SIPP Query when in receipt of a DB pension and State Pension

brucefan_2

Thank you for taking the time to look at what I hope isn't a simplistic (or even worse than that) SIPP query.

For context, I am 67, receive a (Teachers') DB pension, State Pension and a monthly L&G annuity, the latter being the best of a bad job from all the AVC promises we were made  - by a different provider - many moons ago.

With the increase in the State Pension from April of this year and the freezing of the 40% threshold, I will find myself just a little over the wrong side of this threshold. (which is also a pain for the PSA)

From a modest inheritance and the amount I would be saving anyway, I will be able to max out ISAs for at least the next three tax years.

Am I right in thinking that I could at this point open a SIPP and carry on paying in to it until the age of 75, receiving tax 'relief' at whatever my taxable rate may be. I would be remaining well within the overall LTA.

This would be money that would be going into a GIA anyway (that my daughters have endearingly dubbed my 'Switzerland fund'), so I would not be in a position of 'going without' to fund this. Just making hopefully sensible provision for possible care costs later in life.

I appreciate that post 75 any income taken from accumulated funds would be taxed at whatever my taxable rate at the time would be.

Because I am not in employment as such, would my contribution be limited to a maximum of £3600 (£2880 my contribution and £720 relief sourced by the SIPP provider)?  Because of being over the 40% threshold, I would then be able to claim a further £720 relief?

Or, does my pension income count as 'income' so I would be able to save more than £3600 into the SIPP?

If I have missed anything blindingly obvious or if there are regulations I seem to be unaware of, observations on potential flaws in my thinking will be gratefully received.

Again, thankyou for reading,
David

Dazed_and_C0nfused

You're on the right lines and without any earnings £3,600 is the maximum gross contribution.

But there is no fixed "further 20% relief".

Any higher rate relief is limited to how much higher rate tax is being paid.

If you pay higher rate tax on £300 the higher rate relief, outside of niche scenarios, is £60.

sheslookinhot

If your getting 40% higher relief on contributions, but taxed at higher rate on the funds when withdrawn what’s the point of paying the contributions? Am I missing something?

MallyGirl

sheslookinhot said:

If your getting 40% higher relief on contributions, but taxed at higher rate on the funds when withdrawn what’s the point of paying the contributions? Am I missing something?

you are missing the 25% tax free bit

brucefan_2

Dazed_and_C0nfused said:

You're on the right lines and without any earnings £3,600 is the maximum gross contribution.

But there is no fixed "further 20% relief".

Any higher rate relief is limited to how much higher rate tax is being paid.

If you pay higher rate tax on £300 the higher rate relief, outside of niche scenarios, is £60.

Thank you for this. It's always a relief to have a 'sounding board' to be able to clarify things.

What you've highlighted about the higher rate tax relief is obvious now it's been pointed out but I had missed that in my thinking completely, so again, thank you for taking the time to commnet.

Best Wishes,
David

Dazed_and_C0nfused

brucefan_2 said:

Dazed_and_C0nfused said:

You're on the right lines and without any earnings £3,600 is the maximum gross contribution.

But there is no fixed "further 20% relief".

Any higher rate relief is limited to how much higher rate tax is being paid.

If you pay higher rate tax on £300 the higher rate relief, outside of niche scenarios, is £60.

Thank you for this. It's always a relief to have a 'sounding board' to be able to clarify things.

What you've highlighted about the higher rate tax relief is obvious now it's been pointed out but I had missed that in my thinking completely, so again, thank you for taking the time to commnet.

Best Wishes,
David

There can be other less obvious benefits.

If the pension contribution means you become a basic rate taxpayer then you would have a £1,000 savings nil rate band (aka Personal Savings Allowance).

And be eligible to apply for or receive Marriage Allowance.

For info a relief at source (RAS) contribution to a SIPP increases your basic rate band by the gross contribution and your tax is calculated using that increased basic rate band.

So a £3,600 gross contribution gives you a basic rate band of £41,300 rather than £37,700.

