Lump sums - are we doing the right thing

Albermarle

Ewan_Kerr said:

Ewan_Kerr said:

As for myself - it looks like a SIPP is a no brainer.

.....no brainer for my new wages. 

But what about the 20k for a S&S ISA and the 22k from Royal London? Any thoughts?

Firstly your wife can add gross to a pension all her earnings in this tax year, including her full time job ( if she retired after April ) and her potential earnings from part time but her DB income does not count)  You can add to a pension any time in a tax year, you do not have to wait until you have actually earned the money.

Otherwise can you explain this in more detail.
She also has 31k (22k after HMRC get their share) in a Royal London Open Fund which we think should be in another ISA

Ewan_Kerr

Albermarle said:

Ewan_Kerr said:

Ewan_Kerr said:

As for myself - it looks like a SIPP is a no brainer.

.....no brainer for my new wages. 

But what about the 20k for a S&S ISA and the 22k from Royal London? Any thoughts?

Firstly your wife can add gross to a pension all her earnings in this tax year, including her full time job ( if she retired after April ) and her potential earnings from part time but her DB income does not count)  You can add to a pension any time in a tax year, you do not have to wait until you have actually earned the money.

Otherwise can you explain this in more detail.
She also has 31k (22k after HMRC get their share) in a Royal London Open Fund which we think should be in another ISA

Firstly - My wife worked for the NHS and retired on the 31st March. She went back on the 2nd April to cover until a  replacement was in post and up to speed. The position has been extended until 31st December. I think her only option would be AVC from her wages as HMRC do not allow tax free lump sums to be reinvested and receive further tax relief.

Second - My wife worked in a private hospital for a number of years with a private pension (no payments made since). That pension, Royal London inform us, is currently worth 31k. She can have approx £2000 before tax, per year at todays prices, at her chosen date of 2035 (price will be static and dies with her)

OR they will let her move it to one of 7 other unit linked funds and a with profits:-

RL fixed interest pension series 2,

RL global equity pension s2,

RL high yield pension s2,

RL international equity pension s2,

RL managed pension s2,

RL money pension s2,

RL UK equity pension s2,

RL with profits

OR she can take a 22k lump sum after tax.

Spoilt for choice

All thoughts welcome

phillw

Ewan_Kerr said:
I think her only option would be AVC from her wages as HMRC do not allow tax free lump sums to be reinvested and receive further tax relief.

You can pay £10,000 into a pension per year without penalty after you have started drawing any pension (up from £4000 last year).

Buying an annuity wouldn't have triggered it, nor would cashing in a pension less than £10,000.

Linton

Ewan_Kerr said:

Albermarle said:

Ewan_Kerr said:

Ewan_Kerr said:

As for myself - it looks like a SIPP is a no brainer.

.....no brainer for my new wages. 

But what about the 20k for a S&S ISA and the 22k from Royal London? Any thoughts?

Firstly your wife can add gross to a pension all her earnings in this tax year, including her full time job ( if she retired after April ) and her potential earnings from part time but her DB income does not count)  You can add to a pension any time in a tax year, you do not have to wait until you have actually earned the money.

Otherwise can you explain this in more detail.
She also has 31k (22k after HMRC get their share) in a Royal London Open Fund which we think should be in another ISA

Firstly - My wife worked for the NHS and retired on the 31st March. She went back on the 2nd April to cover until a  replacement was in post and up to speed. The position has been extended until 31st December. I think her only option would be AVC from her wages as HMRC do not allow tax free lump sums to be reinvested and receive further tax relief.

Second - My wife worked in a private hospital for a number of years with a private pension (no payments made since). That pension, Royal London inform us, is currently worth 31k. She can have approx £2000 before tax, per year at todays prices, at her chosen date of 2035 (price will be static and dies with her)

OR they will let her move it to one of 7 other unit linked funds and a with profits:-

RL fixed interest pension series 2,

RL global equity pension s2,

RL high yield pension s2,

RL international equity pension s2,

RL managed pension s2,

RL money pension s2,

RL UK equity pension s2,

RL with profits

OR she can take a 22k lump sum after tax.

Spoilt for choice

All thoughts welcome

OR she can transfer it to another pension such as a SIPP and have full freedom in how and when she draws the money and where she invests it in the meantime.

