Taking 25% from one pension pot to top up another

Scrounger

silverchoice said:

Is it possible to put all your savings into your SIPP a month before your 55th birthday get the tax relief then withdraw 25% of your pension pot on your 55th birthday?

Two months before would be more realistic, and best paid in on (or before) the 5th of the month.

Your maximum contribution would be limited by your earnings, £48k (net) max.


Scrounger

Cobbler_tone

I could technically 'recycle' but don't believe it would serve much purpose.
I have increased/decreased my pension contributions numerous times from 8%-45%. I was at 25% last month and just increased to 35%.
I 'could' activate my DB pension and take income, or a lump sum and income. All I would do is increase my contributions for a few months to take me down to NMW before I accessed the DB, which I don't do now because I want a bit more money in my pocket. You couldn't really argue that money was enabling me or being used to increase my contributions.
A bit different to contributing 3% one minute and then 60% because you have cashed a pension in, although I have no idea on the due diligence and efficiency of tracking this. Wouldn't surprise me if someone got their wrists slapped 5 years later or not at all!  

Sarahspangles

silverchoice said:

Is it possible to put all your savings into your SIPP a month before your 55th birthday get the tax relief then withdraw 25% of your pension pot on your 55th birthday?

I averaged 75% of my gross salary into pensions over the last two years before retirement, well over £100k. I could now take 25% tax free, but there would be a downside. I would ‘crystallise’ the other 75% in my pot as taxable, so it would all be taxed when I took it as pension. I would therefore lose the 25% tax free of investment growth.

But there are scenarios like high interest debt and intending to work for longer where withdrawing the 25% tax free and taking the tax hit later may make sense. Particularly if you intend to contribute more than the £10k (current) MPAA in future.

ali_bear

If you have savings in ISAs, deposit accounts, premium bonds etc you can plan to draw down on these while you ramp up pension contributions in the last years before retirement. How much you do this depends on your attitude to having ready savings available to use for the unexpected in that period, and certain limits, the tax bands etc. 

Possibly if you have a small DC pot it could make sense to cash that in before retirement. 

Cobbler_tone

ali_bear said:

If you have savings in ISAs, deposit accounts, premium bonds etc you can plan to draw down on these while you ramp up pension contributions in the last years before retirement. How much you do this depends on your attitude to having ready savings available to use for the unexpected in that period, and certain limits, the tax bands etc. 

Possibly if you have a small DC pot it could make sense to cash that in before retirement. 

....or if you have none of these (of note) and can afford to SS right down and save into your pension, as opposed to the alternative of chasing 3-4% savings accounts or regular savers. I found my 55th birthday a very important age in comfortably sacrificing (nearly) all of my spare cash each month into my pension. I keep two months salary in an account and if something really significant happened (get the sack from work?) I can easily raise funds or have two pensions. I model the immediate value of doing this, assuming 0% growth on the pension and 20% tax of 75% of the pot....after the benefit now and net cost to me. I don't think I could easily achieve this anywhere else.

I do appreciate it is a broad church and people are sitting on £200k+ of ISA's and £50k of PB's etc, whilst putting 3% into their pension.