Lump Sum Payment : Source of Money

ossian

Hi!

My pension company requires me to fill in a form every time I make a lump sum payment (which is kind of annoying). The pension is an Interactive Investor SIPP administered by AJ Bell.

The question that troubles me is when they ask the source of the contribution. Does it make a difference to the tax status if the answer is say investments/savings as opposed to Income from Employment?

The reason I ask is that I may build up savings before making a payment so I cannot see a huge difference between savings and income from employment as savings is just a time delayed version of income.

Can anyone explain why this information is needed. Previous non-SIPP pensions haven't required this information from me.

Thanks,
Ossian

doelani

A lot of places will ask where funds come from for Money Laundering purposed. If you are in doubt as your pension company why they require this information.

EdInvestor

They may also be watching out for recycled tax free cash from other pensions if you are over 50.

It's a frequent question these days.

dunstonh

My pension company requires me to fill in a form every time I make a lump sum payment (which is kind of annoying).

Whilst annoying they have no choice as you have to certify your eligibility to contribute.

The question that troubles me is when they ask the source of the contribution. Does it make a difference to the tax status if the answer is say investments/savings as opposed to Income from Employment?

That is a money laundering question. Source of funds needs to be known. For larger contributions they may then ask for evidence.

ossian

Thank you all. So it doesn't make any difference where the money comes from (I'm nearer 40 than 50) as long as it's legitimate and from savings or income?

After 50 I assume they are looking for people taking the tax free lump sum and chucking it into another pension.

Are you allowed to take ISA money and pay it into a pension? I have no desire to do so (even once close to retirement as the tax free income source may prove useful if I am anywhere near the higher rate tax band (although nobody knows what the tax system will look like then!),

Thanks,
Ossian

EdInvestor

ossian wrote: »

Thank you all. So it doesn't make any difference where the money comes from (I'm nearer 40 than 50) as long as it's legitimate

Correct: it may come from a property or other sale or inheritance, whatever.

Are you allowed to take ISA money and pay it into a pension?

Yes.

jamesd

ossian, sounds inconvenient. FYI it's not required for lump sum contributions to the Hargreaves Lansdown SIPP, which accepts direct payments online with a debit card.

No problem to move cash ISA money to a pension but you've given one reason why it may not be desirable: tax-free income. If your likely income is between 21k and 26k a year in today's money then tax free income may avoid reduction in the age-related part of the personal allowance that those over 65 get. The other main reason for having the money in an ISA instead of pension is the availability of the full lump sum, not just 25%. That makes it very useful for emergency spending.

So long as you're using investments other than savings accounts the investment growth will be comparable to that in a pension, if the investments are the same.