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    • nxdmsandkaskdjaqd
    • By nxdmsandkaskdjaqd 3rd Jan 17, 7:39 AM
    • 575Posts
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    nxdmsandkaskdjaqd
    Paying 2880 into pension when retired
    • #1
    • 3rd Jan 17, 7:39 AM
    Paying 2880 into pension when retired 3rd Jan 17 at 7:39 AM
    Jamesd wrote in another thread the following:
    "She can make 720 a year tax free by paying 2880 net into a pension, having it grossed up to 3600 then withdrawing it. Can only do the withdrawing part from age 55. Can only pay in for this until age 75."

    I have just retired at 60 and have transferred my DC pension to a new SIPP. I plan to live off savings till state pension kicks in.

    I am correct that the above approach should be part of my strategy of being tax efficient?
    Last edited by nxdmsandkaskdjaqd; 03-01-2017 at 9:14 AM.
Page 39
    • bioboybill
    • By bioboybill 12th Mar 19, 2:50 PM
    • 3,049 Posts
    • 1,497 Thanks
    bioboybill
    My wife paid 2880 into a SIPP with HL end Jan. They said the 720 will be added 21st March, so she said she wants to withdraw 2600 end March and leave 1K in as cash. They sent her an illustration for taking uncrystallised funds pension lump sums, and a risk questionnaire. It says by doing this she will be limited to 4K per year future contributions into money purchase schemes. Is this the correct way to do it rather than drawdown? She doesn't want to invest, but just take the 720 tax relief each year, as her income is about 9.3K/year D.C. pension.

    I assume she will have to get the money end of March to include as this tax year's income?
    • Aiki
    • By Aiki 12th Mar 19, 3:30 PM
    • 28 Posts
    • 21 Thanks
    Aiki
    My interpretation of the information below is that if you only took the tax free lump sum aspect of the 3600, i.e. 900, then future contributions tax relief would not be affected. In your example you were looking to take 2600 hence triggering the change in annual allowance. This may or not be a problem in the future.

    At least with this being your only taxable income, all the withdrawal is free of tax so you are making good use of the tax relief



    From the Money Advice Service.

    Tax relief on future pension contributions

    You can set up an income drawdown scheme and continue paying into a pension, but the maximum annual pension contributions you can get tax relief on once you start taking income under drawdown is 4,000 (or the amount of your earnings if it's less). This is down from the usual Annual Allowance of up to 40,000. If you want to carry on building up your pension pot, this may influence when you start taking your drawdown income.
    The tax relief you get for future pension savings is not affected if you take the tax-free lump sum but no income.
    If you're not earning, you can still get tax relief on contributions up to 3,600.
  • jamesd
    Small pots
    Originally posted by TBC15
    The tax corrections are right, the money is taxed as normal. The small pot rule withdrawing is not classed as flexible withdrawing so it doesn't trigger the money purchase annul allowance cut to 4,000 a year of permitted defined contribution pension contributions. That's useful for people who aren't completely retired yet.

    The 10,000 can be either crystallised or uncrystallised money. To almost maximise the benefit you can take a 25% tax free lump sum from 13,330 and have the remaining 9,997.50 placed into a flexible drawdown account. Then you can use the small pot rule on the 9,997.50.
  • jamesd
    It is the use of UFPLS that triggers the cut for your wife. No restriction if she just takes the tax free lump sum and has the rest go into a flexi-access drawdown account.

    She can wait until there's almost 10k in the flexi-access drawdown account then take that using the small pot rule if she likes. That rule also doesn't trigger the cut. She doesn't have to wait but you can only use the small pot rule three times ijn your life on this sort of pension so waiting can be a good move.
    Last edited by jamesd; 12-03-2019 at 11:17 PM.
    • bioboybill
    • By bioboybill 13th Mar 19, 10:58 AM
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    bioboybill
    It is the use of UFPLS that triggers the cut for your wife. No restriction if she just takes the tax free lump sum and has the rest go into a flexi-access drawdown account.

    She can wait until there's almost 10k in the flexi-access drawdown account then take that using the small pot rule if she likes. That rule also doesn't trigger the cut. She doesn't have to wait but you can only use the small pot rule three times ijn your life on this sort of pension so waiting can be a good move.
    Originally posted by jamesd
    I am still slightly confused. My wife already has income from another pension of about 9.3K per year. I was hoping she could take out the 2600 with 650 of that being tax free and the other 1950 being within her personal allowance. I know she would pay tax on it at first and get that back from HMRC. If she withdrew just the 900 (which I think you are suggesting?) and let the rest build up until it was c. 10K when she drew that down wouldn't that put her way over her personal allowance with the pension she already receives and then she would pay a load of tax on it?
    • xylophone
    • By xylophone 13th Mar 19, 11:14 AM
    • 29,487 Posts
    • 17,956 Thanks
    xylophone
    Is the situation that your wife has no plans to return to paid employment?

