SIPP & Pension guidance - IM Private Clients
Discussion
Question - I have an IM pension and a small workplace pension.
My contributions to the workplace pension were £4,800 over the year, employer matched so I have as good as £50k left in my 23-24 allowance.
I want to use some spare cash to top up my IM pension to the max contributions, so am I right in thinking I need to transfer £41,600 of my money and the 20% relief will do the rest and total (almost) £50k (allowance less the workplace contributions).
a) Am I right in thinking that the employer contributions are included in the totals?
b) Is the tax relief counted in the current tax year?
Apologies for the simplistic questions but I've always had very good employer pensions so I've never thought of topping up a private pension.
My contributions to the workplace pension were £4,800 over the year, employer matched so I have as good as £50k left in my 23-24 allowance.
I want to use some spare cash to top up my IM pension to the max contributions, so am I right in thinking I need to transfer £41,600 of my money and the 20% relief will do the rest and total (almost) £50k (allowance less the workplace contributions).
a) Am I right in thinking that the employer contributions are included in the totals?
b) Is the tax relief counted in the current tax year?
Apologies for the simplistic questions but I've always had very good employer pensions so I've never thought of topping up a private pension.
EmBe said:
Yes, no problem on the earnings side, it's just understanding how to structure the contributions I'm struggling with.
To get the gross amount to meet your allowance, divide by 80 and times 100 e.g.£41600 / 80 x 100 = £52000
£40000 /80 x 100 = £50000
Yes the £60k limit includes employer contributions too
A bit of a thought exercise around how best to minimise the tax bill in retirement.
If you've got a couple of years in cash, some ISA, some SIPP, some DB pension at 65 and the state pension at 67.
With the DB pension it's possible to take it early and to alter the cash lump sum, but obviously at the expense of reducing the annual pension.
My thoughts were that it might make sense to both take the DB early, 60 instead of 65 and to maximise the tax free lump sum. The thought being that this would reduce the tax payable once all taxable income sources kick in.
Back of a fag packet calculation, using DB pension providers calculator, suggested that by doing this, you would end up with more Net in your pocket between 60 and 85 than you would if you just took it at the stand retirement age of 65 and the default lump sum.
The DB and state pension between them are likely to provide the moderate level of pension income, so enough to live on and having done the heavy lifting.
With an ideal plan of living a life and therefore spending the very last penny at the moment of death, the reality is that something will get passed on. Therefore, in some respects leaving the SIPP until last, or at least only taking the tax free element, would seem a reasonable thing to do, assuming you can live that life on that bit.
If you've got a couple of years in cash, some ISA, some SIPP, some DB pension at 65 and the state pension at 67.
With the DB pension it's possible to take it early and to alter the cash lump sum, but obviously at the expense of reducing the annual pension.
My thoughts were that it might make sense to both take the DB early, 60 instead of 65 and to maximise the tax free lump sum. The thought being that this would reduce the tax payable once all taxable income sources kick in.
Back of a fag packet calculation, using DB pension providers calculator, suggested that by doing this, you would end up with more Net in your pocket between 60 and 85 than you would if you just took it at the stand retirement age of 65 and the default lump sum.
The DB and state pension between them are likely to provide the moderate level of pension income, so enough to live on and having done the heavy lifting.
With an ideal plan of living a life and therefore spending the very last penny at the moment of death, the reality is that something will get passed on. Therefore, in some respects leaving the SIPP until last, or at least only taking the tax free element, would seem a reasonable thing to do, assuming you can live that life on that bit.
supersport said:
A bit of a thought exercise around how best to minimise the tax bill in retirement......
Make sure you use your tax free allowance £12,570 every year - from somewhere - even if it's just moving it out of a SIPP and into an ISA. (Yes a SIPP is IHT protected and an ISA isn't, so if that's a worry, take it from a DB pension)Taking DB's early can be complicated to figure out - I took professional advice to figure that out. I have 3 and 2 of them made sense and the other didn't.
I didn't take any tax free cash from the DB pensions as I didn't think the reduction in regular payments made it a good trade - but yours may be different. I did take it from the SIPP though.
I suspect this question may be covered already in this thread, so apologies, but I have not managed to locate it.
So: Combining SIPPs from two different providers and platforms.
