SIPP contributions at retirement

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Microbe65
Microbe65 Posts: 34 Forumite
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in Pensions, annuities & retirement planning
My OH is currently receiving her state pension. She will retire in August and start collecting her NHS pension, aged 65. She no longer intends to work and will probably be a non-tax payer. She would like to use some of her tax-free lump sum from her NHS pension to contribute to a SIPP.

For this tax year, is this limited to £2880, or can this be higher as she has paid tax on her earnings from Apr-Aug?
Is the contribution limited by the amount of tax that she has paid, as she is likely to receive a small tax rebate at the end of the tax year, if indeed she is a non-tax payer from August?

Many thanks
Adrian

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  • LOST
    LOST Posts: 292 Forumite
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    Should be able to contribute up to 100% of her gross earnings for the year unless she has accessed flexi-acess in which case it is gross earnings up to £10k gross max
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  • bigadaj
    bigadaj Posts: 11,531 Forumite
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    It's limited to the amount of tax she's paid in the year, or £2880 grossed up to £3600 by tax relief if no or little earnings.

    In theory you need to be careful of recycling rules if you take a lump sum from a oensiona no contribute to another but for smaller amounts, less than £10k I believe, then there shouldn't be any issues.
  • greenglide
    greenglide Posts: 3,301 Forumite
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    It's limited to the amount of tax she's paid in the year, or £2880 grossed up to £3600 by tax relief if no or little earnings.
    No. It is limited to the qualifying earnings (normally earned income), respective of whether tax has been paid.

    So she can put all the earned income for this tax year in if she wishes. She probably will pay tax on some on it on the way out (presumably next tax year) depending of the sizes of her pensions.
  • Microbe65
    Microbe65 Posts: 34 Forumite
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    edited 15 July 2017 at 1:42PM
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    In theory you need to be careful of recycling rules if you take a lump sum from a oensiona no contribute to another but for smaller amounts, less than £10k I believe, then there shouldn't be any issues
    Thanks. Do the recycling rules apply for a DB lump sum, some of which would be paid into a DC SIPP?
  • xylophone
    xylophone Posts: 44,548 Forumite
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    What is the situation regarding her state pension?

    With both, is she sure that she will be a non- tax payer?

    http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/
  • Microbe65
    Microbe65 Posts: 34 Forumite
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    edited 16 July 2017 at 8:58PM
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    What is the situation regarding her state pension?
    With both, is she sure that she will be a non- tax payer?
    State pension is £490.28 pcm. Still waiting for final confirmation of NHS pension, but expected to be under SP and so should remain under personal allowance.

    Many thanks for the link. There is no mention of DB pensions, so I assume that the lump-sum counts irrespective of the source.
    So, if I understand it correctly, as this would be a new pension and therefore no previous contributions, any SIPP contribution will need to remain under 30% of the lump-sum, including accumulation. So the preferred option would probably be a contribution in a single tax year.
  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458 Forumite
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    DWP do not pay State Pension monthly, it's either weekly or 4 weekly (or maybe annual for tiny amounts).

    If it's being paid 4 weekly you are going to nearly £500 out in all your calculations i.e. how much tax free personal allowance is available.
  • greenglide
    greenglide Posts: 3,301 Forumite
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    DWP do not pay State Pension monthly, it's either weekly or 4 weekly (or maybe annual for tiny amounts).
    But HMRC calculate an accurate monthly pension amount in their online pension forecasts. By multiplying this amount by 12 you get a good "guess" of what you would get.

    Of course this also depends of how the four weekly payments fall at the year end except I believe HMRC / DWP tend to calculate the tax weekly even if the payment is four weeks and get hopelessly confused if their should be a 53 week year!
  • jamesd
    jamesd Posts: 26,103 Forumite
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    The tax free lump sum recycling limits do apply to defined benefit lump sums but she's taking it at the normal scheme retirement age so it would just be classed as normal retirement planning. Given her likely work income this year it might not be more than thirty percent of the lump sum anyway.
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