    If so, then she doesn't need to concern herself about the MPAA.

    It seems that all she wants to do is take the PCLS from the SIPP and then as much of the balance (income) as keeps her within her tax allowance for the current year?

    Has she spoken to HL on the phone and explained that this is what she wishes to do?

    And will she have time to arrange it and take the income within this tax year?

    Has your wife obtained a state pension statement?

    https://www.gov.uk/check-state-pension
    • busybee100
    • By busybee100 13th Mar 19, 12:47 PM
    • 1,268 Posts
    • 2,551 Thanks
    busybee100

    The 10,000 can be either crystallised or uncrystallised money. To almost maximise the benefit you can take a 25% tax free lump sum from 13,330 and have the remaining 9,997.50 placed into a flexible drawdown account. Then you can use the small pot rule on the 9,997.50.
    Originally posted by jamesd
    Thank you for that James.
    When would tax be paid on a small pot? Would it be declared on a tax return rather than deducted on withdrawal?

  • jamesd
    It'll still go through the pension PAYE scheme and be taxed before being paid.
  • jamesd
    My wife already has income from another pension of about 9.3K per year. I was hoping she could take out the 2600 with 650 of that being tax free and the other 1950 being within her personal allowance. I know she would pay tax on it at first and get that back from HMRC. If she withdrew just the 900 (which I think you are suggesting?) and let the rest build up until it was c. 10K when she drew that down wouldn't that put her way over her personal allowance with the pension she already receives and then she would pay a load of tax on it?
    Originally posted by bioboybill
    I was thinking that she might want to use the small pot rule to avoid having the 4,000 a year cap on pension contributions, but also get out as much money using the small pot rule. You're right that this would increase the tax cost so it may not be the best choice.

    She could take the 900 and use the small pot rule n the 2700 if she wants to.
    • bioboybill
    • By bioboybill 14th Mar 19, 11:48 AM
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    • 1,497 Thanks
    bioboybill
    I was thinking that she might want to use the small pot rule to avoid having the 4,000 a year cap on pension contributions, but also get out as much money using the small pot rule. You're right that this would increase the tax cost so it may not be the best choice.

    She could take the 900 and use the small pot rule n the 2700 if she wants to.
    Originally posted by jamesd
    There's no chance she will work again, and this is the only pension contributions she will make each year, so is she ok to take the 2600 as is being suggested and repeat each year? Except take the whole 3600 next time and leave the 1K as cash?
    • where are we
    • By where are we 14th Mar 19, 9:07 PM
    • 258 Posts
    • 75 Thanks
    where are we
    You are correct - take a UFPLS of 2600 before 6th April. 650 will be tax free and 1950 will be taxable. Your wife`s income for this tax year will then be 9300 + 1950 = 11250 which is less than her personal allowance of 11850 for this tax year 18 - 19 . HMRC will probably take a small amount of tax but she can claim this back. Next tax year she should contribute 2880 to which HMRC will add 720 making her HL SIPP worth 4600. She should take a UFPLS next tax year 19 - 20 of 3600 - 900 tax free and 2700 taxable. The personal allowance for next tax year will be 12500, and her income will be 9300 + 2700 = 12000 so she will have no tax to pay. When your wife reaches state pension age, she will become a tax payer and the gain using this procedure will a lot less.She does not have much time left, but HL are very efficient and it is doable. She can complete the risk assessment by phone - might be quicker?
    • Dazed and confused
    • By Dazed and confused 14th Mar 19, 9:31 PM
    • 4,755 Posts
    • 2,445 Thanks
    Dazed and confused
    I am still slightly confused. My wife already has income from another pension of about 9.3K per year. I was hoping she could take out the 2600 with 650 of that being tax free and the other 1950 being within her personal allowance.
    If she has applied for Marriage Allowance for 2018:19 then she will end up having 118 tax to pay.
  • jamesd
    Yes, since there's no plan to work in the future it's fine to take the 2600 via UFPLS.
    • vixen1500
    • By vixen1500 15th Mar 19, 8:59 AM
    • 544 Posts
    • 1,056 Thanks
    vixen1500
    Hl sipp
    Could someone please clarify what I should do next.
    Am I doing it right?

    Paid in the 2880 to get tax relief

    Once tax relief added I can withdraw all but 1000 - but there appears to be various ways to do this - which way would be best?

