SIPP payments and pension

estorilhammy

Hi Everyone,

Firstly a little background. I am 61, expecting to retire between 63 and 65. I have 2 X pensions and will obviously receive my state pension at 67. I will pay tax until the day I die but I'm not too upset about that.

My wife is 10 years younger and employed in the NHS. If she (as expected) retires (or gives up full time work) when I do, she will be too young to collect her NHS pension and it would be a pittance. We own a small flat which she receives the rental income from and I want to open a SIPP for her, paying the rental income in each year. We could live on my pensions alone plus we have cash savings and I am due another 2 X chunky tax free cash payouts which we can ISA or SIPP between us.

I have looked on several SIPP websites but the information all seems to be the same. What I want to know is if the wife claims her 25% tax free payout at age 57, does she also have to claim her NHS pension from the same date? We expect to take 25% and then pay it straight into an ISA. She could then use drawdown to ensure she only takes out enough, when added to her rental income, not to broach her personal allowance.

If she isn't working, she could then pay £3600 per annum into a different SIPP and then earn the benefits again although I feel she would broach her personal tax allowance if she waits until she is 67 due to her also receiving her state pension.

Is my rudimentary planning and assumptions correct?

Thanks

Richard

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QrizB

What I want to know is if the wife claims her 25% tax free payout at age 57, does she also have to claim her NHS pension from the same date?

When you say "25% tax free" do you mean from her SIPP or are you referring to the lump sum you can get alongside the NHS pension?

The two pensions are separate, so she could draw the 25% from her SIPP without putting the NHS pension into payment. However if she takes the tax-free cash from her NHS pension she'll have to start taking that pension at the same time.

We could live on my pensions alone

Could your wife live comfortably on her pensions plus whatever survivor benefts she gets from your pensions, in the likely event that she survives you?

I feel she would broach her personal tax allowance if she waits until she is 67 due to her also receiving her state pension.

Paying income tax means you've got the income. Don't deprive yourself of 80% of something simply to avoid paying 20% to the government.

kermchem

Your wife cannot pay the rental income on the flat into a SIPP. The limit on how much your wife can pay into all pensions in a tax year is either £3600 gross or her income from earnings if higher. Rental income can only be paid into a SIPP if she is in fact living on the rental income whilst working and is paying her salary into the SIPP.

DRS1

How much is the rental income compared to her earnings from the NHS?

estorilhammy

Thanks for your reply. The 25% tax free payout at 57 would be from her SIPP.

You have answered my main question in that she can take money from the SIPP without drawing on her NHS pension.

Your last paragraph makes good sense. I think I am aiming to use the 20% SIPP rebate when paying in, withdraw the correct amount as drawdown and then put it in a share ISA, hopefully giving her growth from both.

She has more assets to come as her parents transfer wealth so her ISAs, widows pensions, savings and rental income plus our main property to sell should see her OK.

dunstonh

We expect to take 25% and then pay it straight into an ISA. She could then use drawdown to ensure she only takes out enough, when added to her rental income, not to broach her personal allowance.

Why would you take the 25% out? Under Rachel Reeves' taxation changes, ISAs are going to be less tax efficient than pensions unless you go 100% equities. Why not just take out the minimum tax-free cash required for the taxable amount needed?

Like above, are you referring to an HS pension which doesn't have a 25% tax-free cash? Or are there other pensions that she has that she can use?

estorilhammy

Your wife cannot pay the rental income on the flat into a SIPP.

What I meant to say was an amount roughly equal to. She earns just under 40K pa from the NHS and net rent would be about 5K. I am paying approx 10K per year into my AVC and would probably aim to pay 6K per year into the wife's SIPP from her wage.

estorilhammy

Like above, are you referring to an HS pension which doesn't have a 25% tax-free cash? Or are there other pensions that she has that she can use?

The wife only has a NEST pension (not worth too much) and her NHS pension (only paid in for about 6 years).

Why would you take the 25% out? Under Rachel Reeves' taxation changes, ISAs are going to be less tax efficient than pensions unless you go 100% equities. Why not just take out the minimum tax-free cash required for the taxable amount needed?

My thinking is that my wife will have received a tax rebate of 20% as she deposits money into her SIPP. Once it is in there and she has given up work then she would take out 25% of the SIPP tax free and then deposit it into an equities ISA. She will then have a period of up to 10 years where she can draw down (living off my pensions, her rent and our savings etc) before her state pension and NHS pension kicks in (although she could defer her state pension). It would just seem more tax efficient to draw down year on year without paying tax until she has drained it.

She would also be paying £3600 into her new SIPP each year....

dunstonh

My thinking is that my wife will have received a tax rebate of 20% as she deposits money into her SIPP. Once it is in there and she has given up work then she would take out 25% of the SIPP tax free and then deposit it into an equities ISA.

What do you think that achieving that, leaving it in the pension and taking it each year, cannot?

It's unusual for someone in retirement to be 100% equities. With the new ISA rules (although not fully published yet), if she isnt going to be 100% equities in the ISA then she could end up paying tax in the ISA that would not be paid in the pension.

estorilhammy

What do you think that achieving that, leaving it in the pension and taking it each year, cannot?

We have chunky cash ISAs full of cash and more cash to come (outside of the ISAs). Once you have got the money in the SIPP, there's nothing it can do (when invested in equities) that can't be done in a share ISA. However, if I want to remove every penny from my ISA, I can do, without worrying about tax at that time. If I have my money in a SIPP, I would have to think about the tax regime on withdrawal

dunstonh

We have chunky cash ISAs full of cash and more cash to come (outside of the ISAs). Once you have got the money in the SIPP, there's nothing it can do (when invested in equities) that can't be done in a share ISA.

Have you taken into account the 2027-28 changes in taxation on ISAs?

If I have my money in a SIPP, I would have to think about the tax regime on withdrawal

But now you have to consider a change in the tax regime of ISAs.