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  • FIRST POST
    • Drummog
    • By Drummog 12th Aug 18, 8:30 PM
    • 3Posts
    • 0Thanks
    Drummog
    How Long to Contribute Gross 3,600 PA in Retirement
    • #1
    • 12th Aug 18, 8:30 PM
    How Long to Contribute Gross 3,600 PA in Retirement 12th Aug 18 at 8:30 PM
    Assisting friends with provisional financial retirement planning.

    The lady will be a non tax payer now and in retirement from summer 2019.

    Husband is 65 and in receipt of his state pension and a healthy final salary pension and is these pensions take him towards the top of the basic rate tax band.

    They also have a good dividend income.

    They are both in good health and the lady!!!8217;s mother is still going strong at well over 90.

    They have no financial issues i.e. they are very comfortable as you would say and have no use of a SIPP for inheritance tax planning as that is sorted.

    The lady is a year short of her state pension date with no earned income in 2018/2019, when she reaches the state pension date, she also gets a small occupational pension as well as her state pension.

    She has a SIPP that the taxable part will finance her up to her personal allowance this year and up to her 75th birthday at which time it will be reduced to zero. That is not a financial problem for them.

    They are wondering about paying 3,600 gross a year into her SIPP with HL and taking out the 900 a year tax free payment.

    The main issue I see is that the taxable money from this 3,600 a year contribution will not be available until her 76th birthday. She only has 2,000 a year room below her personal allowance to drawdown these funds, it will take 2 years to draw down each year!!!8217;s taxable contribution at the zero tax rate.

    She has 11 years she can contribute to her SIPP. Therefore 1 years contribution takes her to 77 to exhaust her SIPP and 11 years contributions take her up to I calculate her 99th birthday to exhaust her SIPP based on a conservative growth assumption.

    At the moment I'm suggesting at most to do 4 to 5 years contributions which take her to mid 80's to exhaust her SIPP.

    Based on male life expectancy at say 83 or so and at that time her becoming a basic rate tax payer due to receiving 50% of her husband!!!8217;s final salary pension if he pops off then.

    What are posters thoughts on this and maybe it is just make sure they take an extra holiday a year to use up the 2,880 net they would have contributed to the SIPP.
    Last edited by Drummog; 12-08-2018 at 9:00 PM. Reason: typos
Page 1
    • Audaxer
    • By Audaxer 12th Aug 18, 9:12 PM
    • 1,226 Posts
    • 735 Thanks
    Audaxer
    • #2
    • 12th Aug 18, 9:12 PM
    • #2
    • 12th Aug 18, 9:12 PM
    The main issue I see is that the taxable money from this 3,600 a year contribution will not be available until her 76th birthday.
    Originally posted by Drummog
    The taxable money will be available immediately, it's just that it will be subject to tax if she is already drawing out enough each year up to her personal allowance. If she wanted to continue paying 3,600 gross into the SIPP until 75 and leave it as cash, she could still draw out the full 3,600 each year and make a small gain of 180 per year, doing the same in subsequent years. I don't really see the point of paying 3,600 into her SIPP each year and investing it. If she is still wanting to invest money each year, would it not be better to do it in an S&S ISA where any investment gains would not be subject to tax?
    • drumtochty
    • By drumtochty 12th Aug 18, 9:25 PM
    • 112 Posts
    • 52 Thanks
    drumtochty
    • #3
    • 12th Aug 18, 9:25 PM
    • #3
    • 12th Aug 18, 9:25 PM
    It's not as black and white as you suggest. Agreed no tax on a S&S Isa but no tax relief on the way in. Not conviced the ISA would perform better overal than the 3,600 a year gross SIPP if no BR tax is paid.


    Not sure I would bother with the SIPP if only the 180 tax relief a year was the prize.


