Last minute indecision about taking defined benefits pension

Mr_Benn

I did wonder if there was a limit - thanks Mally .   I worked it out that if your a basic rate tax-payer, you make about 6.25% if you pay money into a pension, then withdraw it. The best cash ISA is currently paying just under 5% right now. 

Carefulspender1

FIREDreamer said:

CETV are at multi year lows at the moment.

Wow - that is incredible. I think if I'd seen a chart like this when I first had my wobble I wouldn't even have given transferring out a second thought. Thank you for posting this, it adds even more justification to my decision.

Carefulspender1

Mr_Benn said:

Sarahspangles said:

Remember you can pay £2,880 into a personal pension/SIPP even if you have no income and receive a tax relief top up of £720. It’s a way of boosting return on savings. If you draw it down in a year you’re not receiving enough income to use your personal allowance, you can draw it tax free.

 Excellent thread.  I have been undecided about taking my DB for a year, but think Im going down the same route asap. 

 I thought you werent supposed to pay any money you get from a pension, back into another pension fund to get another tax-free top-up ?  

I'm glad this has been helpful to you too 😊

Sarahspangles

Mr_Benn said:

Sarahspangles said:

Remember you can pay £2,880 into a personal pension/SIPP even if you have no income and receive a tax relief top up of £720. It’s a way of boosting return on savings. If you draw it down in a year you’re not receiving enough income to use your personal allowance, you can draw it tax free.

 Excellent thread.  I have been undecided about taking my DB for a year, but think Im going down the same route asap. 

 I thought you werent supposed to pay any money you get from a pension, back into another pension fund to get another tax-free top-up ?  

The are rules about taking a pension lump sum with the intention of recycling it. This is outside the scope of that.

Hoenir

Mr_Benn said:

I did wonder if there was a limit - thanks Mally .   I worked it out that if your a basic rate tax-payer, you make about 6.25% if you pay money into a pension, then withdraw it. The best cash ISA is currently paying just under 5% right now. 

SIPP's have fees. The net benefit may not in reality be that great. 

FIREDreamer

Hoenir said:

Mr_Benn said:

I did wonder if there was a limit - thanks Mally .   I worked it out that if your a basic rate tax-payer, you make about 6.25% if you pay money into a pension, then withdraw it. The best cash ISA is currently paying just under 5% right now. 

SIPP's have fees. The net benefit may not in reality be that great. 

Hargreaves Lansdown SIPP is free if you just leave the money in cash.

MeteredOut

Hoenir said:

Mr_Benn said:

I did wonder if there was a limit - thanks Mally .   I worked it out that if your a basic rate tax-payer, you make about 6.25% if you pay money into a pension, then withdraw it. The best cash ISA is currently paying just under 5% right now. 

SIPP's have fees. The net benefit may not in reality be that great. 

InvestEngine SIPP is free if you choose the self-managed option. The downside is they have limited ETF choices and trade only once a day, so you run the risk of a price movement between trade placement and execution (I suspect this is how they make their money, on top of not paying interest on uninvested cash).

af1963

FIREDreamer said:

Hoenir said:

Mr_Benn said:

I did wonder if there was a limit - thanks Mally .   I worked it out that if your a basic rate tax-payer, you make about 6.25% if you pay money into a pension, then withdraw it. The best cash ISA is currently paying just under 5% right now. 

SIPP's have fees. The net benefit may not in reality be that great. 

Hargreaves Lansdown SIPP is free if you just leave the money in cash.

And the 6.25% gain is better than any comparable annual interest rate on an ISA, because you don't need to wait a year for it. In theory you can pay it in and take out the equivalent grossed up sum on the same day, and then stick the increased amount into an ISA for the rest of the year.  ( You'd need to have existing funds in the SIPP to let you do that before the tax relief is paid a few weeks after making the contribution.)

Marcon

Mr_Benn said:

I did wonder if there was a limit - thanks Mally .   I worked it out that if your a basic rate tax-payer, you make about 6.25% if you pay money into a pension, then withdraw it. The best cash ISA is currently paying just under 5% right now. 

Bit more detail here about recycling for anyone interested: https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/

FIREDreamer

af1963 said:

FIREDreamer said:

Hoenir said:

Mr_Benn said:

I did wonder if there was a limit - thanks Mally .   I worked it out that if your a basic rate tax-payer, you make about 6.25% if you pay money into a pension, then withdraw it. The best cash ISA is currently paying just under 5% right now. 

SIPP's have fees. The net benefit may not in reality be that great. 

Hargreaves Lansdown SIPP is free if you just leave the money in cash.

And the 6.25% gain is better than any comparable annual interest rate on an ISA, because you don't need to wait a year for it. In theory you can pay it in and take out the equivalent grossed up sum on the same day, and then stick the increased amount into an ISA for the rest of the year.  ( You'd need to have existing funds in the SIPP to let you do that before the tax relief is paid a few weeks after making the contribution.)

Indeed. You have to wait up to 10 weeks for the tax relief, eg £2,880 paid in on 6 April, tax relief received on 23 June. Pay in between 1 and 5 of April and it would have arrived around 22 May.