What I would like to know is how chrystalised % is carried accross and recalculated in the combined (destination) SIPP.
What is the calculation?
Who does it? (I am thinking the receiving SIPP, based on info sent from the transferring SIPP?)
Example:
Person has 2 SIPPs
Both originally held £100k
SIPP1 has had withdrawals of 3 x £5,000 as TFLS totalling £15k and representing 3/5ths of the 25% Tax Free amount allowed and a 60% chrystalisation of the SIPP.
SIPP 2 has never been touched so is unchrystalised.
If SIPP 1 is transferred into SIPP 2, what does the resulting level of chrystalisation look like in the combined (destination) SIPP? How is it calculated and who performs the calculation?
Many thanks in anticipation!
So: Combining SIPPs from two different providers and platforms.
What I would like to know is how chrystalised % is carried accross and recalculated in the combined (destination) SIPP.
What is the calculation?
Who does it? (I am thinking the receiving SIPP, based on info sent from the transferring SIPP?)
Example:
Person has 2 SIPPs
Both originally held £100k
SIPP1 has had withdrawals of 3 x £5,000 as TFLS totalling £15k and representing 3/5ths of the 25% Tax Free amount allowed and a 60% chrystalisation of the SIPP.
SIPP 2 has never been touched so is unchrystalised.
If SIPP 1 is transferred into SIPP 2, what does the resulting level of chrystalisation look like in the combined (destination) SIPP? How is it calculated and who performs the calculation?
Many thanks in anticipation!
6speedmanual said:
I suspect this question may be covered already in this thread, so apologies, but I have not managed to locate it.
So: Combining SIPPs from two different providers and platforms.
What I would like to know is how chrystalised % is carried accross and recalculated in the combined (destination) SIPP.
What is the calculation?
Who does it? (I am thinking the receiving SIPP, based on info sent from the transferring SIPP?)
Example:
Person has 2 SIPPs
Both originally held £100k
SIPP1 has had withdrawals of 3 x £5,000 as TFLS totalling £15k and representing 3/5ths of the 25% Tax Free amount allowed and a 60% chrystalisation of the SIPP.
SIPP 2 has never been touched so is unchrystalised.
If SIPP 1 is transferred into SIPP 2, what does the resulting level of chrystalisation look like in the combined (destination) SIPP? How is it calculated and who performs the calculation?
Many thanks in anticipation!
Receiving sipp does itSo: Combining SIPPs from two different providers and platforms.
What I would like to know is how chrystalised % is carried accross and recalculated in the combined (destination) SIPP.
What is the calculation?
Who does it? (I am thinking the receiving SIPP, based on info sent from the transferring SIPP?)
Example:
Person has 2 SIPPs
Both originally held £100k
SIPP1 has had withdrawals of 3 x £5,000 as TFLS totalling £15k and representing 3/5ths of the 25% Tax Free amount allowed and a 60% chrystalisation of the SIPP.
SIPP 2 has never been touched so is unchrystalised.
If SIPP 1 is transferred into SIPP 2, what does the resulting level of chrystalisation look like in the combined (destination) SIPP? How is it calculated and who performs the calculation?
Many thanks in anticipation!
The uncrystallised part of the 'new' pension remains uncrystallised any withdrawal comes from only the crystallised portion of the new sipp. Until you're ready to commence drawdown from the uncrystallised portion.
The two parts can be separated at a later date also. (if required and the second part hasn't entered drawdown)
That's it in essence, but sure someone from IM will be along to explain it better and in more detail...
6speedmanual said:
I suspect this question may be covered already in this thread, so apologies, but I have not managed to locate it.
So: Combining SIPPs from two different providers and platforms.
What I would like to know is how chrystalised % is carried accross and recalculated in the combined (destination) SIPP.
What is the calculation?
Who does it? (I am thinking the receiving SIPP, based on info sent from the transferring SIPP?)
Example:
Person has 2 SIPPs
Both originally held £100k
SIPP1 has had withdrawals of 3 x £5,000 as TFLS totalling £15k and representing 3/5ths of the 25% Tax Free amount allowed and a 60% chrystalisation of the SIPP.
SIPP 2 has never been touched so is unchrystalised.
If SIPP 1 is transferred into SIPP 2, what does the resulting level of chrystalisation look like in the combined (destination) SIPP? How is it calculated and who performs the calculation?
