Withdrawing entire SIPP fund

Dagliago

I'm a non-earner, savings income only, late fifties, no private pensions. Am I right in thinking that:

- I can contribute up to £3,600 a year into a SIPP (including the taxman's contribution)?

- when I reach 60, if the fund is no more than £16,000 (the current figure) I can withdraw the whole lot as cash, 25% of it tax-free?

Cheers.

averageguy11

oo...i'd like to knw the answr on tht 1

EdInvestor

Yes you can do this.

cloud_dog

I suppose the next logical question is whether it is financial beneficial to do this????

averageguy11

bumpety bump

meester

cloud_dog wrote: »

I suppose the next logical question is whether it is financial beneficial to do this????

You are getting basic rate tax relief putting the money in, and paying basic rate tax when you get it out, but only on 75% of the money.

On £16k you are looking at £800, I guess, based on 25% tax-free *20% tax.

I guess the income could affect your pension credit entitlement though, so perhaps this £800 is not as valuable as the lost pension credit would be in that year.....

swiss69

To benefit from this you must have no other pensions at all. This includes any company schemes you may have had in the past.

richone

Ah but when you take it our you put it back in again as a pension contribution and start the process again

averageguy11

u sure u can do tht?

dunstonh

Ah but when you take it our you put it back in again as a pension contribution and start the process again

And then you fall foul of the HMRC who could prosecute you for tax fraud.

jamesd

You could do it and recycle and you'll make 180 less costs each time you do it (at 2008/9 tax rates) if you're not a tax payer and make the maximum 2880 contribution that gets a 20% tax rebate.

Now read the rules for trivial commutation and you'll discover that you get exactly one 12 month trivial commutation period per lifetime and benefits accrued after starting the process don't count.

So it's not really practical to do this repeatedly using trivial commutation to work it without adding more cash each time.

Others may be interested in the full rules on tax-free cash recycling. Those are far more generous if you're able to add more cash each time and willing to accept not being able to take out most of the money as a lump sum.