Adding cash to SIPP for pension soon to be claimed

rothers

Dazed_and_C0nfused said:

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.

She earns just short of £37k per year and pays 9.1% into her NHS pension. She hasn't paid anything extra into her SIPP this financial year and will have 6.5 months of the next financial year to make more contributions. Am I right in thinking that she can put up to 100% of her wage into a pension (in total) each financial year?

Edited to add that she will be adding £45k, the £56,250 is including the tax relief.

Dazed_and_C0nfused

SVaz said:

Does she earn enough to put £45k into the pension this year ( over and above what she already contributes)?

She isn't adding £45k, she's adding £56,250.

And no, she doesn't earn enough to pay that in a single tax year.

SVaz

If she earns £37k then she can only put £37k Including the tax relief so £29000 minus her NHS contributions

rothers

Ah, ok, thanks for that both of you. Ill adjust the figures!

rothers

In that case, when she starts to take funds from the pension does the invested part remain invested and (hopefully) continue to grow?

SVaz

Yes absolutely, and by using UFPLS, she will get more tax free income in the long run

rothers

SVaz said:

Yes absolutely, and by using UFPLS, she will get more tax free income in the long run

Excuse my ignorance, what is UFPLS?

MallyGirl

UFPLS is when you take a slice of pension income - 25% of that slice is tax free and 75% is taxable. Take a £16760 slice and the taxable portion is at 0% tax rate.

Sarahspangles

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!!

I’m six months ahead of your wife. I am not going to draw any of my DB pensions immediately. They are all inflation proofed, including the NHS one.

Over the ‘gap years’ I will take UFPLS from my SIPP each year - 25% tax free, 75% taxed - to use up my personal allowance. The £12,570 taxed at 0% plus the 25% tax free is £16,760, I will pay 20% income tax on anything over this. I have the ‘first year’s money’ in an RL money market fund. It’s beating both inflation and the interest rate on cash in my SIPP. The rest is invested, but I’ll buy more money market funds at some point for ‘next year’s money’.

The reason for not taking all my tax free lump sum in one go is that that crystallises the 75% and if my investments grow I lose the benefit of being able to take 25% of a larger pot tax free. Also, if I take a lump sum I need to save/manage it so I’m not getting taxed on the interest. Some of what I draw down will go into ISAs.

If you’re paying tax on savings interest, but she has low income such as the £12,570 mentioned, you could take advantage of the fact she'll have £6,000 of starter savings band and personal savings allowance. Interest on an account in her name or half of the interest in a joint account won’t be taxed until it exceeds that.

bjorn_toby_wilde

MallyGirl said:

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

Just to add that Vanguard do have their own Sterling Short Term MMF.