Setting up a SIPP when drawing a DB pension and working PT

Dazed_and_C0nfused

But contributing £2,880 (net) whilst a higher rate payer paying 40% tax on at least £2,700 will generate a return of 16.66% if the gross contribution is withdrawn in the same tax year.

£2,880 net becomes £3,600 with basic rate relief.

Higher rate tax relief will save £720 so the real net cost is £2,160.

When the pension of £3,600 is taken £900 will be a TFLS and £2,700 will be taxed.

£2,700 - 40% tax = £1,620 + £900 TFLS = £2,520.

Qyburn

OP has said he's paying basic rate at the moment, will only pay HR once his main DB pension kicks in.

But I guess he could recycle though the SIPP paying up to the lower of MPAA or his relevant earning, and draw it out the same year.  £3,200 paid in makes £4,000 gross. Withdrawn as UFPLS and basic rate tax nets £3,400.

Albermarle

Qyburn said:

OP has said he's paying basic rate at the moment, will only pay HR once his main DB pension kicks in.

But I guess he could recycle though the SIPP paying up to the lower of MPAA or his relevant earning, and draw it out the same year.  £3,200 paid in makes £4,000 gross. Withdrawn as UFPLS and basic rate tax nets £3,400.

The MPAA has been increased to £10K in the last budget, and anyway does not apply when a DB pension is taken.

OP - Getting 20% tax relief on pension contributions, but paying 40% tax on withdrawals is actually quite an unusual situation ( It is more common the other way around) but as you have worked out it does mean that contributing to a pension is not a great idea.
However as pointed out above once you become a 40% taxpayer, it makes more sense again.