indeed underpay) tax and will have to apply for a refund from HMRC /advise HMRC as appropriate.

caveman38

If all you want to do is take the 25% tax free money from ones SIPP and not draw any income yet. Do you still need to fill in forms with HL and won't that money be paid without worrying about reclaiming tax.

Dazed_and_confused

She only has around £9300 a year income from a DC pension, so wants to withdraw £2600. This would presumably be £650 as a TFLS and the rest of the amount would be within her personal tax allowance. I messaged HL on her behalf asking if she could be paid the £2600 on 28th March after the tax relief has been added and asked if it would all be paid tax free or whether she would have to pay tax and claim back from HMRC. I expected them to say they would send out a form to be completed as per advice I had seen on here. I assume she needs to get the money out before April 6th to be counted as this tax year's income?

If she is opting for 25% TFLS then she would have total income of £11,250. This will be within her Personal Allowance providing she hasn't applied for Marriage Allowance but if she has she will ultimately have a tax liability of £118.

If she is taking £1,950 as a taxable first payment then she the pension provider will deduct £192 tax. So she will be able to get either all £192 back or just £74 if she has applied for Marriage Allowance.

This all assumes she doesn't have any other income you haven't so far mentioned and that she isn't Scottish resident for tax purposes in the current tax year.

Dazed_and_confused

If all you want to do is take the 25% tax free money from ones SIPP and not draw any income yet. Do you still need to fill in forms with HL and won't that money be paid without worrying about reclaiming tax.

No idea about the forms but pretty sure HL would start losing clients pretty quickly if they started deducting tax from the TFLS!!

busybee100

Hi
I'm aiming to build three small pots. I've got one with HL so where is the next best for cash please?

cloud_dog

busybee100 wrote: »

Hi
I'm aiming to build three small pots. I've got one with HL so where is the next best for cash please?

I'm unsure what you mean?

Do you mean 3 small pension/SIPP pots of money? If so, why? What are you trying to achieve?