A few pension and investing questions

Stuey55

I have been asked to advise my mother with her retirement provisions and I have been exploring ways of maximizing her income tax relief on pension contributions without having to tie too much of her cash into the pension fund. (She is a higher rate tax payer with 2 yrs before retiring but she will not need to access the pension for maybe 6-9 yrs when she is 69-72)

a) Salary sacrifice. I wasn't able to get a straight answer from the Pensions helpline. If she gets her company accountant to set this up for her, will she and her employer be able to get back the NI contributions they have already made this tax year as described on her payslips? Or is this only possible on salary paid after the scheme is set up? Are companies allowed to set up these schemes individually on a one-off basis? Is a lot of work involved for the company?

b) Transferring shares into a SIPP.
On the assumption that I find a SIPP that allows this, does the SIPP forward the money raised by the sale/purchase of these shares in the SIPP at the full price(less dealing charges). Is CGT to be paid on the net proceeds from this sale?

c) CFD SIPPs.
With the aim of taking money out of the pension fund without the restrictions of a max 25% lump sum and without having to pay tax on the annuity/drawdown, I came up with the idea of using CFDs.
By setting up equal and opposite CFDs, one inside the SIPP and one in a regular account.

Say you decide to sell the FTSE at £100 a point in the SIPP and buy it at £100 a point outside the SIPP. You wait till the FTSE has dropped 100 pts. The SIPP has lost £10k, you make £10k, less commision, and you have effectively extracted the money from the SIPP tax free(give or take a bit of CGT).

Is this tax avoidance or tax evasion and are there any pitfalls?

d) Pension contributions for non-earners.
I noted that non earners can contribute up to £3600 a year and get 22% tax relief on this amount. After the pensioner stops working, but before they have chosen to start taking the benefits of the fund, would it be worth it to contribute £2808 to the fund, receive the £792 relief, then transfer in £3600 worth of shares, just to get the £792?

I hope this is of interest and sparks some discussion.
Thank you for any help, Stuart.

dunstonh

a) Salary sacrifice. I wasn't able to get a straight answer from the Pensions helpline. If she gets her company accountant to set this up for her, will she and her employer be able to get back the NI contributions they have already made this tax year as described on her payslips?

Normally employer contributions are monthly so the NI adjustments would take that into account from when it starts.

Are companies allowed to set up these schemes individually on a one-off basis? Is a lot of work involved for the company?

It's up to the company. The larger the company, the less likely they will allow individual schemes due to the extra work involved. It would also depend on the type of pension scheme that they operate. It may not be possible to do salary sacrifice with their scheme.

b) Transferring shares into a SIPP.
On the assumption that I find a SIPP that allows this, does the SIPP forward the money raised by the sale/purchase of these shares in the SIPP at the full price(less dealing charges). Is CGT to be paid on the net proceeds from this sale?

You cannot transfer shares into a SIPP. It can be done with share exchange but that will be a buy and sell and give rise to a chargeable gain for CGT. If you do this, it may be worth waiting until next tax year or spreading it over the tax years.

c) CFD SIPPs.
With the aim of taking money out of the pension fund without the restrictions of a max 25% lump sum and without having to pay tax on the annuity/drawdown, I came up with the idea of using CFDs.
By setting up equal and opposite CFDs, one inside the SIPP and one in a regular account.

Contracts For Difference is not an area I deal in as it is outside of the standard IFA licence. The gearing you can achieve can certainly improve the potential for gains but you have to be careful that you dont create a loss that is greater than the value as it can breach HMRC rules and jeopordise the SIPP.

d) Pension contributions for non-earners.
I noted that non earners can contribute up to £3600 a year and get 22% tax relief on this amount. After the pensioner stops working, but before they have chosen to start taking the benefits of the fund, would it be worth it to contribute £2808 to the fund, receive the £792 relief, then transfer in £3600 worth of shares, just to get the £792?

The introduction of that rule has actually been a positive move and made pensions very attractive to those that have already retired. Do note however, that tax relief will be 20% from next year for basic rate taxpayers or lower.

I hope this is of interest and sparks some discussion.

You are talking about using experienced investor products and is your mother up to handling all that. Plus, is the timescale of 6-9 years enough for the level of risk you are possibly considering (one assumes you are looking at CFDs for their gearing potential). Does your mother's risk profile match the risk?

purch

are there any pitfalls?

......yes, like not understanding how CFD's work :eek: