I'm not yet retired (later this year), but I think this is a sensible approach to take advantage of my SIPP but wanted to check I'd gotten my facts correct.
The plan...
1. When available, take the 25% Tax Free - using this to move money away from the SIPP, so that the remainder creates income less than the personal allowance.
2. After that, as a non tax payer (at least initially), pay in £2880 per year into the SIPP, getting £720 tax relief and then take all that out along with any dividends once per year (early March), gaining me an additional £60 of monthly income for no effort.
This effectively becomes self funding after the first year as the £2880 just gets recycled back into the SIPP each year.
3. Continue paying in until other pensions (state) come on line taking me over my personal allowance, at which point stop paying in the extra money as there is no advantage to paying in anymore.
Does this look practical?
regards,
Darka
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SIPP Post Retirement Contributions
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- Lemon Slice
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Re: SIPP Post Retirement Contributions
Darka wrote:3. Continue paying in until other pensions (state) come on line taking me over my personal allowance, at which point stop paying in the extra money as there is no advantage to paying in anymore.
There is a slight advantage. If you're paying basic rate tax you'd save 20% of the 25% tax-free bit, or £180 per year. For almost no effort, as you say.
Scott.
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- Lemon Slice
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Re: SIPP Post Retirement Contributions
Even if you're paying basic rate tax there can be a small gain from continuing to contribute £2880 pa:
input £2880
HMRC contribution £720
net £3600
assuming no growth, ignoring costs & LTA, as a basic rate tax payer withdraw £3600
tax free = £900
taxable = £2700
tax (20%) = £540
net = £3600 - £540 = £3060
gain = £3060 - £2880 = £180 (6.25%)
Potentially complicates LTA management, if you're close to the limit and might not be worth it if you're over the limit.
Andrew
input £2880
HMRC contribution £720
net £3600
assuming no growth, ignoring costs & LTA, as a basic rate tax payer withdraw £3600
tax free = £900
taxable = £2700
tax (20%) = £540
net = £3600 - £540 = £3060
gain = £3060 - £2880 = £180 (6.25%)
Potentially complicates LTA management, if you're close to the limit and might not be worth it if you're over the limit.
Andrew
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Re: SIPP Post Retirement Contributions
Just a couple of comments.
Firstly, if its easier to put money in than to take it out, make sure you leave enough time for this. There have been discussion in this forum about the process and procedures with Hargreaves Lansdown, and I know from Vanguard that you have to do some paperwork and then have a booked telephone 'conversation' with them. With Scottish Widows it took me about 2 months to access my funds.
Secondly, if you search for "small pension pot rule MPAA" you will see that you can cash in small pots (<£10K) without 'triggering' the MPAA. The MPAA restricts how much you can put into a pension and claim tax relief. This is not an issue with the £2880 figure but if you later decide to return to some work and want to continue to contribute from earnings it may be a factor.
My understanding is that the 'small pension pot(s)' needs to be separate ( i.e. cant take 10k out of your 'main' pension) and you can withdraw sums of up to 10k up to 3 times without triggering the MPAA restriction.
edit: I also understand that the small pension pots may not be tested against the LTA.Again search "small pension pots lta".
Firstly, if its easier to put money in than to take it out, make sure you leave enough time for this. There have been discussion in this forum about the process and procedures with Hargreaves Lansdown, and I know from Vanguard that you have to do some paperwork and then have a booked telephone 'conversation' with them. With Scottish Widows it took me about 2 months to access my funds.
Secondly, if you search for "small pension pot rule MPAA" you will see that you can cash in small pots (<£10K) without 'triggering' the MPAA. The MPAA restricts how much you can put into a pension and claim tax relief. This is not an issue with the £2880 figure but if you later decide to return to some work and want to continue to contribute from earnings it may be a factor.
My understanding is that the 'small pension pot(s)' needs to be separate ( i.e. cant take 10k out of your 'main' pension) and you can withdraw sums of up to 10k up to 3 times without triggering the MPAA restriction.
edit: I also understand that the small pension pots may not be tested against the LTA.Again search "small pension pots lta".
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- Lemon Slice
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Re: SIPP Post Retirement Contributions
Sobraon wrote:Firstly, if its easier to put money in than to take it out, make sure you leave enough time for this.
Very good point, will have a look at my plan and will check how long YouInvest normally take.
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