Moving savings into pension

eastcorkram

I had thought this might be a good idea, but have confused myself, which isn't difficult!

Example figures only. Say I have £1,000 in a savings account, easily accessible. In retirement, or indeed before, I can withdraw that, and buy £1,000 worth of stuff, whether it's council tax, electricity or baked beans.

If I move that into a SIPP, it becomes £1,250. Sounds good. In this example, it won't be invested , due to short time frame. So just held as cash within the SIPP.  But, when I come to withdraw it, I'll have to pay tax on it, as I won't have any tax free allowance, so I'm back where I started. 

So it appears I gain nothing by moving it. I lose nothing either. So is it simpler to just leave the money in the savings account??

Dazed_and_C0nfused

eastcorkram said:

I had thought this might be a good idea, but have confused myself, which isn't difficult!

Example figures only. Say I have £1,000 in a savings account, easily accessible. In retirement, or indeed before, I can withdraw that, and buy £1,000 worth of stuff, whether it's council tax, electricity or baked beans.

If I move that into a SIPP, it becomes £1,250. Sounds good. In this example, it won't be invested , due to short time frame. So just held as cash within the SIPP.  But, when I come to withdraw it, I'll have to pay tax on it, as I won't have any tax free allowance, so I'm back where I started. 

So it appears I gain nothing by moving it. I lose nothing either. So is it simpler to just leave the money in the savings account??

You are missing the 25% TFLS.

£1,000 from you becomes £1,250 in the pension.

You take £1,250 out and ultimately receive £312.50 (TFLS) + £750 (post tax taxable element) = £1,062.50.

6.25% return for a basic rate payer.

Roger175

Also, timing is everything. Is there is any chance you might be taking early retirement?, if so you might have the opportunity to draw some of the money without being liable to tax in which case it become hugely advantageous.

eastcorkram

Dazed_and_C0nfused said:

eastcorkram said:

I had thought this might be a good idea, but have confused myself, which isn't difficult!

Example figures only. Say I have £1,000 in a savings account, easily accessible. In retirement, or indeed before, I can withdraw that, and buy £1,000 worth of stuff, whether it's council tax, electricity or baked beans.

If I move that into a SIPP, it becomes £1,250. Sounds good. In this example, it won't be invested , due to short time frame. So just held as cash within the SIPP.  But, when I come to withdraw it, I'll have to pay tax on it, as I won't have any tax free allowance, so I'm back where I started. 

So it appears I gain nothing by moving it. I lose nothing either. So is it simpler to just leave the money in the savings account??

You are missing the 25% TFLS.

£1,000 from you becomes £1,250 in the pension.

You take £1,250 out and ultimately receive £312.50 (TFLS) + £750 (post tax taxable element) = £1,062.50.

6.25% return for a basic rate payer.

Thanks. But that's a one off 6.25%, when it's withdrawn. If it just sits in a savings account, it would gain say 5% a year in interest.....every year? 

eastcorkram

Roger175 said:

Also, timing is everything. Is there is any chance you might be taking early retirement?, if so you might have the opportunity to draw some of the money without being liable to tax in which case it become hugely advantageous.

It will be early, but only slightly, so I don't think that would apply to me. It'll be in 24/25 year, but tax free allowance will already have been used up. Once I'm into 25/26 year, pensions will just use up TFA anyway.

MallyGirl

eastcorkram said:

Dazed_and_C0nfused said:

eastcorkram said:

I had thought this might be a good idea, but have confused myself, which isn't difficult!

Example figures only. Say I have £1,000 in a savings account, easily accessible. In retirement, or indeed before, I can withdraw that, and buy £1,000 worth of stuff, whether it's council tax, electricity or baked beans.

If I move that into a SIPP, it becomes £1,250. Sounds good. In this example, it won't be invested , due to short time frame. So just held as cash within the SIPP.  But, when I come to withdraw it, I'll have to pay tax on it, as I won't have any tax free allowance, so I'm back where I started. 

So it appears I gain nothing by moving it. I lose nothing either. So is it simpler to just leave the money in the savings account??

You are missing the 25% TFLS.

£1,000 from you becomes £1,250 in the pension.

You take £1,250 out and ultimately receive £312.50 (TFLS) + £750 (post tax taxable element) = £1,062.50.

6.25% return for a basic rate payer.

Thanks. But that's a one off 6.25%, when it's withdrawn. If it just sits in a savings account, it would gain say 5% a year in interest.....every year? 

some SIPPs now offer interest on cash - although not as much as a savings account - or you could go for a MMF

Dazed_and_C0nfused

eastcorkram said:

Dazed_and_C0nfused said:

eastcorkram said:

I had thought this might be a good idea, but have confused myself, which isn't difficult!

Example figures only. Say I have £1,000 in a savings account, easily accessible. In retirement, or indeed before, I can withdraw that, and buy £1,000 worth of stuff, whether it's council tax, electricity or baked beans.

If I move that into a SIPP, it becomes £1,250. Sounds good. In this example, it won't be invested , due to short time frame. So just held as cash within the SIPP.  But, when I come to withdraw it, I'll have to pay tax on it, as I won't have any tax free allowance, so I'm back where I started. 

So it appears I gain nothing by moving it. I lose nothing either. So is it simpler to just leave the money in the savings account??

You are missing the 25% TFLS.

£1,000 from you becomes £1,250 in the pension.

You take £1,250 out and ultimately receive £312.50 (TFLS) + £750 (post tax taxable element) = £1,062.50.

6.25% return for a basic rate payer.

Thanks. But that's a one off 6.25%, when it's withdrawn. If it just sits in a savings account, it would gain say 5% a year in interest.....every year? 

But once you're 55 you can get the money in and out of the pension in fairly quick order and have the money back in a savings account earning 5% for most of the year.

On top of the 6.25%.

qsk

I actually have been wondering the same question. The other advantage, if I read it correctly, is that the pension port can be passed to children free of inheritance tax, if you pass away before 75.

Albermarle

qsk said:

I actually have been wondering the same question. The other advantage, if I read it correctly, is that the pension port can be passed to children free of inheritance tax, if you pass away before 75.

Pension pots are not included in your estate ( so not included in IHT calculations) regardless of when you die.

If you die before 75 the person you leave the pot to can withdraw it tax free. After 75 it is all taxable. 

These are two different issues.