    Lot to be said for taking the extra holiday a year and enjoying it while you can.
    • Thrugelmir
    • By Thrugelmir 12th Aug 18, 10:05 PM
    • 59,500 Posts
    • 52,810 Thanks
    Thrugelmir
    • #4
    • 12th Aug 18, 10:05 PM
    • #4
    • 12th Aug 18, 10:05 PM
    There's more to life than tax planning. I'd suggest ensuring that she is left with a good pension in the event of the untimely death of her husband.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • ukdw
    • By ukdw 12th Aug 18, 10:31 PM
    • 71 Posts
    • 42 Thanks
    ukdw
    • #5
    • 12th Aug 18, 10:31 PM
    • #5
    • 12th Aug 18, 10:31 PM
    2,880 in each year. Then withdraw 900 PCLS tax free plus 2000 within the tax free allowance.
    Leaving an extra 700. This could either be left in the pension , or drawn back out paying 140 tax. So total profit would be 580.

    One way to avoid the tax (and increase guaranteed pension provision) would be to defer the state pension for enough weeks to leave sufficient room within the personal allowance to withdraw the whole lot tax free.
    • Drummog
    • By Drummog 12th Aug 18, 10:49 PM
    • 3 Posts
    • 0 Thanks
    Drummog
    • #6
    • 12th Aug 18, 10:49 PM
    • #6
    • 12th Aug 18, 10:49 PM
    There's more to life than tax planning. I'd suggest ensuring that she is left with a good pension in the event of the untimely death of her husband.
    Originally posted by Thrugelmir

    That has been done and a reasonable expenditure against spending plan run through to her late 90's shows a very health income against expenditure after a possible untimely death of her husband.
    • LHW99
    • By LHW99 12th Aug 18, 10:52 PM
    • 1,381 Posts
    • 1,262 Thanks
    LHW99
    • #7
    • 12th Aug 18, 10:52 PM
    • #7
    • 12th Aug 18, 10:52 PM
    Can't you only pay in to a pension up to age 75?
    • drumtochty
    • By drumtochty 12th Aug 18, 11:23 PM
    • 112 Posts
    • 52 Thanks
    drumtochty
    • #8
    • 12th Aug 18, 11:23 PM
    • #8
    • 12th Aug 18, 11:23 PM
    No 74 is the oldest age you can pay into a pension and receive tax relief. After thar there are no tax advantaes.
    • kidmugsy
    • By kidmugsy 13th Aug 18, 12:15 AM
    • 11,352 Posts
    • 7,882 Thanks
    kidmugsy
    • #9
    • 13th Aug 18, 12:15 AM
    • #9
    • 13th Aug 18, 12:15 AM
    Can't you only pay in to a pension up to age 75?
    Originally posted by LHW99
    Up to the day before you become 75. After that, as d says, there is no tax advantage and therefore it would be loopy.

    Mind you, your employer can contribute for you after age 75, I believe, and get a corporation tax advantage. So directors of their own companies might use this to advantage.
    Free the dunston one next time too.
    • Drummog
    • By Drummog 13th Aug 18, 10:40 PM
    • 3 Posts
    • 0 Thanks
    Drummog
    I have talked to the lady in question and she considers it is not worth doing the 3,600 gross annual pension contribution in retirement, if she cannot receive the 720 tax relief per year in a reasonable timescale and with her existing SIPP value there is only one way to do this.

    Using ukdw's idea we looked at deferring her state pension.

    If you do the numbers she would have to defer her state pension by 4 years to cover paying 4 years of these contributions as well as exhausting the existing SIPP value prior to her state pension starting.

    While the deferred state pension would be a higher value than the non deferred state pension, she would be her in her mid eighties before she broke even on her deferred state pension.

    Interest has been lost in the idea.

    For those retirees with the new state pension of 164 per week and either a small occupational pension or a reasonable SIPP of say 20k or so it is apparent that there is no longer enough spare room to stay below the basic rate tax band and use the 3,600 gross pension contribution for those with little earned income in a reasonable timescale.

    I leave it to others who think that getting a portion of the 3,600 pa tax relief is worth the hour or so it takes to put money in a SIPP and then withdraw a lesser sum

    It is not there to increase the pensions of people with spare disposable income after all.
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