SIPP & Pension guidance - IM Private Clients

[markiii]

i think thats a slightly different question. you have to have earnt enough in the tax year to cover the contribution, but you only get tax relief at therate paid

[Intelligent Money]

JapanRed said:

How would this work for my wife for example Nik? She has an NHS pension but no SIPP with you or anyone else? Should we suddenly find ourselves with a spare £160k (I wish) I’m guessing that she wouldn’t be allowed to open a SIPP and backdate 3 years...

Also, a more generic question: what happens to my NHS pension and my IM SIPP if I die before retirement age?

Thanks. Rob

Hi JapanRed

You can carry forward for the years that she was/is a member of the NHS Scheme. The calculation for the contribution made to the NHS scheme is based in the amount of benefit that the membership for that year accrued rather than the actual contribution made. Her membership of the NHS scheme means that she won't have a full allowance to carry forward for the years she was a member, as the NHS scheme will of used some of that allowance.

On death before retirement the NHS scheme will pay out a lump sum and a defendant's pension for your wife and any defendants.
If you die after retirement it will pay out a dependents pension. For a SIPP/Personal Pension the value of the pension pot is payed out.

Cheers

Nik

[anonymous-user]

JapanRed said:

Should we suddenly find ourselves with a spare £160k (I wish) I’m guessing that she wouldn’t be allowed to open a SIPP and backdate 3 years...

I don't think your question has been answered.

My understanding is that in order to "go back 3 years" for contributions the relevant pension arrangement must have already existed in the relevant years. I don't think you can open a new arrangement and then suddenly chuck in up to £120k (3 x £40k)

[Intelligent Money]

rockin said:

JapanRed said:

Should we suddenly find ourselves with a spare £160k (I wish) I’m guessing that she wouldn’t be allowed to open a SIPP and backdate 3 years...

I don't think your question has been answered.

My understanding is that in order to "go back 3 years" for contributions the relevant pension arrangement must have already existed in the relevant years. I don't think you can open a new arrangement and then suddenly chuck in up to £120k (3 x £40k)

Not sure wasn't hasn't been answered but for clarity, To carry forward you must of had a scheme that you either could of or did contribute to in the year you want to carry forward from. In this case you have, the NHS scheme.

You can then make the new contribution, including the carry forward element, into any scheme that will accept the contribution. So that could be into a scheme you already hold or you can open a new Pension/SIPP if you wish.

Nik

[JapanRed]

Thanks Nik

[Mr Pointy]

Intelligent Money said:

Not sure wasn't hasn't been answered but for clarity, To carry forward you must of had a scheme that you either could of or did contribute to in the year you want to carry forward from. In this case you have, the NHS scheme.

You can then make the new contribution, including the carry forward element, into any scheme that will accept the contribution. So that could be into a scheme you already hold or you can open a new Pension/SIPP if you wish.

In this particular case would the OPs wife only be able to use carry forward if she was still employed by the NHS in those years, given that she couldn't contribute to the NHS scheme if she wasn't employed by them?

[Intelligent Money]

Mr Pointy said:

Intelligent Money said:

Not sure wasn't hasn't been answered but for clarity, To carry forward you must of had a scheme that you either could of or did contribute to in the year you want to carry forward from. In this case you have, the NHS scheme.

You can then make the new contribution, including the carry forward element, into any scheme that will accept the contribution. So that could be into a scheme you already hold or you can open a new Pension/SIPP if you wish.

In this particular case would the OPs wife only be able to use carry forward if she was still employed by the NHS in those years, given that she couldn't contribute to the NHS scheme if she wasn't employed by them?

She is likely to be treated as a deferred member of the NHS scheme if she has left service and so would still be able to carry forward as she had technically still accrued Pension benefits from the scheme even though she has left.

Nik

[timbo999]

I have a reasonably large DC pension.

I would like to start drawing down from this pension, at the rate of about £17k per annum, but wish to avoid income tax.

I don't need the tax free money as a lump sum (other savings/assets can cover the Mclaren and the yacht) so my thoughts are to 'crystallise' £100k each year, draw down £12k from it and take £25k tax free. I would use £5k of the tax free money to top up my income and put the remaining £20k in an ISA (most likely S&S).

