SIPP for a year?

Dansmam

I'd really welcome views on this. I've always been in lgps (and know what a lucky accident that's been) so new to the world of SIPPs. From reading on here I am wondering if I should use a SIPP to bridge me to march 2022 when reductions to the lgps pension are much reduced (rule of 85). My plan has been to live off savings but I now wonder if I should pay into a SIPP before the end of this tax year - enough to cover personal allowance as I will not be earning over the coming year. If I'm right that gives me the additional tax at my marginal rate on top of what I put in from savings. I earned enough between April and September to cover that. Seems too good to be true so what am I missing? Appreciate I'd then be limited to £4K pension contributions if I returned to work but that's not in the plan. 

Albermarle

If I understand you correctly you stopped work in September and you want to contribute £12500 to a Sipp before April 5th and then withdraw the same amount next tax year when you will have no other taxable income ?
That sounds like a good plan . Two comments though
1) Next tax year you can actually withdraw from the SIPP , £16,666 , because you can withdraw 25% tax free + £12500 taxable.
2) To add £16666 this tax year you can add £13333 and 25% will be added as tax relief by the provider. To do this you must have at least £16666 earned taxable income this year ( probably a bit more as you presumably made some LGPS contributions already ?)

Dazed_and_C0nfused

Will you have some other taxable income in the 2021:22 tax year that you need to factor in?

From reading on here I am wondering if I should use a SIPP to bridge me to march 2022 when reductions to the lgps pension are much reduced (rule of 85).

xylophone

Appreciate I'd then be limited to £4K pension contributions if I returned to work but that's not in the plan. 

Not if you were returning to employment offering a Defined Benefit pension scheme.

https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/money-purchase-annual-allowance/

What about DB?

Accrual under defined benefits schemes is not tested against the money purchase annual allowance, but will be included in the test of total contributions against the annual allowance/tapered annual allowance:

Dansmam

Thanks so much for the feedback and doing my calculations for me! Just need to check what I put into lgps this year but if all's good with that against income I think that's what I'll do -no I'll have no earned income next year, and thanks for the info about the £4K and DB. No plans for that at the moment but if boredom sets in its good to remember that's an opinion. Many thanks all

cloud_dog

To be precise on the amounts you will need the LGPS administrator to confirm the Pension Input Amount (PIA), rather than base it on contributions.

zagfles

Albermarle said:

If I understand you correctly you stopped work in September and you want to contribute £12500 to a Sipp before April 5th and then withdraw the same amount next tax year when you will have no other taxable income ?
That sounds like a good plan . Two comments though
1) Next tax year you can actually withdraw from the SIPP , £16,666 , because you can withdraw 25% tax free + £12500 taxable.
2) To add £16666 this tax year you can add £13333 and 25% will be added as tax relief by the provider. To do this you must have at least £16666 earned taxable income this year ( probably a bit more as you presumably made some LGPS contributions already ?)

Taxable income should be OK, LGPS I believe is always net pay so taxable income will already have pension conts deducted. OP - you can confirm this by checking two consecutive payslips and seeing that the "taxable to date" amount increases by pay minus pension conts.

zagfles

cloud_dog said:

To be precise on the amounts you will need the LGPS administrator to confirm the Pension Input Amount (PIA), rather than base it on contributions.

The annual allowance is unlikely to be an issue for the OP on half a year's pay, unless they're very well paid or had a recent big pay rise. Besides, I doubt the scheme will give the PIA for current tax year till after the end of it. 

Scrounger

Dansmam said:

Appreciate I'd then be limited to £4K pension contributions if I returned to work but that's not in the plan. 

If you opened two separate SIPPs and put half of your earnings into each (up to £8k), keep funds in cash. Tax relief will add 25%.  In the next tax year take both SIPPs as small pots (this doesn't trigger the MPAA so not limited to £4k future contributions).
Even if the taxable elements exceeds the PA, you still benefit from a 6.25% uplift. 

Scrounger

Albermarle

Scrounger said:

Dansmam said:

Appreciate I'd then be limited to £4K pension contributions if I returned to work but that's not in the plan. 

If you opened two separate SIPPs and put half of your earnings into each (up to £8k), keep funds in cash. Tax relief will add 25%.  In the next tax year take both SIPPs as small pots (this doesn't trigger the MPAA so not limited to £4k future contributions).
Even if the taxable elements exceeds the PA, you still benefit from a 6.25% uplift. 

Scrounger

Seems like this will not be necessary for the OP as the MPAA does not affect DB schemes.
Also you have to be careful as not all pension providers offer the small pot withdrawal facility - only UFPLS.