Over 55 new SIPP/other pension - limits on drawing? 17 March at 3:49PM in Pensions, annuities & retirement planning 5 replies 301 views

real26

I'm over 55, have taken early pension (defined benefit, w/25% lump sum) but now I'm looking at whether it's worth putting some money into a pension via SIPP/other. Still working, might sometimes hit 40% tax.

So, if I put in e.g. £4k, gov adds £1k so fund is £5k. (and if I've paid some 40% I might get a bit of tax back)

Can I then take 25% tax free, £1,250, leaving £3,750 in the pension to grow further? Seems to good to be true, I must be missing something. 

Marcon

real26 said:

I'm over 55, have taken early pension (defined benefit, w/25% lump sum) but now I'm looking at whether it's worth putting some money into a pension via SIPP/other. Still working, might sometimes hit 40% tax.

So, if I put in e.g. £4k, gov adds £1k so fund is £5k. (and if I've paid some 40% I might get a bit of tax back)

Can I then take 25% tax free, £1,250, leaving £3,750 in the pension to grow further? Seems to good to be true, I must be missing something. 

Correct. You're not missing anything! 

Dazed_and_C0nfused

Just remember that if the £3,750 grows to say £5,000 by the time you come to take it out then the whole £5,000 is taxable.

Which isn't necessarily a problem but it is one thing to factor in if taking the TFLS up front.

Albermarle

 (and if I've paid some 40% I might get a bit of tax back)

Exactly how you would benefit from any higher rate tax relief, will depend on how your pension contributions are made.

Seems to good to be true, I must be missing something. 

If you get 20% tax relief, and pay 20% tax on the 75% remaining after taking the 25% tax free, the overall tax benefit is 6.25%. If you get some 40% tax relief the benefit is a lot more.

real26

Marcon said:

real26 said:

I'm over 55, have taken early pension (defined benefit, w/25% lump sum) but now I'm looking at whether it's worth putting some money into a pension via SIPP/other. Still working, might sometimes hit 40% tax.

So, if I put in e.g. £4k, gov adds £1k so fund is £5k. (and if I've paid some 40% I might get a bit of tax back)

Can I then take 25% tax free, £1,250, leaving £3,750 in the pension to grow further? Seems to good to be true, I must be missing something. 

Correct. You're not missing anything! 

So could I then (in theory) take out the £3750, assuming I'm below 40% tax, pay 20% tax and get £3k, so for throwing in £4000 I'd get £4,250?

Obviously it requires staying within annual limit, lifetime limit and working the 25%/40% tax bands.

xylophone

Are you a member of your current employer's pension scheme?

If so, is it possible to increase your contributions to that rather than starting a separate scheme?

Have you obtained a State Pension Forecast?

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