The choice of fund should be largely driven by the timescale. If the money were all to be used next year then any more risky choice than a money fund would be imprudent.  On the other hand if she was not going to access the money for at least 10-15 years she is most likely to get the highest returns ff she invested in a more volatile broadly based high equity fund such as Global Equity.

jimjames

phillw said:

Ewan_Kerr said:
I think her only option would be AVC from her wages as HMRC do not allow tax free lump sums to be reinvested and receive further tax relief.

You can pay £10,000 into a pension per year without penalty after you have started drawing any pension (up from £4000 last year).

As I understand it this only applies to DC schemes, if you're taking DB pension which I believe NHS is, then there is no restriction on paying into another DC pension other than the usual £60k pa.

Albermarle

jimjames said:

phillw said:

Ewan_Kerr said:
I think her only option would be AVC from her wages as HMRC do not allow tax free lump sums to be reinvested and receive further tax relief.

You can pay £10,000 into a pension per year without penalty after you have started drawing any pension (up from £4000 last year).

As I understand it this only applies to DC schemes, if you're taking DB pension which I believe NHS is, then there is no restriction on paying into another DC pension other than the usual £60k pa.

I think though the OP was maybe referring to recycling rules rather than the MPAA.

I think her only option would be AVC from her wages as HMRC do not allow tax free lump sums to be reinvested and receive further tax relief.

OP - There are some restrictions on increasing pension contributions after receiving a tax free lump sum from a pension. However there is not a total block. The recycling rules are quite complicated, but in simple terms only apply if you significantly increase your normal regular pension contributions above a certain level. Whether that is as a lump sum or increased regular contributions does not matter.
Recycling of tax-free cash - Royal London for advisers ( Just say yes when it asks if you are an advisor) 

Ewan_Kerr

The NHSBSA website states: Contributions paid to increase benefits qualify for full tax relief. They cannot exceed 100% of your taxable pay.

 

So, my wife should check out making 'additional pension' payments from her wages to her NHS pension.

The NHSBSA website also states: HMRC will not allow you to withdraw a tax free lump sum and receive further tax relief by reinvesting it into a registered pension. This is known as ‘recycling lump sums’ and could apply if the money is re-invested as a lump sum or in monthly payments.

But, Royal London says: as long as contributions are not more than 30% of tax free lump sum received then recycling hasn't happened.

So the 20k (less than 30%) which I initially said should be a S&S ISA, should become a SIPP.

And transfering RLs 31k to a SIPP is not restricted by the legislation.

Or am I back to the bottom of the class?

Albermarle

Ewan_Kerr said:

The NHSBSA website states: Contributions paid to increase benefits qualify for full tax relief. They cannot exceed 100% of your taxable pay.

 

So, my wife should check out making 'additional pension' payments from her wages to her NHS pension.

The NHSBSA website also states: HMRC will not allow you to withdraw a tax free lump sum and receive further tax relief by reinvesting it into a registered pension. This is known as ‘recycling lump sums’ and could apply if the money is re-invested as a lump sum or in monthly payments.

But, Royal London says: as long as contributions are not more than 30% of tax free lump sum received then recycling hasn't happened.

So the 20k (less than 30%) which I initially said should be a S&S ISA, should become a SIPP.

And transfering RLs 31k to a SIPP is not restricted by the legislation.

Or am I back to the bottom of the class?

No looks OK. The info on the NHSBSA website about recycling is incorrect. Probably they are being cautious and not wanting to be seen to encourage recycling. 

Ewan_Kerr

Another lesson please:

On checking out SIPPs it would appear that only 100% of my UK relevant earnings will receive tax relief ie my wages (I intend to put my whole wage in as I can live off my existing pension for now). 

Although I can add lump sum contributions, they do not receive tax relief. So why would I put my 'lump sum' in a SIPP and not in an ISA? At the end of the day, when withdrawing from a SIPP, 75% of the total is taxed whereas an ISA is not taxed.

Thanks for your patience.

eskbanker

Ewan_Kerr said:

Another lesson please:

On checking out SIPPs it would appear that only 100% of my UK relevant earnings will receive tax relief ie my wages (I intend to put my whole wage in as I can live off my existing pension for now). 

Although I can add lump sum contributions, they do not receive tax relief. So why would I put my 'lump sum' in a SIPP and not in an ISA?

You wouldn't if you're already maxing out your tax-advantaged contributions to the SIPP!