Is this legal, feasible, sensible?

Thanks!

[Intelligent Money]

timbo999 said:

I have a reasonably large DC pension.

I would like to start drawing down from this pension, at the rate of about £17k per annum, but wish to avoid income tax.

I don't need the tax free money as a lump sum (other savings/assets can cover the Mclaren and the yacht) so my thoughts are to 'crystallise' £100k each year, draw down £12k from it and take £25k tax free. I would use £5k of the tax free money to top up my income and put the remaining £20k in an ISA (most likely S&S).

Is this legal, feasible, sensible?

Thanks!

Hi timbo999

Your plan is legal and feasible and sensible if it meets your needs.

An alternative to consider would be to crystallise £16,760 this year, slightly less than your £17k figure but very close!,

£12,570 can be drawn as income using your personal allowance, assuming no income from other sources and that you have a full personal allowance, £4,190 can be taken as the tax free cash part of your crystallisation so you will release £16,760 with no tax to pay. This will just leave the funds in your pension to be drawdown later as you need them and minimises the crystallised element of the pot.

The benefit of Pension Freedoms is the options available so no one route is better or worse than another it just taking the route that feels right for you,

Nik

[timbo999]

Nik
Thanks for the reply.

What are the advantages of keeping the amount crystallised as low as possible? I assumed it didn't really matter as you could keep it invested in exactly the same way as the uncrystallised portion.

Secondly, could I not take more tax free cash in your scenario to achieve my target income?

Thanks again!

[Ligne]

Timely thread.

A question on commercial property in a pension.... ssas or sipp?

Property value £150k, Held between two family members jointly, but possibly let to third party rather than family owned business.

[Jockman]

We run ours through SIPPs. Seems to work fine.

Also operated through a SSAS many years ago but no commercial property then.

Ironically our SSAS was able to lend us money to buy one of the commercial properties.......which we then put into our SIPPs some 13 years later.

Tenant type doesn’t really concern us. We have both. No issues.

[Intelligent Money]

timbo999 said:

Nik
Thanks for the reply.

What are the advantages of keeping the amount crystallised as low as possible? I assumed it didn't really matter as you could keep it invested in exactly the same way as the uncrystallised portion.

Secondly, could I not take more tax free cash in your scenario to achieve my target income?

Thanks again!

Hi timbo999

Once the pot is crystallised the tax free cash element is capped at 25% of that crystallised value. The idea is that if the pot continues to grow then you are able to release a greater amount of tax free cash at later date. If the fund value falls it then it works against you.

You could release additional tax free cash but that would leave a crystallised pot greater than your personal allowance for the year so you would pay a small amount of tax on the income drawn.

Cheers

Nik

[Yorkshire Dangermouse]

Intelligent Money said:

timbo999 said:

Nik
Thanks for the reply.

What are the advantages of keeping the amount crystallised as low as possible? I assumed it didn't really matter as you could keep it invested in exactly the same way as the uncrystallised portion.

Secondly, could I not take more tax free cash in your scenario to achieve my target income?

Thanks again!

Hi timbo999

Once the pot is crystallised the tax free cash element is capped at 25% of that crystallised value. The idea is that if the pot continues to grow then you are able to release a greater amount of tax free cash at later date. If the fund value falls it then it works against you.

You could release additional tax free cash but that would leave a crystallised pot greater than your personal allowance for the year so you would pay a small amount of tax on the income drawn.

Cheers

Nik

Just picking up on this, doesn't Timbo's plan have the advantage (assuming a spouse) of transferring a big chunk of his pension funds into an ISA, that has the benefit of a spousal exemption (whereas post-75 no tax-free transfer of his pension funds, other than personal allowance, which may already be used) ? Agreed there is a trade-off against an increasing tax-free element of uncrystallised funds, so I suppose the ideal would be to use Timbo's plan in the few years running up to age 75 ?

[Intelligent Money]

Yorkshire Dangermouse said:

Intelligent Money said:

timbo999 said:

Nik
Thanks for the reply.

