Opening a SIPP after I retire on a DB pension

dbs

I will be retiring this summer age 61 with two DB pensions giving me £18,000 a year and a £120,000 lump sum, would it be possible to pay into a SIPP  with my pension income or my savings and get tax relief?

I also have about £100,000 in savings and share ISA.

My partner has a pension income of £18,000 as well.
 
We have no mortgage or debt.

Bimbly

You can pay £2880 into a SIPP and HMRC will add £720 to give you £3600, as you do not have any earned income.

Pension income does not count has earned income.

Your partner can do the same.

You can do this every tax year until age 75 when tax relief on pension contributions stops.

Doctor_Who

dbs said:

I will be retiring this summer age 61 with two DB pensions giving me £18,000 a year and a £120,000 lump sum, would it be possible to pay into a SIPP  with my pension income or my savings and get tax relief?

I also have about £100,000 in savings and share ISA.

My partner has a pension income of £18,000 as well.
 
We have no mortgage or debt.

HMRC define money that can attract tax relief when put in a pension as Relevant UK earnings, a long list of which can be found on the Gov.uk website. Pension and savings income don't count as Relevant UK earnings. You can contribute £2880 net (£3600 gross) with zero Relevant UK earnings.

Albermarle

However if you have been in employment for a few months after the tax year started on April 6th 2023, you can contribute to a pension and get tax relief based on those few months earnings.
After that for tax year 24/25 onwards you will be restricted to what you can add as per the previous posts.

dbs

Albermarle said:

However if you have been in employment for a few months after the tax year started on April 6th 2023, you can contribute to a pension and get tax relief based on those few months earnings.
After that for tax year 24/25 onwards you will be restricted to what you can add as per the previous posts.

   Retiring at the end of July so I could get tax relief on those earnings paying into a SIPP

Doctor_Who

Albermarle said:

However if you have been in employment for a few months after the tax year started on April 6th 2023, you can contribute to a pension and get tax relief based on those few months earnings.
After that for tax year 24/25 onwards you will be restricted to what you can add as per the previous posts.

Good point. As well as tax relief on any SIPP contribution the OP may be due a tax refund from HMRC for overpaid income tax (if subject to PAYE). I left work in September and received a £1200 refund. Win-win.

Edit: Income tax refund may not apply if DB pension becomes payable in the current tax year.

mark55man

Also you get the rebate on taxable income even if within your PA of £12570.  What matters is that it was taxable - remember to contribute the net amount that will gross up to your final income - and yes I can't believe it either

Albermarle

mark55man said:

Also you get the rebate on taxable income even if within your PA of £12570.  What matters is that it was taxable - remember to contribute the net amount that will gross up to your final income - and yes I can't believe it either

It sounds generous, but not many people earning below £12570, will be able to make pension contributions of around 10 grand. So for HMRC it is peanuts, compared to the Billions that higher rate tax relief costs.

dbs

Are there any rules in case I want to cash in the SIPP at any time in the future. My plan is to pay the maximum into the SIPP every year from my savings for the long term but if the situation arises I might need the money because I would like to help my daughter get on the property ladder as she is currently renting at the moment. 

QrizB

dbs said:

Are there any rules in case I want to cash in the SIPP at any time in the future.

Like every other SIPP, when you come to take the money out you get 25% tax-free and the remaining 75% is taxed as your income at your marginal rate.

Based on your £18k pa pension, you will be a 20% taxpayer and (depending on the sums involved) income from the SIPP could then move you into the 40% band.

Pat38493

Also taking money out of a SIPP may not be as simple or quick as just doing a bank transfer - it usually takes some days to do, and if it’s the first time you have taken money out I think you will have to fill in forms and have discussions with them on the phone.  I think this is because they have to make sure you are aware of the implications of what you are doing (triggering MPAA and so on).