Non earner - is paying my £2880 worth it?

Albermarle

Pat38493 said:

WYSPECIAL said:

Linton said:

The only benefit to you for going through the £3600 contribution loop would be the tax you save on the tax-free lump sum, ie 20% of £900=£180, so 6.25% return on your initial £2880, ignoring charges.

Personally I cannot be bothered to do it as £180 over a year is pretty irrelevent to my and most other people's well-being.   Better to avoid the hassle and add the £2880 to your other investments.  Then devote the time to thinking about options with a greater payback in £ terms.

Paying it into another investment will probably take just as long as paying it into a SIPP. Laptop and debit card ready and it’s done in about a minute.

So fundamentally is there any reason that you can't pay in your £2880, and then turn around the next day and take it all out again getting the £180 benefit (as long as you are still within the same marginal tax band)?

Also do you have to pick the correct provider for this?  I assume providers (or at least some of them) will charge you for the transactions involved?

Some of the cheaper providers, have extra charges for quite a few things. Some charge more for a SIPP than an ISA for example, some charge more again for drawdown, or withdrawals etc .
If you want an easy life then HL, Fidelity and I think Vanguard tend not to have these extra charges.

leosayer

Linton said:

The only benefit to you for going through the £3600 contribution loop would be the tax you save on the tax-free lump sum, ie 20% of £900=£180, so 6.25% return on your initial £2880, ignoring charges.

Personally I cannot be bothered to do it as £180 over a year is pretty irrelevent to my and most other people's well-being.   Better to avoid the hassle and add the £2880 to your other investments.  Then devote the time to thinking about options with a greater payback in £ terms.

That's one way of looking at it.

I prefer to think of it as getting paid £180 risk-free for what might be at most an hour's work.

LuckyMan1994

I note with astonishment that with the freezing of personal allowances and tax bands until 2028 I shall become a higher rate tax payer in the next year or two. However, living in Scotland, the hurdle is much lower than in England and the higher rate is 42% rather than 40%.
 
I'm retired and in my early 70s. I've not used the £3600 limit for pension contributions but wondered what people's views on this are. I don't know anything about the mechanics of exploiting this option. Do I contribute £2880 to a SIPP and let HMRC top it up to £3600? I don't currently fill out a self-assessment form - will I need to do this to get the extra 22% of tax relief.

If I understand correctly, viewed on an annual basis I can withdraw a tax-free lump sum of £900 and make a net saving of £378. Most discussion I've read about assumes that you invest the funds in cash or "near-cash" (money market funds) and withdraw the  balance each year. Presumably as an alternative you can just invest with a longer time-frame and let the SIPP grow over the years.

Any relevant information would be appreciated.

Albermarle

A rather long thread on the subject

Paying £2880 into pension when retired — MoneySavingExpert Forum

and a much shorter more recent one.
Provider shortlist for £2880 per year pension — MoneySavingExpert Forum

Dazed_and_C0nfused

LuckyMan1994 said:

I note with astonishment that with the freezing of personal allowances and tax bands until 2028 I shall become a higher rate tax payer in the next year or two. However, living in Scotland, the hurdle is much lower than in England and the higher rate is 42% rather than 40%.
 
I'm retired and in my early 70s. I've not used the £3600 limit for pension contributions but wondered what people's views on this are. I don't know anything about the mechanics of exploiting this option. Do I contribute £2880 to a SIPP and let HMRC top it up to £3600? I don't currently fill out a self-assessment form - will I need to do this to get the extra 22% of tax relief.

If I understand correctly, viewed on an annual basis I can withdraw a tax-free lump sum of £900 and make a net saving of £378. Most discussion I've read about assumes that you invest the funds in cash or "near-cash" (money market funds) and withdraw the  balance each year. Presumably as an alternative you can just invest with a longer time-frame and let the SIPP grow over the years.

Any relevant information would be appreciated.

Getting higher rate tax relief on relief at source pension contributions isn't a reason in itself to need to complete a Self Assessment return.

There is no fixed extra 22% though.  The gross contribution will increase your basic (and intermediate?) rate band meaning more income is taxed at 20/21% and less at 42%.  But if you contribute £3,600 gross and only pay higher rate tax on say £1,000 then you only get higher rate relief on £1,000, not the whole £3,600.

There can be other benefits, it might mean you retain eligibility for Marriage Allowance if that's relevant to you.

You just need to notify HMRC of the gross contribution each tax year.  

Also, you cannot get tax relief once you reach 75.  But can in the tax year you reach 75 as long as you contribute before your 75th birthday.

Albermarle

 Most discussion I've read about assumes that you invest the funds in cash or "near-cash" (money market funds) and withdraw the  balance each year. Presumably as an alternative you can just invest with a longer time-frame and let the SIPP grow over the years.

Correct, there is no need to take it out each year, and the longer you leave it the more it makes sense to invest it rather than hold it in cash. 

Hal17

I know this is a rather daft question. This current tax year will be the first time in my working life where I will not be liable to pay any income tax.

I have contributed the £2880 to my pension and am currently waiting for the tax relief of £720 to be added. I love a bit of spreadsheet budgeting & planning and like playing with the numbers.

So would you show the £720, not as a contribution into your pension as its free money, but as an additional £ growth to the original £2880 contribution? I know it is irrelevant really, but nice to see the additional % growth on the spreadsheet. When I asked my wife's opinion, she told me to get a life! 

xylophone

But can in the tax year you reach 75 as long as you contribute before your 75th birthday.

Relative ( higher rate tax payer) did this on April 6 just prior to birthday on 11th!

He does complete an annual tax return.

Sarahspangles

Hal17 said:

I know this is a rather daft question. This current tax year will be the first time in my working life where I will not be liable to pay any income tax.

I have contributed the £2880 to my pension and am currently waiting for the tax relief of £720 to be added. I love a bit of spreadsheet budgeting & planning and like playing with the numbers.

So would you show the £720, not as a contribution into your pension as its free money, but as an additional £ growth to the original £2880 contribution? I know it is irrelevant really, but nice to see the additional % growth on the spreadsheet. When I asked my wife's opinion, she told me to get a life! 

I would record it as a tax rebate on previous years’ tax paid!

leosayer

Hal17 said:

I know this is a rather daft question. This current tax year will be the first time in my working life where I will not be liable to pay any income tax.

I have contributed the £2880 to my pension and am currently waiting for the tax relief of £720 to be added. I love a bit of spreadsheet budgeting & planning and like playing with the numbers.

So would you show the £720, not as a contribution into your pension as its free money, but as an additional £ growth to the original £2880 contribution? I know it is irrelevant really, but nice to see the additional % growth on the spreadsheet. When I asked my wife's opinion, she told me to get a life! 

I treat tax relief as a contribution. That way, I only measure the performance of the assets I have invested in.  Likewise, when I start drawing down, I will show the gross amount as a withdrawal.

If you were to include relief then should you deduct the tax you might pay on drawdown? How will you account for contributions made via salary sacrifice where there is no relief? It could get complicated very easily and what would you gain by doing so?