Paying £2880 into pension when retired

ryath

My mum is aged 54, does not work (in receipt of ESA) and currently has approx £11k in a SIPP. If she contributes another £2880 in 19/20, when she is eligible at 55 could she withdraw it all tax-free? If so how much more could she contribute in future tax years until she is eligible to be taxed assuming the current taxation rules remain the same?

Dazed_and_confused

Is her ESA taxable and if so how much do you expect her to receive in the 2019:20 tax year?

I think people receiving taxing ESA get a P60 each year from the DWP so she may have one from last April/May which might be of use pending her receiving this years.

currently has approx £11k in a SIPP. If she contributes another £2880 in 19/20, when she is eligible at 55 could she withdraw it all tax-free?

No. She would have £14.6k (ignoring any potential investment gain/loss) so if she took it all then £3,650 would be tax free lump sum.

The remaining £10,950 would be taxable income. The tax due on this (if any) would depend on her other taxable income in the tax year -such as taxable ESA - and also whether she has applied for Marriage Allowance.

stephen0002002

TY for these thoughts.
Im contributing the 2880 into the sipp for wife each year
Shes thinking of withdrawing say 2-3K each year into a savings account.
And doing that while she still has no income (shes 63).

So that when you actually use that money in savings then you're not restricted to tax on income over say 11700 BR. In other words no tax restriction.

If she doesnt take some out of the sipp then the sipp will accumulate each year but when wife is 66+ she could only take out say approx 3k per year tax free so shes still under basic rate when shes on state pension.

Does that sound correct ?
Basically Im saying by withdrawing into a saving acct then this would not be tax restricted as income would be if left in the sipp will be.

Thank you.

Mnd

Basically that is what we will be doing, but depending on the size of the pot, she can draw out to fill her full tax allowance anyway. And if you are a basic rate tax payer, don't forget the marriage tax allowance could apply as well

MPN

My sister is 58 and self employed earning under her personal allowance at around £10K per annum. She will continue working for quite a few years possibly up to her state pension age of 67.

At the moment she currently has around £160K in a SIPP and continues to pay £2880 into this every year. However, is it worthwhile to continue to pay in £2880 each year if she intends to keep on working until SP age? I only ask because although she is investing in her pension she will have to pay tax on drawdown when she gets to SP age so is it not better to stop putting more into the pension now?

xylophone

she will have to pay tax on drawdown when she gets to SP age

This will depend on the Personal Allowance and how much she draws down.

Let's suppose she reached SPA next week and decided that she was giving up work.

Let's say her only income would be a full new state pension and drawdown from the SIPP.

With a state pension of under £7000 a year and a PA of £12800 she could choose to pay no tax at all.

She could choose to take the full PCLS, hold it in some form of savings and use it to supplement her drawdown.

She could choose to take the UFPLS route.

She could choose to defer her state pension for a few years....etc etc...

Ciprico

with a danger of adding another layer of complexity/saving, in the right situation if you pay your £2880 into a SIPP, government tops up to £3660, do this for a couple of years, being careful to keep the pension total under £10K, I understand you can remove the whole pot tax free, under the Government's "small lump sum" pension rule.

You can do this 3 times, so although maybe not in the spirit of pensions, you could gain tax relief on 30K, and get it all out tax free, and do the same for your partner

If I am wrong I am sure someone will let me know, I am not an expert...

drumtochty

Yes you are wrong.


Using the small pots rule only 25% of the pot is tax free. Now if the person has no income that year it is all tax free as it is under the personal allowance but there is no 100% tax free under the small pots rule.

westv

drumtochty wrote: »

Yes you are wrong.


Using the small pots rule only 25% of the pot is tax free. Now if the person has no income that year it is all tax free as it is under the personal allowance but there is no 100% tax free under the small pots rule.

Are you sure? That sounds no different to any other value pot.

AlanP_2

westv wrote: »

Are you sure? That sounds no different to any other value pot.

Difference is it does not trigger MPAA if done under Small Pot rules.