£2,888 Anual Pension Contribution No Earned Income

[mearnsfool]

Can I just run this past the panel.

Retired person only income the new state pension of £159 a week therefore annual income approx £8300. Make the £2888 contribution to an existing Hargreaves SIPP and cash out asap but do not close the SIPP. The person basically gets a £722 tax free present for at most 2 hours work.

Same circumstance but the person has a good Second State Pension / SERPS due to being contracted out or has an additional pension from else where with a total unearned income of basically the personal allowance of £11,500 this year or less than say around £40,000.

Let's not get into the inheritance tax question here as that is too complicated or if the person has a reasonable dividend income or at the unearned income is around the £40k mark and the tax free saving allowance gets involved.

They make the £2,888 contribution which gets £722 added as a tax free lump sum.

The person takes the cash out ASAP., they get £722 tax free but they are taxed on the £2,880 remaining on the way out that is £577.60 therefore the combined effect is a present of £144.40 for those two hours work.

Can the panel advise if anyone here is doing this on an annual basis or do you consider this not worth the bother especially in the second case especially if a good non ISA dividend income is in place.

[Alaric]

Retired person only income the new state pension of £159 a week therefore annual income approx £8300. Make the £2888 contribution to an existing Hargreaves SIPP and cash out asap but do not close the SIPP. The person basically gets a £722 tax free present for at most 2 hours work.

Get the numbers right. It's a gross contribution of £ 3600 meaning a net of £ 2880.

The pension providers aren't keen on supporting what you suggest. Several of them, I think Hargreaves included, will levy a closure penalty if a SIPP is closed down within a year of it being opened.

[mearnsfool]

Thanks for not reading my post properly and being stuck up to the nth detail.

I clearly said that you would use an already open SIPP and would make sure you would not close it close it when taking the cash out, further there is no reason at all to state the gross figure of £3,600m we are all aware of that fact and it does not need to be stated as the majority of readers here are aware of that.

I'm well aware that a gross contribution of £3,600 equates to a net contribution of £2,888.

I assume you were probably a quantity survey in your past life or for that matter may well be still working in that profession!

[swill453]

I'm well aware that a gross contribution of £3,600 equates to a net contribution of £2,888.

It's 2880 actually.

Both my partner and I, in our fifties with pension drawdown as our only income, do this.

We both keep drawdown to just below the personal allowance so currently pay no tax.

Her SIPP is small enough that it will be completely empty before the state pension kicks in, so she won't need to pay tax and will get the full £720 p.a. gift.

I will ultimately have to pay tax on my drawdown in the future, so will only benefit to the tune of the tax saved on 25% of £3600, or £180 p.a.

It's still worth it I feel, as it takes minutes to do.

Scott.

[DrBunsenHoneydew]

Interesting that you mention Hargreaves Lansdown in this context.

In the good old days HL used to promote exactly this scheme as an agent of Standard Life, save that after taking the lump sum you had to take the pension as an annuity as you could not draw down the balance in one go. It made reasonable sense as annuity rates were high at the time.

Here's an article about it http://www.thisismoney.co.uk/money/pensions/article-1588575/Deadline-looms-for-pensions-ploy.html