Many thanks in anticipation!
Hi 6speedSo: Combining SIPPs from two different providers and platforms.
What I would like to know is how chrystalised % is carried accross and recalculated in the combined (destination) SIPP.
What is the calculation?
Who does it? (I am thinking the receiving SIPP, based on info sent from the transferring SIPP?)
Example:
Person has 2 SIPPs
Both originally held £100k
SIPP1 has had withdrawals of 3 x £5,000 as TFLS totalling £15k and representing 3/5ths of the 25% Tax Free amount allowed and a 60% chrystalisation of the SIPP.
SIPP 2 has never been touched so is unchrystalised.
If SIPP 1 is transferred into SIPP 2, what does the resulting level of chrystalisation look like in the combined (destination) SIPP? How is it calculated and who performs the calculation?
Many thanks in anticipation!
The seeding schemes (SIPP 1 and 2) will "label" the existing funds as crystallised and un-crystallised so SIPP 3 (combined SIPP) will know on receipt which funds fit in each category.
SIPP3 will then be established with a crystallised pot of £x and an uncrystallised pot of £y
Hope that helps
Nik
Thanks Nick and Dingg
So basically the chrystallised £ and the unchrystallised £ are reported to the receiving SIPP and a new % of chrystalisation (and therefore % of TFLS still available) are deduced.
This is useful and helpful to me as I am planning to start nibbling some money off one SIPP but do not want to combine it into another SIPP for a few years. I just wanted foresight as to what will happen when I do.
Cheers
So basically the chrystallised £ and the unchrystallised £ are reported to the receiving SIPP and a new % of chrystalisation (and therefore % of TFLS still available) are deduced.
This is useful and helpful to me as I am planning to start nibbling some money off one SIPP but do not want to combine it into another SIPP for a few years. I just wanted foresight as to what will happen when I do.
Cheers
I’ve a few questions regarding taking benefits from my IM SIPP.
I’m looking to take a small lump sum (UFPLS) this tax year to use/take advantage of my personal tax allowance.
As this will be the first time I’ve accessed benefits from my SIPP, I understand that it is likely to be taxed using an emergency tax code. I have a P45 from last summer when I was on JSA – could this be used to mitigate this? If not I’ll claim back any tax via self assessment.
What’s the latest date I can request a UFPLS payment for this tax year?
Following the above I understand I’m free to access the remaining uncrystallised pot how I wish. For instance I am thinking of crystallising a portion of the remaining pot (e.g. a third) and taking the 25% tax free, but leaving the rest to drawdown at a later date. Is my understanding correct?
Thanks Dave
I’m looking to take a small lump sum (UFPLS) this tax year to use/take advantage of my personal tax allowance.
As this will be the first time I’ve accessed benefits from my SIPP, I understand that it is likely to be taxed using an emergency tax code. I have a P45 from last summer when I was on JSA – could this be used to mitigate this? If not I’ll claim back any tax via self assessment.
What’s the latest date I can request a UFPLS payment for this tax year?
Following the above I understand I’m free to access the remaining uncrystallised pot how I wish. For instance I am thinking of crystallising a portion of the remaining pot (e.g. a third) and taking the 25% tax free, but leaving the rest to drawdown at a later date. Is my understanding correct?
Thanks Dave
alfaspud said:
I’ve a few questions regarding taking benefits from my IM SIPP.
I’m looking to take a small lump sum (UFPLS) this tax year to use/take advantage of my personal tax allowance.
As this will be the first time I’ve accessed benefits from my SIPP, I understand that it is likely to be taxed using an emergency tax code. I have a P45 from last summer when I was on JSA – could this be used to mitigate this? If not I’ll claim back any tax via self assessment.
What’s the latest date I can request a UFPLS payment for this tax year?
Following the above I understand I’m free to access the remaining uncrystallised pot how I wish. For instance I am thinking of crystallising a portion of the remaining pot (e.g. a third) and taking the 25% tax free, but leaving the rest to drawdown at a later date. Is my understanding correct?
Are you absolutely sure you won't ever want to make any more pension contributions above the MPAA allowance?I’m looking to take a small lump sum (UFPLS) this tax year to use/take advantage of my personal tax allowance.
