Pension for Non Earner Delayed Payback

[mearnsfool]

Views on this specific situation please.

The good lady can pay 11 future £2,880 annual payments into her existing SIPP until just before her 75th birthday as she will have no earned income basically between now aged 64 and her 75th birthday.

We are not short of money and I can see no reason this will cause any financial issues.

While she can withdraw the £720 per year tax free money added to the SIPP by HMRC after say a month or so.

Due to having cash in her SIPP at the moment, she will be unable to withdraw any of the original contributions of £2,880 per year until she is aged 73 as she is a non tax payer and we have no intension of her paying tax on any of her SIPP income.

At the moment it looks to be around 83 years of age before the final funds can be withdrawn from her SIPP in order not to have her income taxed.

Her family live to a good old age and she is in good health.

I wonder here if we are going to the extreme to gain the noted tax relief and would others keep up the payments until just before her 75th birthday.

[swill453]

I'm a bit puzzled. Why can't she withdraw up to her personal allowance of £11,850 (this year) of "taxable" drawdown and remain a non-taxpayer? Is there some other income you haven't mentioned?

I'm making UFPLS drawdown this year of £15,800 and paying no income tax.

Also you've got the tax free calculation a bit wrong. £2880 contribution gets £720 tax relief to make a gross contribution of £3600. Of this, £900 can be taken out tax-free.

Scott.

[AJC5001]

Views on this specific situation please.

The good lady can pay 11 future £2,880 annual payments into her existing SIPP until just before her 75th birthday as she will have no earned income basically between now aged 64 and her 75th birthday.

We are not short of money and I can see no reason this will cause any financial issues.

Have you taken into account the SIPP can be passed on to beneficiaries without Inheritance Tax?

I'm using a SIPP for exactly that purpose, knowing that I can always make withdrawals from it if circumstances change.

Adrian

[mearnsfool]

Scott thank you for pointing out that £900 per annum can be withdrawn Tax Free rather than £720 per year, a fault in my logic arround the gross £3,600 annual contribution.

With regards to using her full personal allowance this tax year and in the early part of the 2019/2020 tax year, prior to her state pension and very small occupational pension coming into payment.

The taxable funds in her SIPP at this time prior to any £2,800 annual contributions being made, will take up to her early seventies to drawdown those funds within her personal allowance over those years, yes around £11.8k this year. Only then will she be to drawdown the remaining 75% of these £3,600 gross contributions we are planning to start making this year.

[mearnsfool]

Have you taken into account the SIPP can be passed on to beneficiaries without Inheritance Tax?

I'm using a SIPP for exactly that purpose, knowing that I can always make withdrawals from it if circumstances change.

Adrian

Adrian if we assume simplistically that there are three types of people: -

Those that cannot afford or will not pay into a pension.

Those that pay a reasonable amount into a pension to fund later life.

Those that maybe pay a bit too much into a pension "just in case" and "you also get the tax relief" so bring it on type of person.

At a pension course I went on, paid for by my then employer some years ago, the instructor who was a retired economics professor said “do not let the tax relief tail wag the dog".

I wonder if this is a case of this the "tax relief tail" rather than say spend an extra week abroad a year for the next ten years as you only live once.

I know it is a personal decision but just testing the water with some likeminded people on the forum.

[mearnsfool]

Adrian,

With regards to the inherance tax advantage of a SIPP. I'm of the opinion at the moment that those we have decided to leave things to will get sufficient capital left to them.