Buying additional pension from pension?

bring_back_threepenny_bit

I'm struggling to understand the rules on maximum pension contributions, where most of my income comes from a final salary pension of about 15k, while my OH receives about 5k. We are both in our early 60s and will get a State pension at 66. Can I put money into a SIPP and get 20% tax relief? With the tax relief it would seem to offer a better return than any interest rates out there at the moment. My wife is a non-taxpayer so presumably there would be no benefit from doing the same?

want_to_save

if you have no earned income eg from a salary you can both put in £2880 into a pension and the br tax will be added to bring contribution up to £3,600 for each of you which is the maximum you can put in as a non earner.  Pension income is not classed as pensionable salary

Albermarle

As you are already receiving £15K in taxable pension , you will pay some tax on the £3,600 , when you withdraw it . The total tax benefit will be £180 pa .
As your OH is only getting £5K , they will get a £720 tax benefit as they will not pay tax when they withdraw the SIPP. That is until they get the state pension , then they will be over the personal allowance of £12570 and they will also pay tax on any SIPP withdrawals, and the tax benefit will drop also to £180 pa .

xylophone

Have you both obtained State Pension Forecasts?

https://www.gov.uk/check-state-pension

bring_back_threepenny_bit

Albermarle said:

As you are already receiving £15K in taxable pension , you will pay some tax on the £3,600 , when you withdraw it . The total tax benefit will be £180 pa .
As your OH is only getting £5K , they will get a £720 tax benefit as they will not pay tax when they withdraw the SIPP. That is until they get the state pension , then they will be over the personal allowance of £12570 and they will also pay tax on any SIPP withdrawals, and the tax benefit will drop also to £180 pa .

So, for the sake of argument, OH could pay £2880 pa into a SIPP, and withdraw £3600 pa until aged 66, assuming a modicum of growth covered fees and charges?

Dazed_and_C0nfused

bring_back_threepenny_bit said:

Albermarle said:

As you are already receiving £15K in taxable pension , you will pay some tax on the £3,600 , when you withdraw it . The total tax benefit will be £180 pa .
As your OH is only getting £5K , they will get a £720 tax benefit as they will not pay tax when they withdraw the SIPP. That is until they get the state pension , then they will be over the personal allowance of £12570 and they will also pay tax on any SIPP withdrawals, and the tax benefit will drop also to £180 pa .

So, for the sake of argument, OH could pay £2880 pa into a SIPP, and withdraw £3600 pa until aged 66, assuming a modicum of growth covered fees and charges?

If you go about this correctly I think she can use Hargreaves Lansdown and pay no fees.

It means not investing the money and I don't think they pay interest on cash at the moment (within a SIPP) but they don't have any fees for cash holdings.

Albermarle

Dazed_and_C0nfused said:

bring_back_threepenny_bit said:

Albermarle said:

As you are already receiving £15K in taxable pension , you will pay some tax on the £3,600 , when you withdraw it . The total tax benefit will be £180 pa .
As your OH is only getting £5K , they will get a £720 tax benefit as they will not pay tax when they withdraw the SIPP. That is until they get the state pension , then they will be over the personal allowance of £12570 and they will also pay tax on any SIPP withdrawals, and the tax benefit will drop also to £180 pa .

So, for the sake of argument, OH could pay £2880 pa into a SIPP, and withdraw £3600 pa until aged 66, assuming a modicum of growth covered fees and charges?

If you go about this correctly I think she can use Hargreaves Lansdown and pay no fees.

It means not investing the money and I don't think they pay interest on cash at the moment (within a SIPP) but they don't have any fees for cash holdings.

Hl did have a requirement to keep a minimum amount in the SIPP, or it could get closed with charges.
Not sure if this still applies though and some reading of the T's & C's would be a good idea .
One thing is for sure the tax relief is not added immediately and you would need to wait a few weeks for this to happen.
Also it is possible they will take some tax off the withdrawal , but this is easy to claim back .

bring_back_threepenny_bit

xylophone said:

Have you both obtained State Pension Forecasts?

https://www.gov.uk/check-state-pension

Yes, did this a while ago, with 45 years full contributions I gather there is no real point in making any further voluntary NI payments?

Dazed_and_C0nfused

You are under transitional rules so the number of years of contributions isn't really relevant.

Did your forecast showed you had actually accrued the standard new State Pension?

You might want to check this as s lot of people seem to assume having 35 years contributions is important.  When it isn't for those under transitional rules.

sheslookinhot

Your wife can transfer some of her unused tax allowance to you for a few years. If she is getting benefits from a DC type pension then reducing her withdrawal when SP kicks-in may take her below tax threshold.

balbs

Dazed_and_C0nfused said:

You are under transitional rules so the number of years of contributions isn't really relevant.

Did your forecast showed you had actually accrued the standard new State Pension?

You might want to check this as s lot of people seem to assume having 35 years contributions is important.  When it isn't for those under transitional rules.

Thats my situation too, well over the 35 years contributions but Dazed and Confused is right, that doesnt matter because of the tramsition calculations- what does matter is that checking shows I needed to make two more years contribution to max my state pension.  Im one of the winners of the rule changes.