Small SIPP?

Qyburn

cdbe11 said:

I understand I can put a small amount of cash into a pension to claim tax relief (this would be my main reason for doing it, not for any great returns). Is this a good idea and who should I use? I'd like a low risk fit and forget solution. And I'd like to do this for the next 5 years (I have a deferred CS pension to take at 60). Can I withdraw 25% tax free every year from May and should I start this tax year?

Not sure anyone picked up that. The tax free is 25%, not 25% per year.

cdbe11

Thanks rough figures are - rental income about 23k gross, 19k net (not sure what figure student finance use), wife about 63k gross - TPS around 11%, NI and tax leaves around 40k takehome so she would put in whatever is needed to reduce our assessable income to 25k (I presume my proposed 2880 pension contribution will be discounted as well). We are receiving an inheritance of around 50k which we will live off instead of earnings so the interest on this will also need to be declared. 

I'm actually surprised it's possible to do this, but I suppose you have to be in a position to manage without a fair chunk of your wage. And is there even a mechanism - to claim back what you've given to your children if it's the wrong amount (as this years contribution is based on last year's income) - or should we just say "we plan to fund our pension this year and our assessable income will be significantly less than it was last year" (and I suppose be expected to prove this at some later date)?

Regards the last comment about the 25%, yes I meant of that years contribution, so if I contribute 2880 and the tax relief is added, I can withdraw 25% of the total and repeat with fresh money every year, presumably until state pension age?

QrizB

cdbe11 said:

Thanks rough figures are - rental income about 23k gross, 19k net (not sure what figure student finance use), wife about 63k gross - TPS around 11%, NI and tax leaves around 40k takehome so she would put in whatever is needed to reduce our assessable income to 25k (I presume my proposed 2880 pension contribution will be discounted as well).

It's before tax and NI but after pension contributions, as I understand it, so you need to get 19k+63k-7k = £75k down to £25k. So £50k gross of additional pension contributions, or thereabouts, between the pair of you.

cdbe11 said:

I'm actually surprised it's possible to do this ...

Looking at the bigger picture, you're basically putting your child(ren) into student loan debt to fund your own pension. Some parents might be happy with this, others might not.

cdbe11

QrizB said:

cdbe11 said:

I'm actually surprised it's possible to do this ...

Looking at the bigger picture, you're basically putting your child(ren) into student loan debt to fund your own pension. Some parents might be happy with this, others might not.

No, I'm not happy about this - but I don't believe it's true - I'm not the sharpest tool in the box when I comes to this but as far as I can tell from the research I did, the size of the maintenance loan makes absolutely no difference to how much the student repays in their working life otherwise it's penalising the less well off even more - if this is wrong then obviously all bets are off.

LHW99

Regards the last comment about the 25%, yes I meant of that years contribution, so if I contribute 2880 and the tax relief is added, I can withdraw 25% of the total and repeat with fresh money every year, presumably until state pension age?

You should be able to continue to do that until age 75, if you have spare cash.

Sarahspangles

cdbe11 said:

QrizB said:

cdbe11 said:

I'm actually surprised it's possible to do this ...

Looking at the bigger picture, you're basically putting your child(ren) into student loan debt to fund your own pension. Some parents might be happy with this, others might not.

No, I'm not happy about this - but I don't believe it's true - I'm not the sharpest tool in the box when I comes to this but as far as I can tell from the research I did, the size of the maintenance loan makes absolutely no difference to how much the student repays in their working life otherwise it's penalising the less well off even more - if this is wrong then obviously all bets are off.

Having had two children go through Uni, it’s true that the majority of graduates won’t clear student loans before they’re written off but it’s worth some minimising their loans. My son managed to self-fund his final year (I still contributed as much I would have done had he applied for a loan) and currently he is paying down his loan through voluntary lump sums, as he has a good graduate salary.

QrizB

cdbe11 said:

QrizB said:

cdbe11 said:

I'm actually surprised it's possible to do this ...

Looking at the bigger picture, you're basically putting your child(ren) into student loan debt to fund your own pension. Some parents might be happy with this, others might not.

No, I'm not happy about this - but I don't believe it's true - I'm not the sharpest tool in the box when I comes to this but as far as I can tell from the research I did, the size of the maintenance loan makes absolutely no difference to how much the student repays in their working life otherwise it's penalising the less well off even more - if this is wrong then obviously all bets are off.

Per the MSE guide:

https://www.moneysavingexpert.com/students/student-loans-england-plan-5/

... 52% of students are expected to pay off their loan in full during the 40 year duration of payments.

The bigger the loan, the less chance you'll clear it and the longer you'll be paying an extra 9% of "graduate tax" on your income above £25k pa.

So yes, there's a good chance that your kids will pay more during their working life if they have a larger loan.

(Previous iterations of student loans had shorter repayment periods and fewer students repaid in full.)

cdbe11

Thanks that's really useful to know.  I know it sounds like we're robbing them to increase our pension, but it's really bits of the kids inheritance/money we'd like to help them with house purchases etc - we have been very frugal throughout our lives (my wife is an assistant headteacher, we have no mortgage, she drives a 15 year old banger.and most of our stuff is second hand from eBay) - we are now working for their futures - so are the pension contributions, plus tax relief plus any investment returns better than a possible longer loan repayment term (and aren't they sort of cost neutral anyway) - I don't know?

Regarding the small pensions I think I'll try and Aviva and my wife the Standard Life to see how we get on, maybe one of them offers a free pen or radio alarm clock to sweeten the deal!

As no-one seems to.know whether there's a mechanism for reclaiming what we have given our kids if our income declaration turns out to be massively overstated due to extra in year pension contributions I'll do some more research into this, or it might be better to just tell them at the start of the year and either make sure we do what we said we would or we'll have to apologise and send them a cheque.

QrizB

cdbe11 said:

As no-one seems to.know whether there's a mechanism for reclaiming what we have given our kids if our income declaration turns out to be massively overstated due to extra in year pension contributions I'll do some more research into this

Student Finance works a bit oddly. Loans for academic year 25/26 will be based on your income for 23/24, but there's an option to submit details for 25/26 if your income for that year will be much lower. See the guidance here:

https://www.gov.uk/support-child-or-partners-student-finance-application/current-year-income

The guidance is for the current 24/25 academic year but you can see the principles that apply.