Adding cash to SIPP for pension soon to be claimed

rothers

Hi All,

My wife will be 55 in October 2025 and is planning on retiring from the NHS. I am already retired and have enough income to support my wife who will only have an annual pension of around £4k. In addition to her small NHS pension my wife has a small SIPP which we intend to take immediately on retirement to take advantage of her tax free allowance before the state pension kicks in.

It currently sits at around £75k but we intend to put more in this financial year and next (before she retires) to ensure that she can take her entire tax free allowance (as well as the 25% tax free amount) for the 12 years until she becomes eligible for her state pension.

My question for you wise people is this, would you put it in as cash, leave it as cash and withdraw that cash in the first two to three years of her retirement (leaving the invested part to hopefully grow) or would you invest it as the rest of her SIPP is currently?

I hope that I have made sense, if I need to clear anything up please get back to me.

Many Thanks 

MallyGirl

maybe have a look at money market funds (MMF) as a product between those 2 options. An often mentioned one is Royal London Short Term Money Market.
The SIPP may well pay some interest on cash deposits.

DE_612183

Surely if you pay into the SIPP you get the government tax relief added on - then when she takes it out - up to 12700 will be tax free so it's free money?

rothers

DE_612183 said:

Surely if you pay into the SIPP you get the government tax relief added on - then when she takes it out - up to 12700 will be tax free so it's free money?

That is why she's putting more in, to take advantage of the tax relief, my question is whether it is worth investing or keeping as cash (within the SIPP) as she will be taking it out soon.

rothers

MallyGirl said:

maybe have a look at money market funds (MMF) as a product between those 2 options. An often mentioned one is Royal London Short Term Money Market.
The SIPP may well pay some interest on cash deposits.

Do MMFs get tax relief from the government?

QrizB

rothers said:

MallyGirl said:

maybe have a look at money market funds (MMF) as a product between those 2 options. An often mentioned one is Royal London Short Term Money Market.
The SIPP may well pay some interest on cash deposits.

Do MMFs get tax relief from the government?

Inside a pension they do.

Dazed_and_C0nfused

rothers said:

MallyGirl said:

maybe have a look at money market funds (MMF) as a product between those 2 options. An often mentioned one is Royal London Short Term Money Market.
The SIPP may well pay some interest on cash deposits.

Do MMFs get tax relief from the government?

No, but relief at source pension contributions do.

rothers

Let's say that she just puts it into the vanguard SIPP that she currently has invested as cash. Before she retires she can put £45k in which will attract and additional 25% tax relief (£11,250) which means she will have a total of around £131,250 (£56,250 in cash and £75,000 invested). When she retires can she take the 25% tax free amount of the whole pot in one go (circa £33k) and take that from the cash part of the sipp, leaving the invested part to be drawn down over the next 12 years?

I hope that I am making a little bit of sense!!

Dazed_and_C0nfused

rothers said:

Let's say that she just puts it into the vanguard SIPP that she currently has invested as cash. Before she retires she can put £45k in which will attract and additional 25% tax relief (£11,250) which means she will have a total of around £131,250 (£56,250 in cash and £75,000 invested). When she retires can she take the 25% tax free amount of the whole pot in one go (circa £33k) and take that from the cash part of the sipp, leaving the invested part to be drawn down over the next 12 years?

I hope that I am making a little bit of sense!!

Does she earn enough to add £56,250 across this and the tax year?

As in meeting the rules, not has she got the cash in the bank to do it.

MallyGirl

yes that sounds fine. As long as she is earning more than the £45k plus tax relief plus any workplace pension gross contributions then all is well. If she is with Vanguard then forget about Royal London MMF - she can only hold Vanguard products in there

SVaz

She could get more tax free income using UFPLS.  25% of every payment is tax free, 75% taxable so she could take £16k+ in tax free income every year.
Keeping the bulk invested is a good idea with 13 years to go.  Maybe 1 year cash, 5 years MMF and 5 years in equities /mixed assets.