Paying £2880 into pension when retired
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Why?
Can you not invest it.
You CAN invest it, but if the intention is to do a quick In/Out to gain the tax relief you wouldn't want to risk investing it in something for a few weeks and expose yourself to the possibility of a reduction in value.
If you intent to stay invested longer-term then investing it makes sense obviously.1 -
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nxdmsandkaskdjaqd wrote: »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 did exactly as he suggested:
Paid £2880 into a SIPP with HL for my wife
Government top up to £3660
Immediately withdrew 25%
Set up pension to pay the balance as a monthly pension over 12 months
I shall pay in another £2880 before April 05th"A nation's greatness is measured by how it treats its weakest members." ~ Mahatma Gandhi
Ride hard or stay home :iloveyou:0 -
https://www.taxation.co.uk/Articles/2015/05/05/333016/money-go-round
- tax year 2015-16 so the figures re PSA are out .
Examples.
A retired person ( in sixties)on a generous DB pension pays £2880 per annum into a SIPP with HL - it reduces his adjusted net income ( would otherwise be on higher rate tax) and invests his contribution plus the tax relief in various funds - he takes no income, the intention being that this pension should be an inheritance.
His spouse's state pension and small DB pension from a long ago job give her an income a couple of thousand or so below her personal allowance.
She contributes £2880 to an HL SIPP, receives the tax relief, chooses not to invest but takes the tax free PCLS and draws down most of the balance, being careful in the first year not to close the SIPP and thus avoiding the closure fee.0 -
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:0 -
nxdmsandkaskdjaqd wrote: »I would like to know more about the rules on this area.
As others have said, its simply a transaction. So you would not invest the money when you are going to withdraw it within a few months.
There is nothing to stop you investing it but it would not make sense to do so for such a very short period of time.
So, its not saying there are rules to prevent it, merely that it would be sensible not to invest it and keep it as cash ready to withdraw when you want it.0 -
As others have said, its simply a transaction. So you would not invest the money when you are going to withdraw it within a few months.
There is nothing to stop you investing it but it would not make sense to do so for such a very short period of time.
So, its not saying there are rules to prevent it, merely that it would be sensible not to invest it and keep it as cash ready to withdraw when you want it.
OK I understand, only invest if for the long term, which would be my intention.0 -
Right, but at the moment while state pension has not kicked in - and presuming you are not drawing in excess of your £11kpa personal allowance from your SIPP, just living off savings and savings income as you suggested above - you probably have capacity to take the £3600 out entirely tax free. £900 as a 25% tax-free lump sum and the other 75% (£2700) taxable but fitting inside your annual £11k personal income allowance.nxdmsandkaskdjaqd wrote: »OK I understand, only invest if for the long term, which would be my intention.
Whereas if you left it for 'the long term', a decade or more, invested inside the pension... then when you came to take it out - assuming by that point you are drawing state pension and other personal pensions - you would quite possibly be paying more than zero tax on the taxable 75% part.
So for many people, your current time of life is the best time to do the £3600 pension recycling 'trick', because it means the £720 almost-instant profit is entirely tax free. You can then stick the £3600 in your ISA or invest it unwrapped (and/or use some of it to help fund next tax year's £2880 contribution).0 -
bowlhead99 wrote: »Right, but at the moment while state pension has not kicked in - and presuming you are not drawing in excess of your £11kpa personal allowance from your SIPP, just living off savings and savings income as you suggested above - you probably have capacity to take the £3600 out entirely tax free. £900 as a 25% tax-free lump sum and the other 75% (£2700) taxable but fitting inside your annual £11k personal income allowance.
Whereas if you left it for 'the long term', a decade or more, invested inside the pension... then when you came to take it out - assuming by that point you are drawing state pension and other personal pensions - you would quite possibly be paying more than zero tax on the taxable 75% part.
So for many people, your current time of life is the best time to do the £3600 pension recycling 'trick', because it means the £720 almost-instant profit is entirely tax free. You can then stick the £3600 in your ISA or invest it unwrapped (and/or use some of it to help fund next tax year's £2880 contribution).
It's interesting how financial matters take twist and turns as you understand more.
From the above, based on the fact that I am living of savings and have no other income. My best strategy going forward is to withdraw the £3600 and put that within my ISA.0 -
nxdmsandkaskdjaqd wrote: »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?
Actually, what the full statement should say is the following:
"Anyone, regardless of whether they are taxpayers or not, can pay in £2880 to a pension and receive BR tax relief, up to age 75."
Clearly, those with surplus cash and with earnings <£11,000 can take advantage of this, receiving the full BR tax relief "free".
If you are already a taxpayer, then there's no difference between this and the normal pension tax credit approach.
If you are a BR taxpayer, and will be so in retirement, then you benefit to the usual level of the 25% tax free withdrawal, and suffer 20% tax on the remainder. It's not such a no-brainer, but still a useful tool in the financial-planning-armoury.
This pot can be accessed from age 55, meaning that if you are near or beyond that age, then you can take advantage without exposure to political risk (ie changing the rules before you are allowed to access the pot).
Situations when it's most advantageous:
1. stay at home person. You can still build up a modest pension and obtain the £720 uplift to your contribution. (the source of funding could be from savings, or from spouse income).
2. low earner / part timer. You can still benefit if you do not earn sufficient to pay UK income tax.
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)0
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