Paying £2880 into pension when retired

1…34689…138

Comments

  • jamesd
    jamesd Posts: 26,103 Forumite
    Name Dropper First Post First Anniversary
    If you pay in too much HMRC will notice and in a few years send you a bill for the tax relief you got on the extra. If you do it by mistake tell the pension firm as soon as you can because they may be able to sort it out more easily than that.
  • jamesd
    jamesd Posts: 26,103 Forumite
    Name Dropper First Post First Anniversary
    Nationwide8 wrote: »
    if taxed claiming it back is by filling in a R85 form or ring HMRC ? ( But hear horror stories about ringing them unless its got better ).
    Easiest way is via your online Personal Tax Account that we all have now. The forms for the various cases are there and HMRC expects to pay in a month or less if done that way.

    Pension tax relief is given in part to keep retirees away from needing means tested benefits. One of the complaints is that a lot of the usual relief goes to higher rate tax payers. Such people are relatively well off and probably won't have a need to do it year by year like this. One of the joys of this is that most of the tax relief is going to the less well off people who society collectively is likely to think need the relief most. It's a nice bit of equalising of a bit of the tax relief potential between the two, particularly for those who don't pay income tax on the way out.
  • RADDERS
    RADDERS Posts: 241 Forumite
    First Anniversary
    Trying to get my head around al of this. Hubby took early retirement in August at age of 56 and I finished work at the same time aged 53.
    Both worked full time so am I correct in thinking that we can both pay in £10,000 to a sipp this year and receive the tax relief or is it £8,000 and the tax relief makes it up to £10,000 and then going forward the £2,880 each tax year?
    I know that I won't be able to draw on mine for a couple of years but still seems a worthwhile exercise.

    Thanks for any advice as even though I worked in finance, pensions are a bit of a mystery to me. Radders
  • Linton
    Linton Posts: 17,121 Forumite
    Name Dropper First Post First Anniversary Hung up my suit!
    RADDERS wrote: »
    Trying to get my head around al of this. Hubby took early retirement in August at age of 56 and I finished work at the same time aged 53.
    Both worked full time so am I correct in thinking that we can both pay in £10,000 to a sipp this year and receive the tax relief or is it £8,000 and the tax relief makes it up to £10,000 and then going forward the £2,880 each tax year?
    I know that I won't be able to draw on mine for a couple of years but still seems a worthwhile exercise.

    Thanks for any advice as even though I worked in finance, pensions are a bit of a mystery to me. Radders

    Provided it is covered by earned income and you wont be exceeding the fixed limits you can put £10K into your pension this year. You do it by actually paying £8K and HMRC will add the extra £2K later. Of course it is only a large benefit if you can later withdraw the money tax free. If you cant the net benefit is the tax on the £2500 tax free lump sum - £500. But dont forget there will be the SIPP charges as well to pay.
  • Hal17
    Hal17 Posts: 246 Forumite
    First Anniversary First Post
    Can someone help on the following please. My wife and I took early retirement after both being made redundant. I am 62 and my wife is 61 and both will receive a full state pension when we are both 66.

    We currently both take a pension income on flexible drawdown, that match our personal allowances in order to minimise our tax liability.

    We have been contributing £2,880 into our respective pensions taken from savings and getting the £720 tax allowance. However, going forward, I am not sure if we are correct in doing this, if we pay tax on these additional contributions outside of the 25% tax free when the money is drawn are we making the most of this £2880.

    Not sure if I have explained that very well, and the maths might be simple but I cannot get my head around the numbers. Appreciate any thoughts.
  • Linton
    Linton Posts: 17,121 Forumite
    Name Dropper First Post First Anniversary Hung up my suit!
    Hal17 wrote: »
    ......
    We currently both take a pension income on flexible drawdown, that match our personal allowances in order to minimise our tax liability.

    We have been contributing £2,880 into our respective pensions taken from savings and getting the £720 tax allowance. However, going forward, I am not sure if we are correct in doing this, if we pay tax on these additional contributions outside of the 25% tax free when the money is drawn are we making the most of this £2880.

    Not sure if I have explained that very well, and the maths might be simple but I cannot get my head around the numbers. Appreciate any thoughts.

    If you have used all your allowance for the drawdown payments then the only benefit of the £2880 game is the basic rate tax on the tax free 25% of £3600 =£180. But you also need to deduct the SIPP charges. You may feel that it's not worth the effort.

    You could reduce your main drawdown amount by £2880 and so get the full tax benefit taking £720 tax free and £2880 from your "recycled" pension.. However when you take your State Pension it becimes rather more difficult to stay within the zero tax band.
  • Hal17
    Hal17 Posts: 246 Forumite
    First Anniversary First Post
    Thanks Linton, that was really helpful and helped clarify my thoughts. I was going around in circles.

    Going forward I will adjust my numbers so to maximise the tax free numbers between my wife and myself. Seems little point in putting more cash into my plan if I am not able to draw tax free. Thanks again.
  • Linton
    Linton Posts: 17,121 Forumite
    Name Dropper First Post First Anniversary Hung up my suit!
    Sorry its £900 tax free and £2700 from the "recycled" pension, so you just need to reduce your main pension drawdown by £2700.
  • saver861
    saver861 Posts: 1,408 Forumite
    Hal17 wrote: »
    Thanks Linton, that was really helpful and helped clarify my thoughts. I was going around in circles.

    Going forward I will adjust my numbers so to maximise the tax free numbers between my wife and myself. Seems little point in putting more cash into my plan if I am not able to draw tax free. Thanks again.
    Linton wrote: »
    Sorry its £900 tax free and £2700 from the "recycled" pension, so you just need to reduce your main pension drawdown by £2700.

    Reducing drawdown on your main DC by £2700 will allow you take benefit of the £720 give away. However, it is effectively switching one for the other.

    Once you reach SPA then you will pay the 25% on your main DC drawdown - if you have full SPA there will only be around £3-4k of PA to play with.
  • Linton
    Linton Posts: 17,121 Forumite
    Name Dropper First Post First Anniversary Hung up my suit!
    saver861 wrote: »
    Reducing drawdown on your main DC by £2700 will allow you take benefit of the £720 give away. However, it is effectively switching one for the other.

    Once you reach SPA then you will pay the 25% on your main DC drawdown - if you have full SPA there will only be around £3-4k of PA to play with.

    Yes but you have more remaining in your drawdown pot than otherwise so there is a net gain.
★ ★ ★ Meet your Ambassadors

Categories

  • All Categories
  • 343.1K Banking & Borrowing
  • 250.1K Reduce Debt & Boost Income
  • 449.7K Spending & Discounts
  • 235.2K Work, Benefits & Business
  • 607.8K Mortgages, Homes & Bills
  • 173K Life & Family
  • 247.8K Travel & Transport
  • 1.5M Hobbies & Leisure
  • 15.9K Discuss & Feedback
  • 15.1K Coronavirus Support Boards