Winnings into SIPP?

degs88

Just wondering out of interest really, certainly not a real situation unfortunately.


If you win or inherit a moderate amount of money, say £50K, would you be allowed to put some or all of it into a SIPP and still get the 25% contribution? This is in the context of a retired person receiving their company person but not SERPS.


Also how would it change with more serious amounts of say £1 million?


Just wondering, honest!

dunstonh

If you win or inherit a moderate amount of money, say £50K, would you be allowed to put some or all of it into a SIPP and still get the 25% contribution?

There isnt a 25% contribution. Yes, it equates to that but it isnt how it works.

Pension contributions are gross of tax relief. So, if you make a £50,000 contribution to a pension, you write the cheque for £40,000. It may seem semantics but plenty of people are getting caught out with HMRC because they think the tax relief is a bonus and not a relief. If you treat pensions as they are meant to be then you avoid that potential mistake.

The source of funds doesnt matter. Inheritance, winnings, savings etc. As long as it is legal money! What matters is your annual allowance and if you qualify for carry forward or not.

If you have annual earnings of £80k, for example and have been paying in a pension of say £10,000 each year and you get a £50k windfall then a £62,500 pension contribution is fine. (uses up the £30k outstanding allowance from this year and carry forward from previous years and current year earnings is high enough to support it)

If you are a retired non-earner then you are limited to £3,600

If you earn £24k a year, you dont get carry forward and are limited to £24k (minus existing contributions in the year)

Also how would it change with more serious amounts of say £1 million?

It wouldn't change qualification rules but you may cosnider looking at investment options/wrappers that you would not consider at lower levels

NoMore

Your subject to the Annual Allowance or perhaps Money Purchase Allowance, depending on whether that pension is a DC or DB pension.


https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/the-annual-allowance


Quick answer is no you couldn't put the whole 50k in the situation you describe of a pensioner living off their pension. If there is other forms of income and the current pension is a DB, then maybe you could but more info would be required.

Brynsam

dunstonh wrote: »

If you are a retired non-earner then you are limited to £3,600

Just to be doubly clear(!) that's £2,880 net (i.e. the bit you pay in) which equates to £3,600 after the pension provider has claimed basic rate tax on your behalf/added it to the pension pot.

Malthusian

NoMore wrote: »

Your subject to the Annual Allowance or perhaps Money Purchase Allowance, depending on whether that pension is a DC or DB pension.

It doesn't depend on that. It depends on whether you accessed the pension "flexibly".

If someone was "receiving their DC company pension" in the form of a guaranteed lifetime annuity they would not have triggered the Money Purchase Annual Allowance through that.

NoMore

Malthusian wrote: »

It doesn't depend on that. It depends on whether you accessed the pension "flexibly".

If someone was "receiving their DC company pension" in the form of a guaranteed lifetime annuity they would not have triggered the Money Purchase Annual Allowance through that.

I did say 'perhaps'.

MPAA doesn't apply to DB pensions.

So my answer was short and lacking on detail but not wrong like you have tried to indicate by quoting me and saying 'it doesn't depend on that' It does depend in the first instance on if its a DB or DC pension and then perhaps the MPAA does apply depending on further answers.

I wanted to avoid having to introduce and then explain terms like flexibly accessed and lifetime annuity. I did include a link that goes into more detail if the OP so desired, but his question seemed to be a what if rather than an actual scenario, so didn't see the need to go down into the nitty gritty.

Malthusian

NoMore wrote: »

So my answer was short and lacking on detail but not wrong like you have tried to indicate by quoting me and saying 'it doesn't depend on that' It does depend in the first instance on if its a DB or DC pension and then perhaps the MPAA does apply depending on further answers.

It depends in the first instance on whether a pension has been accessed flexibly. It only depends indirectly on whether it's DB or DC in the sense that DBs can't be accessed flexibly at all (if it is, it's been converted into DC) and DC can be accessed flexibly or non-flexibly. So if you know someone took a DB pension and only DB pensions you know they haven't triggered the MPAA. But we don't.

These distinctions are always pettifogging pedantry until someone loses a bunch of money.

And while we're on pettifogging pedantry, the AA / MPAA is not what stops a pensioner living off their pension putting £50k in their pension. It is the rule that you can only get tax relief up to your earned income in the tax year. If they're a pensioner living off their pension they could be rolling in AA carry forward, but it's no use to them because of the lack of earned income.

If we had a penny on the Pensions forum for every time people conflated the two restrictions (1. AA 2. earned income), e.g. by thinking you can use carry forward on earned income, there would be no Pensions forum as we would all have retired to the Bahamas.