SIPP when not working

heronbommie

I’m looking for advice on the best way to create a lump sum to pay off a mortgage when the fixed term ends in 4yrs. Option one would be to make additional payments (to 10% of the balance per annum) or put that cash in a SIPP. I’m not working and have a small DC pension in place already, so can I take out a SIPP and benefit from the tax incentive? This would be a mix of irregular monthly payments and lump sums and Vanguard looks attractive for this route.

I’m approaching 55 and the DC TFLS would give £15000, then a drawdown would give the rest over the years. My issue is that the cash wouldn’t really be working that way?

Albermarle

 I’m not working and have a small DC pension in place already, so can I take out a SIPP and benefit from the tax incentive? This would be a mix of irregular monthly payments and lump sums and Vanguard looks attractive for this route.

There is a max amount you can add to a pension if you have no earned income . £2880 and tax relief of £720 is added.

There is a very long thread about it here: https://forums.moneysavingexpert.com/discussion/5580163/paying-2880-into-pension-when-retired#latest

You could probably add that to your old DC Pension if you did not want to open a separate Sipp

heronbommie

Albermarle said:

You could probably add that to your old DC Pension if you did not want to open a separate Sipp

But would that produce the additional tax relief? I’m thinking that the £2800 added over 4yrs would be good. 

Albermarle

In respect of tax relief etc all DC pensions are the same . Whether they are a 30 year old personal pension or an ex employer pension or a SIPP . The  question is would the old DC pension actually still accept new contributions . One phone call could answer that.
The second question is , what options does the old DC pot offer in terms of withdrawal options . Older pensions can be more restrictive due to legacy IT issues mainly . So another option could be to start a new modern pension and transfer the old DC scheme into it.

heronbommie

Ok thanks.

heronbommie

Albermarle said:

 I’m not working and have a small DC pension in place already, so can I take out a SIPP and benefit from the tax incentive? This would be a mix of irregular monthly payments and lump sums and Vanguard looks attractive for this route.

There is a max amount you can add to a pension if you have no earned income . £2880 and tax relief of £720 is added.

There is a very long thread about it here: https://forums.moneysavingexpert.com/discussion/5580163/paying-2880-into-pension-when-retired#latest

You could probably add that to your old DC Pension if you did not want to open a separate Sipp

Wow, that's an interesting thread. Thanks. I suppose the benefit of the separate SIPP is instant availability of all of the cash (relatively speaking) rather than bundling it into a DC pot with tax implications.

xylophone

Thanks. I suppose the benefit of the separate SIPP is instant availability of all of the cash (relatively speaking) rather than bundling it into a DC pot with tax implications.

Could you explain your thinking?

A SIPP is also a DC pot.  It also has "tax implications" or considerations.

Albermarle

I suppose the benefit of the separate SIPP is instant availability of all of the cash (relatively speaking) rather than bundling it into a DC pot with tax implications.

Note my previous comment !

In respect of tax relief etc all DC pensions are the same . Whether they are a 30 year old personal pension or an ex employer pension or a SIPP

heronbommie

Yes I get that but if the money is directed into the current DC pot then only 25% of that extra cash is available when taking the 25% TFLS, but if I open a SIPP then I could delay taking this until the following year and stay within the tax free personal allowance for that year. I obviously don’t know what I’m doing so any help is greatfully received.

Albermarle

It depends on the withdrawal options for the DC pot. Some older pensions are less flexible than modern ones , although you are never forced to start taking them at 55 but maybe if you take the 25% TFLS do you ahve to take it all in one go ? Is that what the issue is ?
If withdrawal options for the older pot are limited then it could be better to open up a new SIPP - add new money to it and also even transfer the older pot to it .

heronbommie

I’ll have to check the withdrawal options and do a few sums to see which gives the best return in 4 yrs time. I suppose that the fees will also play a part in the calcs. Talking of fees, my FSA is charging 2% for the advice to switch to drawdown.

Thanks again