Paying £2880 into pension when retired
Comments
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Actually (in case people were just assuming this gets you access to the £720 of relief instead of just £200, it's better than that) - if you only earn £12000 you can put £9600 net into a 'normal' personal pension scheme and the provider is allowed to do the standard gross-up to the £12000, for a full £2400 of tax relief. Yes, even if you wouldn't have paid as much as £2400 tax on the income.ex-pat_scot wrote: »3. earn around the £11,000 income level and below £14,600 or so. If you were to contribute to a normal pension scheme, then you might have a low amount of tax payable, which would be insufficient to be credited back if you wanted to make significant pension contributions. (ie if you earned £12,000 then you'd only have £1,000 of that income subject to tax, so would get pension tax contribution of 20% x £1,000)
Your gross contributions are allowed to be as high as your gross pay, subject to the £40k a year cap (ignoring carry-forward allowances which can increase the £40k cap).
That government policy, designed to encourage people to invest in pensions for their retirement, only works if you are making a personal contribution to a pension which claims the automatic gross-up direct from HMRC. If you were having deductions taken and paid over out of your gross salary by your employer, it's right that you could only save £200 of tax because after that your gross pay would not be attracting any tax so there's no tax to save via PAYE.0 -
I think the £4k limit has been chosen on the basis of auto-enrolment legislation, qualifying earnings:ThinkingOutLoud wrote: »This is an interesting area that the government seem to be focussing on a little more!
The potential £10k that a previous lump sum taker / pension drawing person earning enough could "recycle" has been cut to £4k in the chancellor's latest statement. This is just above the original poster's cited limits which are the sums that can be invested in a pension by anyone with zero income.
There seems to be a degree of greyness to HMRC's responses to questions journalists have posed around recycling. But, many commentators have also suggested there is a moral question to consider.
If I understand it, the government is trying to allow someone who was say forced to take their pension early maybe due to temporary ill health or unemployment, but then was able to work again to save into their future pension.
The idea is not to enable people to get double the tax contributions.
I wonder how or if they will close the loophole to still help the former and prevent the later?
43000 - 5824 = 37,176 * 8% (rising to) = £2,974 so the idea is that people still working and contributing to an AE pension aren't going to fall foul of the lower AA.0 -
Just trying to get this clear in my head (!) if you were to open a SIPP each tax year with £2880 and then get this topped up with the £720 tax allowance, what about the fees that are charged by the pension provider, is there any one pension provider that is the best option, if you are planning on doing this transaction each tax year? I understand it is best to leave it as cash and not withdraw the whole £3600? ThanksNationwide8 wrote: »This thread has reminded me of something I should probably be doing..
Background....Age 55,12 yrs until SPA ( as it stands at the moment )
Private Pension approx £7000 a year
Savings to supplement pension,for emergencies etc...gives me about "£1500 yr interest..
Non tax payer..
Seems a no brainer that I should open a SIPP yearly with some of the savings ??? Then draw on it as needs be..
Would the draw down be counted as income towards your personal allowance ? .ie,if withdrew enough to go over PA part of it would be taxed ?
Someone also asked above is this something people can keep doing up to age 75 and just keep getting tax relief added on of £720 a year ? :cool:1 -
The_Book-keeper wrote: »Just trying to get this clear in my head (!) if you were to open a SIPP each tax year with £2880 and then get this topped up with the £720 tax allowance, what about the fees that are charged by the pension provider, is there any one pension provider that is the best option, if you are planning on doing this transaction each tax year? I understand it is best to leave it as cash and not withdraw the whole £3600? Thanks
There are effectively no charges if you use HL and put the money in cash. However, if you close the account in the first year you will get hefty closure charges.
So, put in your £2880, get £720 from HMRC. Withdraw £3550. Keep SIPP account open until next year and do same again, until 75. Dont forget tho, it is only £720 profit for those who wont reach the BR tax threshold.1 -
There are effectively no charges if you use HL and put the money in cash. However, if you close the account in the first year you will get hefty closure charges.
