Pension options

Wolves51

I would be grateful for some advice

I would like to retire just before my 59th birthday but not take my NHS pension until I am 60.
Would I be allowed to transfer money from my limited account (approx 40K) into a SIPP and drawdown the whole amount between 59 and 60. I would have no other earnings between 59-60 apart from earnings into my limited company which I will keep untouched.
To me, this seems more tax efficient than taking a dividend, but I wanted to check that it wouldn’t fall foul of HMRC rules

Sarahspangles

It’s very common for people to use a SIPP to fund a period before another pension commences.

You need to plan in tax years at this point. In the year(s) you contribute to your SIPP you need to stay within two limits:

1. Relevant UK earnings - unless you have other earned income this will be your taxable NHS pay ie the amount left after your NHS pension contribution.

2. Annual Allowance - currently £60k a year, but in a year you are still employed in the NHS you need to take off your Pension Input Amount which you can ask NHSBSA to estimate, or calculate yourself ie it’s not on payslips. To give you an idea of scale, mine was £16-20k in a NHS management role.

The lower of these will be the maximum amount you can pay in a year. If Annual Allowance restricts you, you do have carry forward available from previous years. But no point getting into this detail until you’ve looked at 1.

Marcon

Sarahspangles said:

It’s very common for people to use a SIPP to fund a period before another pension commences.

You need to plan in tax years at this point. In the year(s) you contribute to your SIPP you need to stay within two limits:

1. Relevant UK earnings - unless you have other earned income this will be your taxable NHS pay ie the amount left after your NHS pension contribution.

2. Annual Allowance - currently £60k a year, but in a year you are still employed in the NHS you need to take off your Pension Input Amount which you can ask NHSBSA to estimate, or calculate yourself ie it’s not on payslips. To give you an idea of scale, mine was £16-20k in a NHS management role.

The lower of these will be the maximum amount you can pay in a year. If Annual Allowance restricts you, you do have carry forward available from previous years. But no point getting into this detail until you’ve looked at 1.

1. But unless I've misunderstood the question, OP is planning to make these an employer contribution from their limited company...?

Wolves51

Yes, my limited company will make the pension contribution

Marcon

Wolves51 said:

Yes, my limited company will make the pension contribution

So you only need to worry about the annual allowance.

Sarahspangles said:

You need to plan in tax years at this point. In the year(s) you contribute to your SIPP you need to stay within two limits:

1. Relevant UK earnings - unless you have other earned income this will be your taxable NHS pay ie the amount left after your NHS pension contribution.

Employer contributions aren't limited by 'relevant earnings'. 

Wolves51

Excellent. Thank you
Just to clarify- it’s is acceptable to open a SIPP and immediately start drawing down?

Marcon

Wolves51 said:

Excellent. Thank you
Just to clarify- it’s is acceptable to open a SIPP and immediately start drawing down?

You've reached minimum pension age (currently 55), so no reason you can't. At the risk of burying you in too much information....

Be aware that as soon as you 'flexibly access' your SIPP (which in practice means taking any amount of taxable cash from it), you trigger the Money Purchase Annual Allowance. This means you are limited to contributions to a defined contribution pension of no more than £10K (including tax relief on personal contributions, if any; and employer contributions) in each future tax year. Once you've triggered the MPAA, you can't use carry forward: https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/carry-forward

Simply taking the 25% tax free lump sum doesn't trigger the MPAA.

This is worth looking at before you do anything - specifically the part headed 'Small pots' https://www.litrg.org.uk/pensions/pension-withdrawals/small-pensions#:~:text=For%20personal%20pensions%2C%20up%20to,cannot%20take%20it%20in%20stages.


Your NHS pension is a defined benefit scheme, so not impacted if you do trigger the MPAA.

Sarahspangles

Wolves51 said:

Yes, my limited company will make the pension contribution

Sorry about the confusion, I missed that.