Am I reading this right?

gsh5112

Hi
My partner works at Next and earns around £8000 pa. She turned 55 this month and has no plans to retire just yet. Limited savings and no private pension.
From reading the thread, am I right in thinking she can open a SIPP with someone like HL; pay in £2880; wait a couple of months for HMRC to top this up by £720; she can then withdraw 25% and draw the balance over the remaining months.
Just a couple of quick questions…. Being a non-taxpayer, could she withdraw the whole amount (or the difference between her wage and £11,500 tax allowance)? can she open one SIPP before April 6th 2018 and another after? Finally, would it be better paying in the £2880 every year and withdrawing it all when she retires. I think I’ve read that if your pension pot is small you can withdraw it all..??
Thanks in advance.

Mnd

No, she can pay in relevant earnings
So, 8000 gross. 6400 net made up to 8 by the tax relief
Minus any contribution to other pension Inc work or auto enrolment

Mnd

If I'm correct (somebody will put us right if not)
8000 relevant earnings gives net figure of 6400
She can then take out 2000 tax free and up to her tax allowance ( roughly 3500) and still no tax to pay, this needs to be in a drawdown account .just go careful that she won't be restricting herself to 4000 pa in the future if she takes more than the tax free lump sum (this may not be an issue)
Repeat next year.
Hurry though, this year's needs to be done before April 5th and it does take a while.
Phone hl, they are really helpful
I think what I've said is correct, apologies for any thing wrong.I'm no expert.
Someone will correct me if I'm wrong

Mnd

On a different thought, why take it out. You could use this as a base for her retirement .

HappyHarry

Mnd wrote: »

If I'm correct (somebody will put us right if not)
8000 relevant earnings gives net figure of 6400
She can then take out 2000 tax free and up to her tax allowance ( roughly 3500) and still no tax to pay, this needs to be in a drawdown account .just go careful that she won't be restricting herself to 4000 pa in the future if she takes more than the tax free lump sum (this may not be an issue)
Repeat next year.
Hurry though, this year's needs to be done before April 5th and it does take a while.
Phone hl, they are really helpful
I think what I've said is correct, apologies for any thing wrong.I'm no expert.
Someone will correct me if I'm wrong

Just to clarify, she can take the 25% tax-free lump sum out (£2,000 in this case), but if she withdraws anymore than that, then she will be reduced to a maximum gross contribution of £4,00 per year for ever more.

Mnd

Thank you happy Harry, that's the bit I wasn't sure about.

Going back to the original post, is your partner in an auto enrolment or other pension fund at the moment.
It may be worth not opening a new fund, just pay additional contributions to her work scheme

Dazed_and_confused

But if it's an auto enrollment scheme is she guaranteed to get the tax relief?

If she pays extra from her pre tax salary yes that reduces her taxable salary but as she's not a taxpayer there is effectively no tax relief.

Mnd

Yep, even a non tax payer gets 25% added to their contributions
Free money to encourage saving into a pension

gsh5112

Hi all,
Thanks for your prompt replies.
I think I might have confused things with the £8000 figure.... this is her annual wage from NEXT. I put it in to explain she was a low wage earner and not using her full tax allowance. To answer a couple of the points raised; she very rarely pays into the auto enrolment pension (only when her monthly pay includes a lot of overtime and even then its only a few pounds deducted); she has a couple of thousand pounds in savings; i thought she may be able to boost this by the £720 per year by using the above method; i did think if she did the above for example 5 years... she would have paid in £14,400 (5 x £2880), received £3600 (5 x £720) and after the 5 years be able to withdraw £18,000 as a 'small pot' Hope this clarifies things and apologies again.

Dazed_and_confused

Yep, even a non tax payer gets 25% added to their contributions

Not according to the pensions regulator (when its auto enrolment) and they should know!

http://www.thepensionsregulator.gov.uk/trustees/tax-relief-communications-to-members.aspx#s21134

Dazed_and_confused

gsh5112

She can get the tax relief through a personal pension or SIPP but possibly not if she bumped up her auto enrolment contributions (see previous post).

I don't understand the thinking behind taking the £18,000 as a small pot though?

£4,500 would be TFLS so that leaves £13,500 taxable income all in one year, based on her current salary she would end up paying £1k -£2k in tax.

Why is there a need to take it all in one go?