Paying £2880 into pension when retired

nxdmsandkaskdjaqd
nxdmsandkaskdjaqd Posts: 776
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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?
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Comments

  • ischofie1
    ischofie1 Posts: 215
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    I think the gain of £720 is "over egging" it a bit.
    Bear in mind you're moving money from a taxed paid to tax due environment.
    Assuming you're drawing the £3600 out as a 20% taxpayer, you'll pay 15% tax with consideration to the 25% TFLS.
    Therefore £3600 x 0.85 = £3060.
    This gives a gain of £180 which is still worth doing.
    Better than a slap with a wet fish as they say!!!
  • ischofie1
    ischofie1 Posts: 215
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    Apologies just noticed you're living off savings so yes could withdraw all the £3600 tax free as it is within you PA.
  • saver861
    saver861 Posts: 1,408 Forumite
    Yes - tho take care not to close the account with the SIPP provider in the first year or you will incur hefty charges.

    Basically pay in your £2880 - HMRC adds £720 within about two months. Withdraw £3000. It may be taxed and you will need to claim the tax back via form, which itself is quite straight forward and quick, considering it is HMRC!!

    Effectively £720 for zilch. Grab it while it is going.
  • saver861 wrote: »

    Basically pay in your £2880 - HMRC adds £720 within about two months. Withdraw £3000. It may be taxed and you will need to claim the tax back via form, which itself is quite straight forward and quick, considering it is HMRC!!

    .

    What are the logistics of doing this?

    Set up a Direct Debit to pay in £240 per month or £2880 on the 6th April? When do you withdraw?
  • saver861
    saver861 Posts: 1,408 Forumite
    What are the logistics of doing this?

    Set up a Direct Debit to pay in £240 per month or £2880 on the 6th April? When do you withdraw?

    You can pay monthly DD but its easier if you have the cash to pay in one lump sum of £2880. You pay in before 6th April for this year and after 6th April for next year. So pay in £2880 on 7th April. Get the HMRC £720 added by about June. Withdraw 99% and put it somewhere else to gain interest.

    PS You need to leave it in Cash in the SIPP platform rather than investing it into anything.
  • Theta101
    Theta101 Posts: 140 Forumite
    PS You need to leave it in Cash in the SIPP platform rather than investing it into anything.

    Why?

    Can you not invest it.
  • Are there no limitations on this such as recycling? Is it the case that any pensioner can without earned income just keep recycling £2,880 per year until the age of 75?
    I have osteoarthritis in my hands so I speak my messages into a microphone using Dragon. Some people make "typos" but I often make "speakos".
  • saver861 wrote: »
    .
    PS You need to leave it in Cash in the SIPP platform rather than investing it into anything.

    I would like to know more about the rules on this area.
  • xylophone
    xylophone Posts: 44,011
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    I would like to know more about the rules on this area.

    What rules exactly?
  • 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?
    I am just thinking out loud - nothing I say should be relied upon!
    I do however reserve the right to be correct by accident.
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