The Lemon Fool

It says here that "Even if you have no earnings, you can still pay in up to £3,600 a year to a pension".

When I retire next month, I'll have almost all of my income from an ISA, and will be under the tax threshold. I plan to get a bit of income from UFPLS withdrawals from my SIPP though.

But then I see this: "If you start to flexibly access your pension, including your SIPP, you will trigger the money purchase annual allowance (MPAA). This allowance is £10,000."

So, er, can I pay in £10,000 to my SIPP and get the rebate, or just £3,600? Is the former if you are still employed while the latter not? In which case, would it kill them to state that fact?

This is even more confusing because when you look into putting your AJ Bell SIPP into drawdown, they make a huge deal about the importance of deciding between flexi-access and UFPLS withdrawals. But then simply decline to mention the latter at all in the above "help" pages.

I guess none of them have ever had to retire?...!

PS: Also rubbish.

I read it that if you are still working but access your pension the annual allowance reduces to £10k but since you will be retired and hence not earning any employment income you can only subscribe £2880 into a sipp each year which is increased to £3600 when the tax is claimed back by the sipp provider.

Gilgongo wrote:So, er, can I pay in £10,000 to my SIPP and get the rebate, or just £3,600? Is the former if you are still employed while the latter not? In which case, would it kill them to state that fact?

You can always put in £ 2880 and get the tax relief to gross it up to £ 3600. To go beyond that requires earnings from employment which has complex rules on pension contributions when you have previously "retired".

Oh OK - so as I was beginning to suspect, the words "earnings" and "income" mean "money paid to you from employment" and do not include earnings or income from investments - which is terminology used by HMRC quite often for that kind of income.

And, "flexi-access withdrawal" also includes UFPLS withdrawal - I assume?

Gilgongo wrote:And, "flexi-access withdrawal" also includes UFPLS withdrawal - I assume?

Yes, UFPLS is just a neat bundle of partial crystallization and drawdown. Both elements could just as easily be done separately if you wished.

Scott.

Tangentially, but related, I see that on this page it says

So if your earnings are lower than £60,000 you'll be entitled to tax relief only up to the amount you earn. If you earn less than £3,600, you can pay in up to £2,880 and still get tax relief.

But on this page it says:

Even if you have no earnings, you can still pay in up to £3,600 a year to a pension

So depending on who you listen to, it's £3,600 or £2,880? ¯\_(ツ)_/¯

swill453 wrote:Yes, UFPLS is just a neat bundle of partial crystallization and drawdown. Both elements could just as easily be done separately if you wished.

Sorry, I meant I assumed UFPLS would trigger the MPAA in the same way as flexi-access, is that right? The absence of the term UFPLS in the linked documents that talk about flexi-access makes me want to check that there isn't some other rule for UFPLS.

Gilgongo wrote:

swill453 wrote:Yes, UFPLS is just a neat bundle of partial crystallization and drawdown. Both elements could just as easily be done separately if you wished.

Sorry, I meant I assumed UFPLS would trigger the MPAA in the same way as flexi-access, is that right? The absence of the term UFPLS in the linked documents that talk about flexi-access makes me want to check that there isn't some other rule for UFPLS.

No, UFPLS is flexi access drawdown (plus some crystallization).

Scott.

Gilgongo wrote:So depending on who you listen to, it's £3,600 or £2,880? ¯\_(ツ)_/¯

£3600 gross = £2880 net.

Scott.

swill453 wrote:£3600 gross = £2880 net.

Clearly confusing as they both say "pay in up to"

Verily, the pensions and personal finance industry is completely from some other world.

Gilgongo wrote:

swill453 wrote:£3600 gross = £2880 net.

Clearly confusing as they both say "pay in up to"

Verily, the pensions and personal finance industry is completely from some other world.

The trouble is that some try to simplify issues to the point of meaninglessness.

Take for example pension/lifetime ISA contributions.

We are "told" that if we contribute to a pension the government tops it up by 20%.
https://www.gov.uk/tax-on-your-private- ... tax-relief
If we contribute to a LISA we are told that we get a 25% bonus.
https://www.gov.uk/lifetime-isa

When you do the math it's the same.

£80 + £20 = £100.
20/100 = 20% (gross)
20/80 = 25% (net)

Net or gross doesn't matter, unless you are not told how it's being counted, hence the links.

Ps, I use to think gross, as the pension allowances are treated as gross. But to simplify most others assume net of standard rate income tax as that is what comes out of your pay packet or bank account, rather than what is received by your pension scheme.

swill453 wrote:

Gilgongo wrote:So depending on who you listen to, it's £3,600 or £2,880? ¯\_(ツ)_/¯

£3600 gross = £2880 net.

Scott.

Only up to 75.

T7

Gilgongo wrote:Tangentially, but related, I see that on this page it says

So if your earnings are lower than £60,000 you'll be entitled to tax relief only up to the amount you earn. If you earn less than £3,600, you can pay in up to £2,880 and still get tax relief.

But on this page it says:

Even if you have no earnings, you can still pay in up to £3,600 a year to a pension

So depending on who you listen to, it's £3,600 or £2,880? ¯\_(ツ)_/¯

The full sentence from the second source is, "Even if you have no earnings, you can still pay in up to £3,600 a year to a pension – that’s £2,880 from you, with the taxman adding £720."

It's easy to get confused if you only read half of a sentence....

Alaric wrote:You can always put in £ 2880 and get the tax relief to gross it up to £ 3600

So if you were not employed and were not a tax payer, and "paid in" £3,600 (as in, took £3,600 from your bank account and paid that amount into your SIPP) you would be over the limit? The answer is "yes", but the term "pay in £3,600" used in the docs confused me.

swill453 wrote:No, UFPLS is flexi access drawdown (plus some crystallization).

OK, but in order to understand the options at the point of putting your SIPP into draw down on AJ Bell, they present them as distinct things ("Tax-free lump sum and drawdown" (which they say "You might see it called ‘flexi-access drawdown’") and "Pension lump sum (UFPLS)") and make you sign a disclaimer to say you understand that distinction. Hence my worry about whether I actually understand the details on MPAA.

swill453 wrote:

Gilgongo wrote:
Sorry, I meant I assumed UFPLS would trigger the MPAA in the same way as flexi-access, is that right? The absence of the term UFPLS in the linked documents that talk about flexi-access makes me want to check that there isn't some other rule for UFPLS.

No, UFPLS is flexi access drawdown (plus some crystallization).

Scott.

The benefit of Flexi-access is that if you only take the tax free lump sum without then drawing down any potentially taxable income then you don't trigger the MPAA. Whereas with UFPLS 75% of what you drawdown is potentially taxable and hence triggers the MPAA.