What are the advantages of keeping the amount crystallised as low as possible? I assumed it didn't really matter as you could keep it invested in exactly the same way as the uncrystallised portion.

Secondly, could I not take more tax free cash in your scenario to achieve my target income?

Thanks again!

Hi timbo999

Once the pot is crystallised the tax free cash element is capped at 25% of that crystallised value. The idea is that if the pot continues to grow then you are able to release a greater amount of tax free cash at later date. If the fund value falls it then it works against you.

You could release additional tax free cash but that would leave a crystallised pot greater than your personal allowance for the year so you would pay a small amount of tax on the income drawn.

Cheers

Nik

Just picking up on this, doesn't Timbo's plan have the advantage (assuming a spouse) of transferring a big chunk of his pension funds into an ISA, that has the benefit of a spousal exemption (whereas post-75 no tax-free transfer of his pension funds, other than personal allowance, which may already be used) ? Agreed there is a trade-off against an increasing tax-free element of uncrystallised funds, so I suppose the ideal would be to use Timbo's plan in the few years running up to age 75 ?

hi Yorkshire Dangermouse

It is a consideration, any funds left in the pot after age 75 will be subject to income tax, at the beneficiaries rate,on death of the OP. It is a good example that there is rarely a one size fits all solution. The OP would need to balance the potential benefits of Tax free cash growth against the possible tax charge on the pot at 75, and consider that you can only wrap £20k p.a. per person into an ISA each year.
It also obviously depends on the exited pot size at 75 and who the beneficiary may be.

Cheers

Nik

[Yorkshire Dangermouse]

Cheers Nik

Yes - a lot of different aspects to consider...

[Chozza]

When should I stop putting money in my Pension and start putting it somewhere else?
Is there an amount where at 51 , I should stop adding to my pension because of Life time allowance and start putting it somewhere else?

Let assume I'm 51 , I want to retire at 60 .. do I just calculate based on compound interest and an assumed growth - and then when i start hitting life time limits i'm better off investing elsewhere?

[Intelligent Money]

Chozza said:

When should I stop putting money in my Pension and start putting it somewhere else?
Is there an amount where at 51 , I should stop adding to my pension because of Life time allowance and start putting it somewhere else?

Let assume I'm 51 , I want to retire at 60 .. do I just calculate based on compound interest and an assumed growth - and then when i start hitting life time limits i'm better off investing elsewhere?

Hi Chozza

The simple answer is yes, a rough and ready compound interest calculation will give you the chance to work back from 60 and see what pot size at 51 is likely to take you over the LTA at the date you plan to start drawing.

In many cases people will "de-risk" the investment approach as they approach LTA as the reward for taking higher risk for potential higher return is less attractive when a higher return may just lead to a higher tax bill.

Wether or not to stop funding depends on a number of things, such as are where the contributions are coming from, If it is an employer supported plan or company based contributions the tax benefits of the contributions need to be taken into account.

Cheers

Nik

[PorkInsider]

Some great info coming in answers to other people's queries - very useful!

One of my own, Nik (or anyone who knows), if I may...

If I was to make a £50k contribution to my (IM) pension this tax year, so obviously over the £40k max for tax relief, would I need to apply to HMRC for the 20% relief on the excess over the £40k, given that I have unused allowance over the past couple of years, or does it happen automatically still?

I already have to apply for higher rate relief on the contributions I make but obviously the 20% relief relief is automatically added by the fund provider (IM).

Thanks.

[Mr Pointy]

PorkInsider said:

Some great info coming in answers to other people's queries - very useful!

One of my own, Nik (or anyone who knows), if I may...

If I was to make a £50k contribution to my (IM) pension this tax year, so obviously over the £40k max for tax relief, would I need to apply to HMRC for the 20% relief on the excess over the £40k, given that I have unused allowance over the past couple of years, or does it happen automatically still?

I already have to apply for higher rate relief on the contributions I make but obviously the 20% relief relief is automatically added by the fund provider (IM).

Are you employed. a Sole Trader or a Director of a company? Do you already submit a self-assessment return?