SIPP allowance question

sketching83

Dear All,

I am writing to ask for some general advice on setting up a SIPP for my mother, and what her annual allowance would be.

She is 64 years old and currently working full time (self-employed), earning approximately £70k per year.

She has an NHS pension (about 9 years service) for which she received a lump sum, and is currently receiving approximately £12,000 per year. She is eligible for a full state pension. She is currently not contributing to any pension schemes.

She is planning to keep working until she is about 70 and would like to save up some further money for retirement, possibly via a SIPP.

I am wondering if anyone is able to clarify roughly what her 'ANNUAL ALLOWANCE' would be? i.e. how much can she could put in to a SIPP annually? I understand that her NHS pension means this may be reduced, but it is not clear to me by how much.

Any general advice on this matter would be greatly appreciated, before we consultant a tax professional.

Many thanks in advance

NoMore

I believe it will be 40k as the NHS is a defined benefit scheme so drawing it doesn't affect the annual allowance.

Somebody will be along shortly to confirm or deny

kidmugsy

I understand that taking the NHS pension has no effect on her annual allowance. So for 18/19 she can contribute £40k gross as long as she earns £40k or more. Or perhaps she'd like to contribute rather less e.g. just enough to reduce herself to the 20% tax band: that would probably be attractive unless she has an eye to reducing Inheritance Tax liabilities on her estate.

If she wants to contribute more than £40k then she'd need to carry forward unused annual allowance from the past, starting with 15/16, then 16/17, and lastly 17/18. There may be two complications. The minor one is that 15/16 was an atypical year involving a transition in the calculation. The potentially major one is that there could be an interaction with the growth of value of her NHS pension rights. We therefore need to know when such growth stopped i.e. we need to know when she drew her NHS pension.

I'm assuming that there are no LTA problems i.e. that she doesn't already have a huge money-purchase pension. I'm also assuming that she has not flexibly drawndown any money (excepting a tax-free lump sum) from a money purchase pension already.

Terry_Towelling

Slightly off topic here and I'm not that au fait with all the pension rules (despite drawing a DB one at the moment) but it occurs to me that there are a lot of ifs, ands, buts and pitfalls to do with pensions and pension planning, yet we are all being encouraged by the Government to take this aspect of our lives into our own hands and sort it out ourselves.

There must be many, many people out there who are ill-equipped to do this and turned off by its seeming complexity. Some may think it is simple and that there are plenty of resources available for study but I'm not convinced most people will want to do that. Surely it needs to be made still more straightforward - one side of A4 simple.

dunstonh

Taking the benefits of a DB scheme does not prevent the use of carry forward. (i.e. its not just active and deferred members but also pensioner members that count for existing pension). Some online guides incorrectly state that position.

Also, it is not a SIPP allowance. It is an annual pension allowance.

Slightly off topic here and I'm not that au fait with all the pension rules (despite drawing a DB one at the moment) but it occurs to me that there are a lot of ifs, ands, buts and pitfalls to do with pensions and pension planning, yet we are all being encouraged by the Government to take this aspect of our lives into our own hands and sort it out ourselves.

Govt position is much the same as it has been for a long time and the same as most other areas. You can DIY or use a professional. in this case, an IFA would be the professional.

There must be many, many people out there who are ill-equipped to do this and turned off by its seeming complexity.

Is that not the same as most areas in life?

Surely it needs to be made still more straightforward - one side of A4 simple.

impossible. Too many legacy issues and the tax costs to the treasury too great. They tried it in 2006 with A day.

sketching83

Dear All,

thank you so much for the quick replies! I'm astonished at the expertise here.

Terry_Towelling

sketching83 wrote: »

Dear All,

thank you so much for the quick replies! I'm astonished at the expertise here.

Don't look at me - I'm learning too.

The_Doc

...and be aware that if that 70K includes dividends that her limited company pays her, then these don't count toward that. So if she pays herself 10K salary and 60K dividends, then her limit is 10K. This all depends on what you mean by "self-employed".

zagfles

HL have an annual allowance calculator

https://www.hl.co.uk/pensions/interactive-calculators/carry-forward-annual-allowance-calculator