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  • FIRST POST
    • nxdmsandkaskdjaqd
    • By nxdmsandkaskdjaqd 3rd Jan 17, 8:39 AM
    • 556Posts
    • 75Thanks
    nxdmsandkaskdjaqd
    Paying £2880 into pension when retired
    • #1
    • 3rd Jan 17, 8:39 AM
    Paying £2880 into pension when retired 3rd Jan 17 at 8:39 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 10:14 AM.
Page 31
    • xylophone
    • By xylophone 29th Mar 18, 8:57 PM
    • 27,655 Posts
    • 16,612 Thanks
    xylophone
    Some advice via google seems to indicate that carry forward of previous allowance may be used if the person was a pension fund member. Thanks
    But she would still need "relevant earnings" of the necessary amount in the year she wanted to use the "carry forward".

    It appears that your wife has no relevant earnings and hasn't had for the past five years.

    She is limited to a pension contribution of £2880 net to a scheme offering "relief at source" - £720 tax relief would be added.
    • parkerparker
    • By parkerparker 29th Mar 18, 9:02 PM
    • 9 Posts
    • 5 Thanks
    parkerparker
    But she would still need "relevant earnings" of the necessary amount in the year she wanted to use the "carry forward".

    It appears that your wife has no relevant earnings and hasn't had for the past five years.

    She is limited to a pension contribution of £2880 net to a scheme offering "relief at source" - £720 tax relief would be added.
    Originally posted by xylophone
    Thanks for the reply.
    • twiglet98
    • By twiglet98 29th Mar 18, 11:11 PM
    • 810 Posts
    • 3,808 Thanks
    twiglet98
    What would happen if after the uplift to £3600 and you did not draw the money out straight away and the pension collapsed to say £2800,ie the same as you invested,if you take the whole amount out would you still be taxed on £2100 ( 75% of total )
    I know this is a hypothetical scenario but even if you get the tax back but in theory you have earned £2800 against your taxable income but you started with this and have made no profit,sorry if this question does not make a lot of sense but was on my mind and do not know the answer.
    Originally posted by Ganga


    Interesting question. I am startled that the small pension with my former employer has dropped around 5% in value in three months. How do people investing £millions keep their nerve?


    You could open a SIPP. You could contribute £2880 before 6 April.

    The tax relief will be added in May.

    You could take the PCLS and draw down the balance monthly - drawing down the balance would trigger the MPAA.

    You will have crystallised this pension.

    If you transfer the CM/SW pension into the SIPP, you could take the PCLS tax free and draw down the pension monthly - this pension is then crystallised.

    You could continue to contribute a net £2880 a year until age 75 even if you have no relevant earnings.

    If you get a job and the employer offers a pension remember that if you have taken more than a PCLS from a DC pension, you are limited to a net contribution of £3200 per annum.
    Originally posted by xylophone
    Having earned £18k and contributed only £450 into my DC pension this year, can I not put in as much as I dare before 6 April (of my small redundancy payment), then a maximum of £2880 in 2018-19 if I am not working or on a very low income?

    Does the transferred DC pension go into a new SIPP that is separate from the one I started with my own money, or are they combined? If I open a SIPP before 5 April with a deposit from my bank account and it would be held by HL as cash, a proportion of it could be moved into a drawdown SIPP. When the DC pension transfers in to them I guess it will need to be invested, not held as cash, regardless of whether I draw any of it, but where exactly would HL place it? Do I have to tell them where I want it to go? And do HMRC find out all they need to know from HL regarding the source of funds for any SIPPs?

    Thank you again. Perhaps too many of my concerns are outside the scope of this particular thread, which I have read from beginning to end at least six times and am still putting the puzzle pieces in place.
    • xylophone
    • By xylophone 30th Mar 18, 2:26 PM
    • 27,655 Posts
    • 16,612 Thanks
    xylophone
    can I not put in as much as I dare before 6 April (of my small redundancy payment),
    This was covered earlier in the thread (post 576/579).

    HL are very helpful on the phone - you might try early in the morning of 3rd April?
    • ukdw
    • By ukdw 17th Apr 18, 2:44 PM
    • 72 Posts
    • 43 Thanks
    ukdw
    £60 a month extra income
    A surprising number of seemingly well off people I speak to about the £720 PA benefit of paying in £2880 a year into a SIPP seem reluctant to follow up on it due to not having a spare £2880 to lock away for many months.