So, put in your £2880, get £720 from HMRC. Withdraw £3550. Keep SIPP account open until next year and do same again, until 75. Dont forget tho, it is only £720 profit for those who wont reach the BR tax threshold.
This is basically what I'm thinking certainly for a few years,in theory I won't hit the tax threshold ( above PA ) until my State Pension ( if I get there !! ) kicks in so it would be a balancing act over the years dependant on how much savings I have left every year or so.
Sorry if this is an obvious question but if you withdraw say £3550 in a tax year does that count towards your PA ?0 -
OK, I realise this thread is repeating itself, but that is due to the sound of the 'penny' dropping, so I want to get this clear in my head as I am about to discuss this with my OH;
OH is a basic rate tax payer, currently drawing a small DB pension (£500pm) and will be able to draw SP and another smaller DB in 5 years time, very likley to lose current job before then. Has some savings in ISA etc, VERY risk averse ("only buy me shares that go up").
1) Open up a HL SIPP, put in £xxx cash - Government will add +20% (up to amount she currently earns)
2) Leave in cash (no risky shares here)
3) OH could at anytime draw down 25% tax free or (drum roll) if loses job, draw down more than that tax free as long as remains below basic rate tax level.
4) Max OH could put in is annual earnings (less current pension contribution), or once not earning £2,880. Worst case would be paying basic rate tax on 75% of this on the way out (but benefit is 20% relief on 100% on the way in).
What have I missed?"For every complicated problem, there is always a simple, wrong answer"0 -
Nationwide8 wrote: »Sorry if this is an obvious question but if you withdraw say £3550 in a tax year does that count towards your PA ?
I mention only withdraw £3550 in first year so that you leave the account open.
Each year thereafter, you can withdraw £3600 - the £2880 you put in plus the £720 HMRC puts in.
25% is tax free so that will not go towards your PA. The other 75% will - i.e. £2,700.
So, if your PA is £11,000 and your income is less than £8,300 then you will be able to withdraw the £2700 without reaching your PA. However it still does count towards PA so if your income is £8,300 and you withdraw the £2700 from the SIPP you have then used up your full PA for the year.0 -
OK, I realise this thread is repeating itself, but that is due to the sound of the 'penny' dropping, so I want to get this clear in my head as I am about to discuss this with my OH;
OH is a basic rate tax payer, currently drawing a small DB pension (£500pm) and will be able to draw SP and another smaller DB in 5 years time, very likley to lose current job before then. Has some savings in ISA etc, VERY risk averse ("only buy me shares that go up").
1) Open up a HL SIPP, put in £xxx cash - Government will add +20% (up to amount she currently earns)
2) Leave in cash (no risky shares here)
3) OH could at anytime draw down 25% tax free or (drum roll) if loses job, draw down more than that tax free as long as remains below basic rate tax level.
4) Max OH could put in is annual earnings (less current pension contribution), or once not earning £2,880. Worst case would be paying basic rate tax on 75% of this on the way out (but benefit is 20% relief on 100% on the way in).
What have I missed?
Pretty much correct. However, note if you are going to leave it in cash for 5 years or more your money would be reducing at inflation rate.
So, if you were going to do that, take as much out as possible before reaching PA and put it somewhere that can earn some interest for 5 years. The rest you might want to put it into a lower risk option that might at least counter inflation.0 -
My OH started doing this (thanks Jamesd) and now we have another related question.
How does 'carry-forward' effect the £3600?
I mean can you carry-forward un-used years worth?
Or.
Does 'carry-forward' apply until you are 75 (oh heck, or until you are 78, 75 plus 3 years carry-forward)?
I hope some one understands me, I'm confusing myself!!!
Thanks.0 -
No, it is like your ISA allowance. Use it or loose it.My OH started doing this (thanks Jamesd) and now we have another related question.
How does 'carry-forward' effect the £3600?
I mean can you carry-forward un-used years worth?
Or.
Does 'carry-forward' apply until you are 75 (oh heck, or until you are 78, 75 plus 3 years carry-forward)?
I hope some one understands me, I'm confusing myself!!!
Thanks."A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Gandhi
Ride hard or stay home :iloveyou:0
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