As this will be the first time I’ve accessed benefits from my SIPP, I understand that it is likely to be taxed using an emergency tax code. I have a P45 from last summer when I was on JSA – could this be used to mitigate this? If not I’ll claim back any tax via self assessment.
What’s the latest date I can request a UFPLS payment for this tax year?
Following the above I understand I’m free to access the remaining uncrystallised pot how I wish. For instance I am thinking of crystallising a portion of the remaining pot (e.g. a third) and taking the 25% tax free, but leaving the rest to drawdown at a later date. Is my understanding correct?
alfaspud said:
I’ve a few questions regarding taking benefits from my IM SIPP.
I’m looking to take a small lump sum (UFPLS) this tax year to use/take advantage of my personal tax allowance.
As this will be the first time I’ve accessed benefits from my SIPP, I understand that it is likely to be taxed using an emergency tax code. I have a P45 from last summer when I was on JSA – could this be used to mitigate this? If not I’ll claim back any tax via self assessment.
What’s the latest date I can request a UFPLS payment for this tax year?
Following the above I understand I’m free to access the remaining uncrystallised pot how I wish. For instance I am thinking of crystallising a portion of the remaining pot (e.g. a third) and taking the 25% tax free, but leaving the rest to drawdown at a later date. Is my understanding correct?
Thanks Dave
Maybe give Nik a call, given you have less than a month to sort it out.I’m looking to take a small lump sum (UFPLS) this tax year to use/take advantage of my personal tax allowance.
As this will be the first time I’ve accessed benefits from my SIPP, I understand that it is likely to be taxed using an emergency tax code. I have a P45 from last summer when I was on JSA – could this be used to mitigate this? If not I’ll claim back any tax via self assessment.
What’s the latest date I can request a UFPLS payment for this tax year?
Following the above I understand I’m free to access the remaining uncrystallised pot how I wish. For instance I am thinking of crystallising a portion of the remaining pot (e.g. a third) and taking the 25% tax free, but leaving the rest to drawdown at a later date. Is my understanding correct?
Thanks Dave
alfaspud said:
I’ve a few questions regarding taking benefits from my IM SIPP.
I’m looking to take a small lump sum (UFPLS) this tax year to use/take advantage of my personal tax allowance.
As this will be the first time I’ve accessed benefits from my SIPP, I understand that it is likely to be taxed using an emergency tax code. I have a P45 from last summer when I was on JSA – could this be used to mitigate this? If not I’ll claim back any tax via self assessment.
What’s the latest date I can request a UFPLS payment for this tax year?
Following the above I understand I’m free to access the remaining uncrystallised pot how I wish. For instance I am thinking of crystallising a portion of the remaining pot (e.g. a third) and taking the 25% tax free, but leaving the rest to drawdown at a later date. Is my understanding correct?
Thanks Dave
Hi AlfaspudI’m looking to take a small lump sum (UFPLS) this tax year to use/take advantage of my personal tax allowance.
As this will be the first time I’ve accessed benefits from my SIPP, I understand that it is likely to be taxed using an emergency tax code. I have a P45 from last summer when I was on JSA – could this be used to mitigate this? If not I’ll claim back any tax via self assessment.
What’s the latest date I can request a UFPLS payment for this tax year?
Following the above I understand I’m free to access the remaining uncrystallised pot how I wish. For instance I am thinking of crystallising a portion of the remaining pot (e.g. a third) and taking the 25% tax free, but leaving the rest to drawdown at a later date. Is my understanding correct?
Thanks Dave
What you are describing sounds to me like pension drawdown, not UFPLS. You understanding is correct for pension drawdown, but not for UFPLS (where you take whatever amount you require, with 25% of this being treated as coming from your tax free cash).
So with drawdown on a £100k fund (for a round number) you could take £25k tax free (whenever you want) and 75% as taxable income (whenever you want). How you mix and match between the tax free element and the taxable element is entirely up to you.
With UFPLS everything is deemed to be a slice of the whole pot, with 25% being tax free and the balance being taxable.
So if you want to better plan drawing from the tax free and taxable elements drawdown may be the better option for you.
As Mike has said, do speak with NIk (and Mr Pointy is also correct about making sure you won't want to make an larger future contributions). Nik can go over the tax code position with you too.
Cheers
Julian
Mr Pointy said:
Are you absolutely sure you won't ever want to make any more pension contributions above the MPAA allowance?