Audaxer

brucefan_2 said:

With the increase in the State Pension from April of this year and the freezing of the 40% threshold, I will find myself just a little over the wrong side of this threshold. (which is also a pain for the PSA)

Because I am not in employment as such, would my contribution be limited to a maximum of £3600 (£2880 my contribution and £720 relief sourced by the SIPP provider)?

It's not a bad position to be in if DB and SP income take you into the higher tax bracket 

Despite the high pension income, you can only pay a gross £3,600 into a SIPP each year. You can if you wish also take it out each year by a UFPLS after the tax relief is added, as many people on here do - there is a separate long thread on this subject in the forum.

brucefan_2

Dazed_and_C0nfused said:

brucefan_2 said:

Dazed_and_C0nfused said:

You're on the right lines and without any earnings £3,600 is the maximum gross contribution.

But there is no fixed "further 20% relief".

Any higher rate relief is limited to how much higher rate tax is being paid.

If you pay higher rate tax on £300 the higher rate relief, outside of niche scenarios, is £60.

Thank you for this. It's always a relief to have a 'sounding board' to be able to clarify things.

What you've highlighted about the higher rate tax relief is obvious now it's been pointed out but I had missed that in my thinking completely, so again, thank you for taking the time to commnet.

Best Wishes,
David

There can be other less obvious benefits.

If the pension contribution means you become a basic rate taxpayer then you would have a £1,000 savings nil rate band (aka Personal Savings Allowance).

And be eligible to apply for or receive Marriage Allowance.

For info a relief at source (RAS) contribution to a SIPP increases your basic rate band by the gross contribution and your tax is calculated using that increased basic rate band.

So a £3,600 gross contribution gives you a basic rate band of £41,300 rather than £37,700.

Can I just clarify that the RAS gross contribution of £3600 comprises my contribution of 2880 and the £720 tax relief?

The upshot being that in my position of having my overall income come in at a small amount over the 40% threshold, it makes absolute sense to invest £2880 into a SIPP rather than a GIA given that this will be money for the mid to (hopefully) long-term anyway.

David

xylophone

Can I just clarify that the RAS gross contribution of £3600 comprises my contribution of 2880 and the £720 tax relief?

Yes - you pay your pension provider £2880 and the provider claims the TR and adds it to your pot.

My  pensioner relative is a higher rate tax payer and is now sighing heavily at the thought that he  can make only one more eligible  payment before he reaches age 75 in the 23/24 tax year.

brucefan_2

Audaxer said:

brucefan_2 said:

With the increase in the State Pension from April of this year and the freezing of the 40% threshold, I will find myself just a little over the wrong side of this threshold. (which is also a pain for the PSA)

Because I am not in employment as such, would my contribution be limited to a maximum of £3600 (£2880 my contribution and £720 relief sourced by the SIPP provider)?

It's not a bad position to be in if DB and SP income take you into the higher tax bracket 

Despite the high pension income, you can only pay a gross £3,600 into a SIPP each year. You can if you wish also take it out each year by a UFPLS after the tax relief is added, as many people on here do - there is a separate long thread on this subject in the forum.

Yes, I appreciate that it's a good position to be in; I didn't anticipate or actively plan for it.

I've ended up here through  a combination of the 40% threshold being frozen and the State Pension benefitting from a 10.1% increase from April and a small increase in the DB pension

I guess in common with many who frequent these forums, my wife and I try to get a balance between spending and enjoying life whilst also saving/preparing sensibly for possible care costs later in life, so that we're not a burden on our daughters. Hence my question about utilising the benefits of a SIPP for funds that would be going in to a GIA anyway

Thankyou for the info re UFPLS. This is completely new to me, as I hadn't needed to know of this before, so I'm grateful to you for drawing it to my attention. 

Best Wishes,
David

squirrelpie

Thankyou for the info re UFPLS.

But be aware that if you do withdraw the £3600 as a UFPLS some of it is taxable and so might make you a higher-rate taxpayer again. Not what you want, so do some sums.