Is this correct?

russetred

A quick scenario to check I have this right.

I open a VM stakeholder pension and deposit £2900( because thats what I've got as spare cash). I am over 55 and I'm working as BR tax payer so tax man adds £725 maybe end of April and my total is now £3625.

I withdraw £3620 cash as soon as my total goes up.My earnings are only £6600 so I can withdraw £3620.£905 tax free + £2715 as leftover PA.

I now deposit £3620 for my new tax year and tax man gives me £905 maybe end of July and my total is now £4525. My earnings are only £6600 so I can now withdraw £1130 tax free + £2185 as leftover PA.

My pension has £1210 left in it.

I struggle with maths so i would be grateful if someone could check my figures and tell me if I went wrong anywhere. Many thanks.

PensionTech

You're essentially right that there is a loophole that allows you to get a limited amount of free cash from the taxman every year. But the government plans to narrow this loophole with effect from April 2017 by reducing the Money Purchase Annual Allowance (the amount of pension contributions you can get tax relief on after using one of the new "freedoms" e.g. taking all your pension as a lump sum). This would effectively limit your contribution in the tax year 2017/18 to £3200 (grossed up to £4k by the tax relief).

You could actually get around this by asking your scheme to pay out your first payment (it would have to be the full £3625) as a small lump sum under regulation 11A of the Authorised Payment Regulations. That would not trigger the Money Purchase Annual Allowance so you could technically put in up to £32k grossed up to £40k afterwards, if your earnings allowed it. But as your earnings don't allow you to put in anywhere near that much, you might decide the limited benefit is not worth the hassle.

I'm a bit confused by your PA figures though - you seem to be saying that your 16/17 PA is £9315 and your 17/18 PA is £8785?

Linton

You went wrong in the implementation details, not the maths:

You cant do this with a VM stakeholder as your scheme requires a facility known as UFPLS drawdown where you get separate tax free lump sums for each amount drawn down. VM stakeholders dont support any form of drawdown.

russetred

Pension tech I was meaning that I could withdraw the full £3620 because I was well under My PA of £11500 in April this year but If I went to withdraw any more in July I would only have £2185 left ie My earnings of £6600 + £2175 + £2185 I think that takes me to the PA limit?

I need a Virgin Money SIPP I thought that was their stakeholder pension. Crikey what is it I'm supposed to open?

Linton

russetred wrote: »

Pension tech I was meaning that I could withdraw the full £3620 because I was well under My PA of £11500 in April this year but If I went to withdraw any more in July I would only have £2185 left ie My earnings of £6600 + £2175 + £2185 I think that takes me to the PA limit?

I need a Virgin Money SIPP I thought that was their stakeholder pension. Crikey what is it I'm supposed to open?

A SIPP is a Self Invested Personal Pension and is very different to a Stakeholder. It provides online access to buy and sell an enormous range of investments with the pension and can be expected to support drawdown and UFPLS. There will be charges, though I believe the VM SIPP is one of the cheapest for doing what you want to do.

jamesd

No problem to take money out the Virgin Money stakeholder pension. From age 55 they offer UFPLS. Their normal product now is simply a personal pension, not stakeholder, and also offers UFPLS. Neither offers flexible drawdown. If you use UFPLS with them you must take the whole pot at the same time. Or you can transfer somewhere else instead to get more options.

Since you don't want to take the whole pot at one time I suggest that you consider Hargreaves Lansdown or some other provider instead. Ensure that you don't empty and close the HL account in the first year, there's a large charge if you do. There's no charge for taking money out at HL. They do charge a percentage of money that you invest but you can just use cash for the time you're considering.

Why do you need a Self Invested Personal Pension (SIPP) instead of simply a personal pension? Virgin Money don't offer a SIPP. SIPPs have more investment choices than straight personal pensions, no substantial differences in the other features that they can offer.

russetred

I can't seem to find any information on the Virgin money website for SIPP.
I wonder if it is no longer available.

jamesd

They have never offered a SIPP.

Asghar

The Virgin Money personal pension is still classed as a stakeholder pension and as someone stated they only allow one option when accessing your pension, that is to withdraw the whole amount with the first 25% tax free.

Acquinas

"The Virgin Money personal pension is still classed as a stakeholder pension and as someone stated they only allow one option when accessing your pension, that is to withdraw the whole amount with the first 25% tax free".

Is that right? If so I need to do some re-evaluation PDQ. I set up the VM Stakeholder Account in October 2016 and have been paying in minimal payments of £50 just to get the account activated. The plan was to stash in £10k in March and then to drip feed £500 a month in 2017/18. I realised when I took it out that there was no annuity option, but I had not twigged that I would be tied into one, single withdrawal. I chose the SP because I don't have the time/application/intelligence to run a SIPP. But is there an alternative low-cost SP/PP wrapper that anyone would recommend instead? I'll be paying 40% tax next year so the prospect of being taxed on all but the first 25% is a bit off-putting.

Asghar

Sorry, should have made that clearer. The thread started as someone wanting to deposit money into the stakeholder pension, waiting for the tax relief, withdrawing most of the total savings and then depositing more money in the new tax year.

If you want to access the cash in the Virgin Money stakeholder pension then you have to take the whole lot in one go.

However if you want more flexibility like withdrawing smaller lump sums, income drawdown, annuity etc, then you can just transfer the pension savings to another provider that allows you to do this. The transfer is free of charge.

Stakeholder pensions in general are great for people investing small amounts each month (minimum is only £20 gross) and you can stop and start payments whenever you want. If you want to invest larger monthly amounts, like £100 plus then you may want to look at a normal personal pension or a self invested SIPP which have lower annual charges.