    I got to thinking about a perhaps more palatable approach which requires a smaller initial investment and is based on a more simple - pay in £240 once a month and get £300 back in a few days.

    For a person with the following financial attributes
    1. Over 55 and under 75
    2. At least £3,600 available tax free allowance (Income < £8000)
    3. No expection for future pension contributions above the MPAA £4k level
    4. No other ongoing pension contributions

    Simple process to follow
    1. Open a HL SIPP with £240 and setup a regular monthly payment of £240
    2. Once a month check the balance - if it is greater than £1001 UFPLS drawdown the excess - after a few months this should settle down to be about £300.
    Not sure if the withdrawals can be automated with HL without regular cystalisations.

    If my calculations in the attached sheet are correct
    1. The £60 monthly profit should be available from month 5
    2. Month 4 is the worst cashflow position with the net downside being about £940 - which is quite a bit better than £2,880
    3. By Month 19 there should an be overall cash profit outside of the SIPP

    This is based on using a HL SIPP, with the following constraints
    1. Direct Debit payments leave your bank account on the 7th of each month
    2. Best to keep balance above £1000 to avoid HL closing the SIPP
    3. Tax relief timescale about 3 months
    4. Lump sum withdrawals taking 5 working days.
    5. No fees other than a £25 closure fee at age 75 - when the remaining £1000 is taken out.
    6. Interest rate on cash 0.05%

    There are obviously various optimisations to the process that could be applied - but I thought it was best to just keep it simple.

    Last edited by ukdw; 17-04-2018 at 6:19 PM. Reason: correction
    • AlwaysLearnin
    • By AlwaysLearnin 17th Apr 18, 6:03 PM
    • 586 Posts
    • 495 Thanks
    AlwaysLearnin
    Arranging drawdowns monthly sounds like a significant administrative pain though, for the individual, but perhaps more pertinently for HL - perhaps a sure fire way to tip the balance for them to close this non profitable (to them) option...
    • Sipowicz
    • By Sipowicz 17th Apr 18, 7:10 PM
    • 52 Posts
    • 30 Thanks
    Sipowicz
    ^^^^^^^^^^^^^^^^^
    Noooooooooooooo!
    • zolablue25
    • By zolablue25 18th Apr 18, 9:09 AM
    • 1,601 Posts
    • 469 Thanks
    zolablue25
    Sorry if this has been asked before but there are 31 pages and after a while I found myself skim reading so may have missed it.
    All the posts I read about this suggest opening a new SIPP each year. Can you not use the same one each year?

    Also, if you invest the £2880, get the tax uplift, can you take out £900 (25%) without affecting your MPAA?

    Finally, assuming I can do as above and pay in the £2880, withdraw the 25% can I pay £2880 next year in to the same pension fund, and be entitled to 25% TFLS on that amount?

    Thanks
    • damperman
    • By damperman 18th Apr 18, 10:27 AM
    • 52 Posts
    • 18 Thanks
    damperman
    Interesting reading, im 66 would it make sense to make a payment of £2880 each year plus the £720 tax into the same fund and draw when I!!!8217;m 75.
    Thanks
    • Mnd
    • By Mnd 18th Apr 18, 11:54 AM
    • 833 Posts
    • 1,018 Thanks
    Mnd
    Depends on your tax situation I would think.if you are not paying any tax then it makes sense to drawdown enough taxable money to use for full tax allowance
    • cloud_dog
    • By cloud_dog 18th Apr 18, 11:59 AM
    • 3,952 Posts
    • 2,389 Thanks
    cloud_dog
    Interesting reading, im 66 would it make sense to make a payment of £2880 each year plus the £720 tax into the same fund and draw when I!!!8217;m 75.
    Thanks
    Originally posted by damperman
    Yes, is the simple answer.

    Depending on your tax situation; how much taxable income you have, what account operation restrictions your SIPP provider may impose, you may be able to withdraw most/all each year.
    Personal Responsibility - Sad but True

    Sometimes.... I am like a dog with a bone
    • damperman
    • By damperman 18th Apr 18, 5:42 PM
    • 52 Posts
    • 18 Thanks
    damperman
    I am a low rate tax payer. I was thinking of putting in the £2880 each year plus the tax.
    • Dazed and confused
    • By Dazed and confused 18th Apr 18, 8:34 PM
    • 3,289 Posts
    • 1,657 Thanks
    Dazed and confused
    I am a low rate tax payer

    What do you mean by low rate?