I am - it's something I've given very careful thought to since I left my last role this time last year.mikeiow said:
Maybe give Nik a call, given you have less than a month to sort it out.
Good point - I'll contact Nik after giving this some further thought.JulianPH said:
Hi Alfaspud
What you are describing sounds to me like pension drawdown, not UFPLS. You understanding is correct for pension drawdown, but not for UFPLS (where you take whatever amount you require, with 25% of this being treated as coming from your tax free cash).
So with drawdown on a £100k fund (for a round number) you could take £25k tax free (whenever you want) and 75% as taxable income (whenever you want). How you mix and match between the tax free element and the taxable element is entirely up to you.
With UFPLS everything is deemed to be a slice of the whole pot, with 25% being tax free and the balance being taxable.
So if you want to better plan drawing from the tax free and taxable elements drawdown may be the better option for you.
As Mike has said, do speak with NIk (and Mr Pointy is also correct about making sure you won't want to make an larger future contributions). Nik can go over the tax code position with you too.
Cheers
Julian
Thanks Julian.What you are describing sounds to me like pension drawdown, not UFPLS. You understanding is correct for pension drawdown, but not for UFPLS (where you take whatever amount you require, with 25% of this being treated as coming from your tax free cash).
So with drawdown on a £100k fund (for a round number) you could take £25k tax free (whenever you want) and 75% as taxable income (whenever you want). How you mix and match between the tax free element and the taxable element is entirely up to you.
With UFPLS everything is deemed to be a slice of the whole pot, with 25% being tax free and the balance being taxable.
So if you want to better plan drawing from the tax free and taxable elements drawdown may be the better option for you.
As Mike has said, do speak with NIk (and Mr Pointy is also correct about making sure you won't want to make an larger future contributions). Nik can go over the tax code position with you too.
Cheers
Julian
Re-reading my OP I wasn’t clear that these are two scenarios separate in both purpose and timing.
The first scenario would be to take a small sum to use/take advantage of this year’s personal allowance. My thought was to use UFPLS for this, and it appears to fit well with “you take whatever amount you require, with 25% of this being treated as coming from your tax free cash”.
The second would be in about a year’s time, and flexi-drawdown as outlined by yourself above would be appropriate. My question is to confirm that accessing one type of benefit - e.g. UFPLS as above – does not prevent me accessing the remaining uncrystallised funds using another e.g.flexi-drawdown, or another UFPLS. My understanding the IM SIPP allows this – is that correct?
Dave
alfaspud said:
Thanks Julian.
Re-reading my OP I wasn’t clear that these are two scenarios separate in both purpose and timing.
The first scenario would be to take a small sum to use/take advantage of this year’s personal allowance. My thought was to use UFPLS for this, and it appears to fit well with “you take whatever amount you require, with 25% of this being treated as coming from your tax free cash”.
The second would be in about a year’s time, and flexi-drawdown as outlined by yourself above would be appropriate. My question is to confirm that accessing one type of benefit - e.g. UFPLS as above – does not prevent me accessing the remaining uncrystallised funds using another e.g.flexi-drawdown, or another UFPLS. My understanding the IM SIPP allows this – is that correct?
Dave
Hi DaveRe-reading my OP I wasn’t clear that these are two scenarios separate in both purpose and timing.
The first scenario would be to take a small sum to use/take advantage of this year’s personal allowance. My thought was to use UFPLS for this, and it appears to fit well with “you take whatever amount you require, with 25% of this being treated as coming from your tax free cash”.
The second would be in about a year’s time, and flexi-drawdown as outlined by yourself above would be appropriate. My question is to confirm that accessing one type of benefit - e.g. UFPLS as above – does not prevent me accessing the remaining uncrystallised funds using another e.g.flexi-drawdown, or another UFPLS. My understanding the IM SIPP allows this – is that correct?
Dave
No, you have to pick the one you want to use at outset.
You can take as much as you like, whenever you like, using either. The only difference is how it is treated for tax.
- With UFPLS everything is deemed to be a combination of tax free cash and taxable income.
- With drawdown you decide what you are withdrawing from the tax free cash pot and what is coming from the taxable income pot.
Drawdown therefore offers greater tax planning flexibility, which may be what you are seeking.
Hope that helps!
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