Do my plans make sense

adviceisgood

Hi
I Currently earn approx 55k and have a DB pension and plan to retire at 60 , my wife ( 55Years old) currently earns approx 10k per year with no real pension since leaving civil service pension 10 years ago after 17 years of contributions.(payable from 60 approx 2k per year)

Am i right in thinking we could pay 5k into a SIPP for me to gain the tax benefits and then pay up to 8k into a SIPP for my wife for the next 5 years so when my wife retires at 60 she can then draw upon this SIPP tax free till 67 (with the benefit of the gov 20 percent uplift) when she will be entitled to a full state pension.

We are mortgage free with isa investments of approx 100k and due a lump sum of 120k in the next few months.

Hope fully this all makes sense and will allow my wife to retire earlier than 67 with the benefit
of the tax uplift on her SIPP .
Thank you.

Dazed_and_confused

You could possibly pay £40k into a SIPP and get tax relief. Why the £5k limit?

Your wife's maximum contribution might not be £10k, it will depend what the position is with her current employer scheme. Is this DB or DC?

She cannot draw the SIPP "tax free" though.

25% of the fund will be tax free, either up from or as part of each payment but the rest is taxable income. Whether any tax will be payable will depend on her total taxable income (and what type(s) of taxable income she has).

Albermarle

my wife ( 55Years old) currently earns approx 10k per year with no real pension

What do you mean by 'no real pension' ?

adviceisgood

Hi
Many thanks for the quick replies
I was only intending to pay an additional 5k into my Sipp to maximise tax benefits ,this on top of my DB contributions through work and we probably couldn't afford much more.
My wife original civil service pension is DB and she stopped contributing 10 years ago )and since this pension she has only worked part time for the county council so current pension forecast with them is less than 1k per year.
We would aim to pay as much as we could into her SIPP so when drawing pension at 60 she would still be below the personnel basic rate tax limit.
Would we then have to claim back any income tax paid at source from the Sipp provider?
Thank you

Dox

adviceisgood wrote: »

Would we then have to claim back any income tax paid at source from the Sipp provider?

No. You'd claim from HMRC. https://www.gov.uk/claim-tax-refund

adviceisgood

Thank you Dox

Albermarle

Your wife earns £10K a year so in theory she should be able to add £8K to a Sipp that would be topped up for tax relief to £10K .
However she is benefitting from a pension in her current employment already so this would have to be taken into account I think and the SIPP contribution would probably have to be reduced to take account of this .
( nor sure how you would calculate this though )

Dazed_and_confused

Re Albermarle's post, you should be able to get a figure from her employer (for the previous tax year) of what her contribution is deemed to be. It isn't what she actually contributed it's more to do with how much pension she accrued.

Once you know that and can make a suitable estimate for the current tax year you will then know how much she can potentially contribute into the SIPP in this tax year. She pays over 80% of it and the pension company, courtesy of HMRC, will add the 25% uplift.

Although you will get basic rate tax relief in the same way i.e. you contribute £4k and have £1k added to give you a fund of £5k, you will need to let HMRC know so they can calculate any additional tax relief due.

Note there is no "extra 20%". The gross contribution simply increases the amount of basic rate tax you can pay, which in turn can reduce any higher rate tax which is due.

You may end up in a position where you and your wife would be able to benefit from her applying for Marriage Allowance.

adviceisgood

Hi
Thank you all so much this makes it a lot clearer I will check with current pension provider to ensure we don’t contribute too much.

MovingForwards

Have you checked to see what her state pension entitlement is?

adviceisgood

Hi Moving forwards
She has full state pension entitlement
Thank you