    The basic rate of 20%, the Scottish starter rate of 19% or one of the 0% rates?
    • damperman
    • By damperman 18th Apr 18, 9:01 PM
    • 52 Posts
    • 18 Thanks
    damperman
    I!!!8217;m a basic rate 20% tax payer.
    • Dazed and confused
    • By Dazed and confused 18th Apr 18, 9:30 PM
    • 3,289 Posts
    • 1,657 Thanks
    Dazed and confused
    Ignoring any investment gain (or loss) or fees this is how it would work based on current tax rates,

    Pay in £2,880
    Tax relief of £720 added
    Total fund £3,600

    25% TFLS £900
    75% taxable pension income £2,160 (£2,700 less £540 basic rate tax)
    Total received £3060

    Profit £180
    • damperman
    • By damperman 18th Apr 18, 9:38 PM
    • 52 Posts
    • 18 Thanks
    damperman
    ok Thanks. Worth thinking about.
    • PT18
    • By PT18 19th Apr 18, 10:12 AM
    • 21 Posts
    • 0 Thanks
    PT18
    Pt18
    Hi,
    Can someone please explain in simple terms to me the way drawing from a H&L sipp works. I opened one for the wife (retired now 65 only state pension income) 3 years ago, now has 4 x £2880 in plus the tax rebate fund value should now be £14400 when last tax goes in.
    I enquired on H&L some time ago about drawing from it but as I understood them. Once you draw anything out the account goes into "drawdown" and you cannot put anymore funds into it so if you wanted to do what "zolablue25" suggests you would not be able to without opening another account every year. Have I got this correct ?
    • AnotherJoe
    • By AnotherJoe 19th Apr 18, 10:28 AM
    • 11,825 Posts
    • 13,767 Thanks
    AnotherJoe
    Hi,
    Can someone please explain in simple terms to me the way drawing from a H&L sipp works. I opened one for the wife (retired now 65 only state pension income) 3 years ago, now has 4 x £2880 in plus the tax rebate fund value should now be £14400 when last tax goes in.
    I enquired on H&L some time ago about drawing from it but as I understood them. Once you draw anything out the account goes into "drawdown" and you cannot put anymore funds into it so if you wanted to do what "zolablue25" suggests you would not be able to without opening another account every year. Have I got this correct ?
    Originally posted by PT18
    Not quite

    Here's what my situation is which is similar to yours.

    I had one SIPP with HL with £400k give or take.
    I took out the 25% (£100k obviously)
    I ended up with one account "original SIPP" which was closed to new entries with nothing in it and another "drawdown SIPP" with £300k in it.

    Now, i wanted to add new contribution in a new tax year, i phoned them, they opened up the closed original SIPP (so no need to add a new one) , I added some money, about £15k, and Ive just last week added the £2880 as I'm currently a non taxpayer.

    I believe when i take the 25% out of the "original SIPP", lets say there's £20k in it, then I'll get £5k and the £15k will be routed into my "drawdown SIPP" (It is actually named "SIPP income drawdown" on my summary page. The original is called "SIPP".
    • zolablue25
    • By zolablue25 19th Apr 18, 10:40 AM
    • 1,601 Posts
    • 469 Thanks
    zolablue25
    Thanks Joe. That's kinda answered my questions and explained why people are suggesting opeing new pensions each time. I didn't realise that once you took the TFLS your pension went into "drawdown" excluding you from adding to it.

    As a follow up...Is there any limit to the number of SIPPs you can have?
    • AnotherJoe
    • By AnotherJoe 19th Apr 18, 10:51 AM
    • 11,825 Posts
    • 13,767 Thanks
    AnotherJoe
    Thanks Joe. That's kinda answered my questions and explained why people are suggesting opening new pensions each time. I didn't realise that once you took the TFLS your pension went into "drawdown" excluding you from adding to it.

    As a follow up...Is there any limit to the number of SIPPs you can have?
    Originally posted by zolablue25
    75

    Though you could probably get clever and open more via part transfers from one into several.

    But I wouldn't advise it !
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