Starting a pension at 65?

xylophone

In reference to the comments above, I’m confused where the figure£2280 contribution a year comes from? Why wouldn’t it be £5600 as it is this tax year? Thanks

Tax relieved pension contributions are normally based on "relevant earnings"- it would appear that once your mother leaves work she will have no "relevant earnings".

However, there is a concession in that even those with no relevant earnings may contribute up to £2880 (net) to a personal pension and receive relief of £720.

xylophone

You say your Mum is going to retire in 2 months time, do you mean that is when her state pension becomes payable?

A very good question!

Another link for the OP to check

https://www.gov.uk/state-pension-age

Penguin6666

Thank you all for your help. I think I get it now!

she owns her own house and £164 is based on her weekly state pension that begins in 2 months time. I did say she will retire but it looks like she will carry on working anyway.

Thanks again!

xylophone

I did say she will retire but it looks like she will carry on working anyway.

Then she can contribute up to her net relevant earnings to a personal pension/SIPP and receive the appropriate level of tax relief.

https://www.hl.co.uk/pensions/sipp

Her state pension in 2019/20 looks likely to be £168.60 a week. She can check this with the pensions service.

The Personal Allowance for 2019/20 will be £12,500.

Your mother's salary (assuming £7000 per annum) plus SP will exceed this.

State pension, although paid gross, is taxable income.

https://www.litrg.org.uk/tax-guides/pensioners/how-my-tax-collected

If your mother is continuing to work, HMRC will issue a tax code to her employer so that she pays the tax owed through her employment income.

Opening and contributing to a personal pension would give tax relief.

You could give her enough to make the contribution of £5200 in this tax year and the next tax year and the one after that if she continues in employment.

She could then choose not to draw on the pension until she stops work.

She would be able to take a 25% tax free lump sum from the pension and draw down the rest as best suited her tax position.

badmemory

If she is continuing working is she very fit & well? If so if she is living comfortably on her current income it may be worth her deferring her state pension for a while. Whilst the increase from this is not as good as it used to be, it is 5.8% for a full year but is calculated weekly.


Perhaps a deferral for the first year just long enough to avoid her paying tax? It may be worth drip feeding her some of the money monthly (it isn't taxable, it's a gift) once the pension fund has had the max added.


Does she really WANT to keep working or is it because she feels she needs to?

Penguin6666

She has 2 particle jobs, one that brings in £150 a month, and the other £380- she will keep the £380 a month, as she has arthritis so does struggle.

From what I understand from everyone’s helpful comments, it’s best that she puts in 5k over the next free tax years. She won’t be looking to withdraw 25%, just want to stagger 15k over the next 10 years the best I can whilst she still has reasonable health.

Just thinking, though unlikely, she may be entitled to some of my dad’s state pension, but not sure if he paid enough NI, as he died when he was 36. She also gets £70 a month RAF pension which I didn’t mention which will always remain at this amount I believe.

Thanks again,

A

xylophone

You indicate that her SP is payable around the beginning of May?

Has she not yet been invited to claim her state pension?

https://www.gov.uk/new-state-pension/how-to-claim

If not, she should telephone the Pension Service.

https://www.gov.uk/contact-pension-service

It appears that your mother is entitled to a full SP in her own right - if your father died around 30 years ago and had been in the RAF for ten years or so before that it is unlikely that there will be Additional State pension to inherit - however, only the Pension Service can advise the exact position.

Would your mother wish to receive her SP weekly? If so, she must make a specific request for this when she claims her SP.

xylophone

If her earnings will be reduced to £4560 a year then she can only contribute a net £3648 per annum to the personal pension- she will receive tax relief of £912 which will be added to her pot.

If she wants to contribute £5200 it would be a good idea to get the ball rolling the tax year is close to ending.

https://www.hl.co.uk/pensions/sipp might be of interest - she might prefer not to invest if she is likely to want to access the pension before she is seventy.

HL do not charge to hold cash, and they are helpful when it comes to drawing down the pension.

Penguin6666

Oh, I’m confused now. If she contributes £5200 this year and £3648 next year, she can’t touch that money until she is at least 70?

Thanks

xylophone

Oh, I’m confused now. If she contributes £5200 this year and £3648 next year, she can’t touch that money until she is at least 70?

No, she can access a SIPP/other personal pension at any time after age 55.

When I said "she might prefer not to invest if she wants to access the funds under age 70", I meant that if she is likely to want to access the pension in under five years' time, she might prefer to keep her contributions in cash, rather than buying funds/shares etc with the money.

Presumably she would prefer not to access the private pension until she has stopped work?

She could then draw it down to supplement her state pension/widow's pension ( I am assuming that the RAF pension is a widow's pension - is it?)