    Next tax year I can pay in the 2880 + the equivalent amount of my earnings for the 2019/19 tax year

    Then again once tax relief added withdraw money (but being 2nd year no longer need to keep the full 1000).

    I can continue to do this untl 75 or the rules changed.

    What happens to the 1000? Does it just sit as a cash sum? I assume it does grow whilst there.

    Sorry if this is covering old ground but the more I read over this thread the more confused I seem to get.

    Beginning to think this is a little bit beyond my financial knowledge
    Typically confused and asking for advice
    • AlanP
    • By AlanP 15th Mar 19, 9:26 AM
    • 1,595 Posts
    • 1,273 Thanks
    AlanP
    Could someone please clarify what I should do next.
    Am I doing it right?

    Paid in the 2880 to get tax relief

    Once tax relief added I can withdraw all but 1000 - but there appears to be various ways to do this - which way would be best?

    Next tax year I can pay in the 2880 + the equivalent amount of my earnings for the 2019/19 tax year

    Then again once tax relief added withdraw money (but being 2nd year no longer need to keep the full 1000).

    I can continue to do this untl 75 or the rules changed.

    What happens to the 1000? Does it just sit as a cash sum? I assume it does grow whilst there.

    Sorry if this is covering old ground but the more I read over this thread the more confused I seem to get.

    Beginning to think this is a little bit beyond my financial knowledge
    Originally posted by vixen1500
    Is this with HL? They get mentioned on here a fair bit for this aspect as they do not charge a fee if contribution is left in cash and not invested? You do need to keep 1000 in there to avoid account closure and a fee.

    So if 1k is kept in cash no fee to pay but also no investment growth.
    • vixen1500
    • By vixen1500 15th Mar 19, 9:34 AM
    • 544 Posts
    • 1,056 Thanks
    vixen1500
    Is this with HL? They get mentioned on here a fair bit for this aspect as they do not charge a fee if contribution is left in cash and not invested? You do need to keep 1000 in there to avoid account closure and a fee.

    So if 1k is kept in cash no fee to pay but also no investment growth.
    Originally posted by AlanP
    Yes with HL

    Thanks
    Typically confused and asking for advice
    • MallyGirl
    • By MallyGirl 15th Mar 19, 9:38 AM
    • 3,657 Posts
    • 9,066 Thanks
    MallyGirl

    Next tax year I can pay in the 2880 + the equivalent amount of my earnings for the 2019/19 tax year
    Originally posted by vixen1500
    If you have earnings then you can contribute up to those earnings (gross). The 2880 is only relevant if you have no earnings.
    You cannot contribute earnings plus 2880.
    • etienneg
    • By etienneg 15th Mar 19, 9:53 AM
    • 168 Posts
    • 136 Thanks
    etienneg
    Next tax year I can pay in the 2880 + the equivalent amount of my earnings for the 2019/19 tax year
    Originally posted by vixen1500
    This is not correct. The rule is that you can contribute up to your gross earnings (maximum 40,000), OR 3,600 (gross), whichever is higher. Note: it's OR, not AND.

    What is confusing to people is that amounts contributed to a pension are always given as gross amounts. So, if you have no earnings, you can contribute up to 3,600. This means you handing over 2,880 and HMRC adding 720, so 3,600 is added to your pension.

    If you earn (say) 20,000, you can contribute up to 20,000. This means you handing over 16,000 and HMRC adding 4,000, so 20,000 is added to your pension.
    • vixen1500
    • By vixen1500 15th Mar 19, 1:37 PM
    • 544 Posts
    • 1,056 Thanks
    vixen1500
    This is not correct. The rule is that you can contribute up to your gross earnings (maximum 40,000), OR 3,600 (gross), whichever is higher. Note: it's OR, not AND.

    What is confusing to people is that amounts contributed to a pension are always given as gross amounts. So, if you have no earnings, you can contribute up to 3,600. This means you handing over 2,880 and HMRC adding 720, so 3,600 is added to your pension.

    If you earn (say) 20,000, you can contribute up to 20,000. This means you handing over 16,000 and HMRC adding 4,000, so 20,000 is added to your pension.
    Originally posted by etienneg
    Thanks

    So as I only earn around 3000 per year can I contribute the same as someone without earnings, upto 3600 by paying in the 2880 the same as I have done this year?
    Typically confused and asking for advice
    • MallyGirl
    • By MallyGirl 15th Mar 19, 2:32 PM
    • 3,657 Posts
    • 9,066 Thanks
    MallyGirl
    yes - that is right
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