Advice for Parents Pension Plans

Vodien

I have been a long time lurker on the pension board and have read a lot of useful information. I was hoping someone would be able to cast their eye over these plans for my Parents, just to make sure I am not missing anything obvious.

Both of my Parents are looking at retiring within the next 12 months, both are over 55 where they can start drawing private pensions but under SPA.

First of all for my Mother.

She has a very small auto enrolment pot having not been in the scheme for very long. A few hundred pounds have been deposited into it this year.

The idea was to use up the rest of the allowance she has by opening a SIPP and just keeping as cash.
Before the end of this tax year the plan is to deposit £10,000 into the SIPP and then get the 25% uplift taking it to £12,500 in the SIPP. I don’t have the exact figures to hand at the moment but the £12,500 plus the total for auto enrolment this year would be less that her relevant salary for the year so I am sure this part is fine.

Once the 25% has gone in (I guess in a couple of months time) she would move the £12,500 to drawdown, take the 25% TFLS but not take any income. I believe by not taking the income it would not reduce the amount she can put in next year. In 12 months time she would then be able to do the same thing, subject to her income. She would this time take the TFLS and also start drawing income, most likely in 2020/2021 year to get as much tax free as possible.

After this as she would be retired and not earning she would start making use of the £2,880 she can add to a SIPP each year, get the uplift, withdraw 25% and take the rest as income. Rinse and repeat each year after that.

I hope I haven’t got any of that wrong.

My Father is a little more complicated because as well as working he is also drawing a Miners pension.

He has had it confirmed that the Miners pension is a Defined Benefit scheme. Am I right that this means despite receiving a monthly income from it and having previously taken 25% lump sum he is not subject to the reduced £4,000 allowance as this only affects Defined Contribution schemes?

Currently he is paying the minimum into an auto enrolment pension.

This year my Father would add £19,000 to a SIPP, receive £4,750 uplift giving a total of £23,750. Put this in drawdown and take 25% tax free (£5,937). He would not take any income as still working and does not want the reduced allowance for next year.

12 months time he would do the exact same thing, and like my Mother start drawing income in 2020/21. Then move onto £2,880 every year.

I don’t think he would ever be able to get it all back out tax free due to his Miners pension using up some of his personal allowance and how close he is to state pension age but he will decide how much to draw each year according to their needs.

We want to avoid breaking recycling rules, I have read through some documentation on Hargreaves Lansdown, from what I have read he would break a lot of recycling rules due to the significant increase in contribution. By keeping his TFLS to less than £7,500 per 12 months that is one rule he wouldn’t break so would be fine overall. Obviously just have to be careful not to take another lump sum too soon.

I think this covers anything and thank you in advance for any opinions, help or advice.

Albermarle

I can not see any particular flaw in your reasoning but probably better to wait to let a real expert comment .

Once the 25% has gone in (I guess in a couple of months time)

Some sipp/pension providers add the tax relief immediately and claim it back from HMRC later .
I think even for the ones that do not it does not take two months .

Mnd

I think you have summed it up perfectly

Vodien

Thank you for the replies.