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Pensions/SIPP. Is this the best way forward?

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Pensions/SIPP. Is this the best way forward?

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Hi. I am posting my thoughts on my pensions and SIPP as I think I have worked it all out correctly but am not 100% sure that my plan makes sense. I would be grateful for any feedback/suggestions. Please be kind to me as I find all this terribly confusing. Apologies for the long post but trying to supply full info .
My current situation:
I am 56 and have £17,288 held as cash in a HL SIPP. 
At age 60 (during 2023/24 tax year) I will trigger a DB pension (TPS) of just over £9k pa and a lump sum of about £29k as of yesterday.
At age 67 I will trigger another DB pension (LGPS) of £12k pa and another lump sum of about £11.5k. I can defer this one if need be.  I also get my state pension of ( currently) £7,148.17 or £141.48 wk. I'm planning to make up the shortfall (see below).

During 2019/2020 I have only earned £3,100 so I could withdraw about half of my SIPP money in one go here. However, I want to avoid triggering the max £4kpa future contribution limit, so does this mean I should only withdraw the tax free 25% ie £4,322 in this tax year? Or is there a way to get more out, using whats left of my PTA? If so, what is the right way to do it?
My original plan with the SIPP was to keep paying in £2,880 every year till I'm 60, but also to withdraw my cash gradually between now and age 60. However, I am probably now going to be earning about £8k pa during 2020/21 and maybe longer. This will make up 1 or more of my 5 missing NI years but also removes some of my PTA in terms of withdrawing SIPP cash. To complicate matters I guess next year I could pay in about £6,000 INTO my SIPP too.

This is my plan:
2019/20:
Withdraw £9k from SIPP using £4,320 tax free 25% and £5,080 using up my PTA. Leaves £8,288 in SIPP.

2020/2021:
On 5th Feb 2021 i pay this year's contribution of £6k into SIPP. This + tax relief of £1,500 + existing £8,288  gives balance of about £16k, hopefully.
At end of March 2021 I withdraw my tax free 25% of about £4k and another £4k-ish, using what's left of my PTA. About £8k left in SIPP.

2021/22 AND 2022/23:
5th Feb I pay in either £2,880 or £6k, del on my income.
End of  march I again withdraw 25% tax free and as much as I can of the rest.

2023/24:
I pay in and extract what I can, dep on my work situation and  TPS income of about 7 mths pension.

Between age 60 and 67 I stop paying owt into the SIPP, but can still slowly extract anything left in there using the tax free 25% and what's left of my PTA each year . I should be able to retrieve most of it without paying tax on it. (alternative plan is to continue to pay in £2,880 pa till age 75 and just  leave this languishing in there for my sister and kids to inherit at some point to possibly shelter it from IHT for them). 

Again, apologies for the long post. Thanks for reading and thanks in advance for all suggestions or comments. 
😃




Replies

  • Dazed_and_C0nfusedDazed_and_C0nfused Forumite
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    Five years extra NI won't be enough to get you to the standard new State Pension.  You need six years to reach £168.60, the sixth year being worth c£3/week so still worth having.

    The immediate issue with your plan is that once you take 1p in taxable income from your DC pension is that you are then limited to contributing £4k/year gross (or £3.6k if you don't have sufficient pensionable earnings to be allowed to contribute £4k).

    So once you have invoked the plan for 2019:20 the rest is scuppered.

    2019/20:
    Withdraw £9k from SIPP using £4,320 tax free 25% and £5,080 using up my PTA.


  • ouraggieouraggie Forumite
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    Thanks for your reply, DazedandConfused. Re the taxable portion, I hadn't realised that. 
    I did read somewhere that I could get HL to create me a separate pot of £10k, which could then be taken tax free as a "small pot". Do you know if this is an option for me? 
    Thanks.
  • Dazed_and_C0nfusedDazed_and_C0nfused Forumite
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    I think you have misunderstood HL.

    Can you post a link to where you think it says you can take 100% of a (£10k) SIPP tax free?
  • AlbermarleAlbermarle Forumite
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    ouraggie said:
    Thanks for your reply, DazedandConfused. Re the taxable portion, I hadn't realised that. 
    I did read somewhere that I could get HL to create me a separate pot of £10k, which could then be taken tax free as a "small pot". Do you know if this is an option for me? 
    Thanks.
    You need to read up on the 'small pots ' rules .
    Basically if you have a pension worth less than £10K , you can take it as a small pot . As normal 25% is tax free and 75% taxable . The advantage is by taking it in this way you do not trigger the MPAA and you can still contribute normally to other pensions.

    I think HL offered a service where even if your pension was bigger they could split off small pots ( max 3 ) so you could take up to £30K without triggering the MPAA. Clearly this is somewhat against the spirit of the rules and  you would need to check if they still do this , or if hey charge for the extra admin.
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