Personal Pension Question

shinytop

Hi, another question this time on personal pensions. Wife is now retired drawing DB pension but (for this FY) still working PT (BR taxpayer). My understanding is that she could set up a SIPP or personal pension this FY and contribute up to her earnings (excluding DB pension). That would be increased 25% through BR tax relief. Sometime next FY she could withdraw 25% tax free and the rest (then or later) taxed at her marginal rate is. Is that about right? Is there anything else I need to think about?

cloud_dog

That's about right. She wouldn't necessarily need to wait for the next FY to withdraw if you choose. The first withdrawal may be taxed at the emergency rate, which you then reclaim.

Even if she were not working she could still contribute £3600 (gross) in to a SIPP and do as you say.

Things to look out for... if the provider levies any charges for withdrawing all the money within a short time period, i.e. HL make a charge if you don't leave £1k in the account for the first 12 months; thereafter no problem.

Triumph13

The other thing to watch out for is that the instant she withdraws anything beyond the 25% TFLS from the pot her future pension contributions are limited to £4k pa.

bluenose1

Triumph13 wrote: »

The other thing to watch out for is that the instant she withdraws anything beyond the 25% TFLS from the pot her future pension contributions are limited to £4k pa.

Am I correct in thinking that she could put into 3 separate pots of up to £10k that she could withdraw without affecting future pension contributions?

shinytop

The other thing to watch out for is that the instant she withdraws anything beyond the 25% TFLS from the pot her future pension contributions are limited to £4k pa

Understood. I wouldn't be doing that until she's stopped working PT.

Linton

Minor clarifications....



If she wanted to pay all her earnings into her private pension should actually pay in 80% of her gross earnings (from work) and the HMRC refund would raise this to the full 100% limit. This is assuming she is not contributing anything into her employers scheme.


On taxation anything drawn down from her pension beyond the Tax Free Lump Sum would be taxed as income and so could put her into the next tax band. This is avoided by spreading the drawdown over 2 or more years. The use of the term "marginal rate" could suggest that it is taxed at her rate she was paying without the drawdown - this is incorrect.

Movie_Star

Check the charges by your SIPP provider for drawdown or withdrawals. The money might have zero cost and tax relief on the way in, but SIPP providers appear to be making it very expensive to get your money out when retired.

dunstonh

Movie_Star wrote: »

Check the charges by your SIPP provider for drawdown or withdrawals. The money might have zero cost and tax relief on the way in, but SIPP providers appear to be making it very expensive to get your money out when retired.

Only if you use an expensive SIPP provider. Most PPPs or SIPPs no longer charge for drawdown functionality.

shinytop

The use of the term "marginal rate" could suggest that it is taxed at her rate she was paying without the drawdown - this is incorrect.

Yup I knew what I meant. By the time she draws down anything above the 25% she will have stopped working and her DB pension will be slightly below the BR PA

Alexland

dunstonh wrote: »

Only if you use an expensive SIPP provider. Most PPPs or SIPPs no longer charge for drawdown functionality.

'but they said they were low cost....'

Still it's really about the overall fee structure for an individual's situation. My SIPP provider charges for drawdown but that's 20 years away and until then I am paying an average of around 0.1% platform fee.

Alex