Paying £2880 into pension when retired

bowlhead99

crocs wrote: »

Six years ago I retired early on a workplace pension of £45,000 pa.

I now earn between £2200 - £3000 each year in a low wage part time job, which is PAYE, so taxed at 40%.

What's being discussed on the thread is the fact that [if you have not already gone over the lifetime allowance and are under 75] you can pay in £3600 gross into a pension scheme every year even if your earned income is less than that. If you make pension contributions via your job, you would need to deduct the gross amount of those (ignoring employer's contriubtions) from the £3600, so that you didn't go over the £3600 total for the year, as that is the hard limit for people with lower earnings than that.

If you had a bumper year at your part time job and earned £4000 or £5000 instead of £3000, then for that year you could make £4000 or £5000 gross contributions instead of the £3600.

In order to make a gross contribution of £3600 to a SIPP you simply contribute £2880 in cash from your savings and the provider grosses it up to £3600 for basic rate tax.

However as a higher rate taxpayer, simply getting you that basic rate gross-up of £720 is not your full entitlement, because you are payeing 40% tax on the work income all of which you have actually paid into a pension. So to ensure you don't miss out you would tell HMRC at the end of the year that £3600 contributions had been made and they would extend your basic rate band accordingly to ensure you pay the right amount of tax.

jamesd

matty17r wrote: »

This was a bad move but hindsight is a wonderful thing. Initially I thought I would be unable to open a sipp as this would be considered as recycling. I am now 59 and will also receive a small LGPS pension in May next year so can I also open a sipp. Any advice would be very much appreciated.

There are no rules preventing the recycling of pension income. There are no rules preventing the recycling of the 25% tax free portion of a UFPLS withdrawal because that 25% isn't a PCLS and the lump sum recycling rules only cover recycling of PCLS money. For a PCLS the minimum threshold for even possible recycling restrictions only happens when at least £7,500 of PCLS has been taken in a rolling twelve month period.

At the sorts of levels considered in this topic it's fine to do things like borrowing and repaying with the lump sum money because the £7,500 won't be exceeded except possibly by those just retiring or taking out more lump sum than you can get in one year from paying in 2880.

crocs

Thank you Bowlhead - the info is much appreciated. Enjoy your day.

matty17r

jamesd wrote: »

There are no rules preventing the recycling of pension income. There are no rules preventing the recycling of the 25% tax free portion of a UFPLS withdrawal because that 25% isn't a PCLS and the lump sum recycling rules only cover recycling of PCLS money. For a PCLS the minimum threshold for even possible recycling restrictions only happens when at least £7,500 of PCLS has been taken in a rolling twelve month period.

At the sorts of levels considered in this topic it's fine to do things like borrowing and repaying with the lump sum money because the £7,500 won't be exceeded except possibly by those just retiring or taking out more lump sum than you can get in one year from paying in 2880.

Thanks jamesd for this information. It did take me several reads before I have understood it though!
DH has stakeholder pension which he intends to add 2800 to be grossed up to £3600 next week. Can he then transfer to a HL cash sipp (standard life dont do drawdown) late feb/march, take his tax free lump sum the remainder from his personal allowance and then take the remainder keeping up his PA until his state pension kicks in? Thank you so much everyone for all your help. I feel I am very moneysaving but find pensions very daunting especially with the last budget reforms but also very helpful to myself and DH

The_Book-keeper

juju17 wrote: »

Thanks to all posters for all the info and clarification, I have now got it!
DH and I both opened our sipps yesterday, very easy.
matty just go for it !

Hi
did you do it with HL? An earlier post suggested that you needed to leave around £1k in it, but I've not been able to find anything to confirm this- do you know if there is a minimum you have to leave in to avoid charges? TIA

nxdmsandkaskdjaqd

The_Book-keeper wrote: »

Hi
did you do it with HL? An earlier post suggested that you needed to leave around £1k in it, but I've not been able to find anything to confirm this- do you know if there is a minimum you have to leave in to avoid charges? TIA

I spoke to HL about this and they confirmed that £1000 approx was required to keep the account active.

juju17

The_Book-keeper wrote: »

Hi
did you do it with HL? An earlier post suggested that you needed to leave around £1k in it, but I've not been able to find anything to confirm this- do you know if there is a minimum you have to leave in to avoid charges? TIA

Yes it was with HL. It will work well for me this year to leave £1000 in the account, due to PA limits. Next year £2880 in, £3600 out.....original £1000 can stay sat there.

AlwaysLearnin

Section E1 of the Vantage Service Terms & Conditions makes reference to a £1k 'minimum'


http://www.hl.co.uk/terms-and-conditions

borders

Quick question while we are on the topic. My wifes birthday is the 6th April. Could she make a 'yearly' payment either side of her 55th birthday, in two different tax years, and effectively double her pot in weeks. Is there anything to stop this?

missile

Nothing to stop you doing that.