SIPP & Pension guidance - IM Private Clients

[Intelligent Money]

Shanna73737 said:

Hi IM can you clarify whether it is possible to transfer a SIPP in to a workplace pension? Or can we only transfer workplace pensions to another workplace pension?

Thanks

Hi Shanna73737

The broad pension regulation/regime allows SIPPS to be transferred into workplace schemes so unless the workplace scheme you are looking at excludes transfers in, you should be fine.

Regards

Nik

[Intelligent Money]

interstellar said:

Any help on this thread would be good IM. Thanks in advance,

https://www.pistonheads.com/gassing/topic.asp?h=0&...

Hi Interstellar

The answers in the thread are on track. As a summary :

To use carry forward you max to this years contribution 21/22 then can go back three years, furtherest back first, so 18/19, 19/20, 20/21

For each year, based on the info in the thread, you had the max allowance of £40k gross available to you, you then take the gross pension contributions made in each year away from the £40k allowance and that its the remaining allowance that you can carry forward from each year.

You total up the un-used allowance form 18/19 + 19/20 + 20/21 + 21/22 this is the contribution you can make in this tax year (21/22)

As it will be a salary sacrifice/exchange it will be treated as employer contribution so the contribution made by your employer will be a gross payment.

Hope that makes sense as a summary. Please just let me know if you need any more detail

Cheers

Nik

[Intelligent Money]

interstellar said:

Intelligent Money said:

interstellar said:

Any help on this thread would be good IM. Thanks in advance,

https://www.pistonheads.com/gassing/topic.asp?h=0&...

Hi Interstellar

The answers in the thread are on track. As a summary :

To use carry forward you max to this years contribution 21/22 then can go back three years, furtherest back first, so 18/19, 19/20, 20/21

For each year, based on the info in the thread, you had the max allowance of £40k gross available to you, you then take the gross pension contributions made in each year away from the £40k allowance and that its the remaining allowance that you can carry forward from each year.

You total up the un-used allowance form 18/19 + 19/20 + 20/21 + 21/22 this is the contribution you can make in this tax year (21/22)

As it will be a salary sacrifice/exchange it will be treated as employer contribution so the contribution made by your employer will be a gross payment.

Hope that makes sense as a summary. Please just let me know if you need any more detail

Cheers

Nik

That's great , Thank You. have you got a number or email I cant contact you on? . We need some advise on this and the whole net/gross calculation

Edited by interstellar on Friday 5th November 11:41

Hi Interstellar

Drop me an e-mail at [e-mail] I'll be happy to help

Cheers

Nik

[Intelligent Money]

forest172 said:

regarding lifetime allowance in a SIPP:-

As you approach it are you better turning your SIPP into cash to prevent it? (not that I`m close to either retirement or allowance) I see this mentioned and don`t understand it fully

Hi forest172

Sorry to say that the answer to this one is very much "it depends!"

There are so many moving parts to consider with LTA that it will vary dependent on the individual circumstances, plans to draw benefits etc.
The argument for reducing the risk in the portfolio is typically that taking additional risk for more gain is less attractive as you will pay tax on the gain so the risk/reward balance is less attractive when you don't get to keep all the reward.


However that is a fairly one dimensional view so it is definitely a case of taking into account what you are trying and achieve to balance out the pro and cons.

Cheers

Nik

[Intelligent Money]

Om said:

I perhaps should have asked my question from the other thread ( https://www.pistonheads.com/gassing/topic.asp?h=0&...) here.

I do have a supplementary question. If I take the PPF pension at 55 whilst I continue working - and being mindful of recycling - if I place the lump sum into a S&S ISA would I still be able to use other savings/unrelated ISA funds to place into my ongoing personal DC pension to show clearly that I am not recycling the lump sum? Additionally could I increase my contributions into my company DC pension by approximately the same amount as the annual PPF pension payment and simply use the PPF payment to make up the difference?

As mentioned on the other thread I don't need to take the PPF pension as yet but my simple calculations suggest I would be daft not to unless I have missed something.

Thanks!

Hi OM

Recycling is probably one off the greyest of grey areas in the HMRC rule book, It is based more on principle than on rules. They are looking to prevent the deliberate abuse of the system by taking money out of a pension and then dropping it straight back to simply gain the tax relief.

It is often very obvious when recycling is taking place on a big scale but more difficult to determine on a smaller scale.

The two main triggers in your case are a tax free cash payment greater than £7,500 and a significant increase in the contributions made to a pension scheme, or an increase greater than 30% of the tax free lump sum.

In this case if you are saying that you are going take a tax free payment from your PPF scheme for greater than £7,500 and that this payment will release or make available funds for additional pension contributions greater than 30% of the tax free cash then there is a strong case to say it is recycling.

In reality if your increase in pension contributions is not viewed by HMRC as significant and as as such is not picked up they are unlikely to pursue you under recycling rules, but they could. Hence the grey!

Regards

Nik

[Intelligent Money]

pingu393 said:

Intelligent Money said:

The two main triggers in your case are a tax free cash payment greater than £7,500 and a significant increase in the contributions made to a pension scheme, or an increase greater than 30% of the tax free lump sum.

In this case if you are saying that you are going take a tax free payment from your PPF scheme for greater than £7,500 and that this payment will release or make available funds for additional pension contributions greater than 30% of the tax free cash then there is a strong case to say it is recycling.

In reality if your increase in pension contributions is not viewed by HMRC as significant and as as such is not picked up they are unlikely to pursue you under recycling rules, but they could. Hence the grey!

I'm 56 and plan 100% salary contributions to my SIPP for the foreseeable future. I will start getting a DB pension when I'm 60, including a lump sum. I don't see it as "a significant increase", as there will have been 5 years of previous similar contributions. The lump sum will be more than £7,500.

Do you foresee any HMRC problems if I continue to stuff the SIPP?

Hi Pingu393

As with the last post while it could technically be viewed as recycling once your pension is in payment, if you have maxed out your contributions before the DB scheme pays out and then continue to do so it is unlikely that it will be flagged by HMRC

Cheers

Nik

[Intelligent Money]

B9 said:

Age 55 protection notice

I'm mid thirties and hold pensions with IM and Scottish Widows.

Am I now going to be forced to wait until I'm 57? It's all a pipe dream anyway, but curious if IM pensions were protected to retain the 55 age?

If it is protected, what would happen if I transferred other pensions into this scheme that weren't?

Hi B9

Apologies this post got lost in later questions.

It is still a little unclear and there is a challenge taking place at the moment. Most providers, ourselves included reference an "unqualified right" to draw benefits at the minimum pension age. While this has been moved from 55 - 57 there is an argument that benefits accrued while the MPA was 55 should still be accessible at 55. Benefits accrued after the change are then accessible at the new MPA of 57.
At the moment the default position is that all benefits have been pushed out to age 57.

Any scheme that specifically stated an "unqualified right" to retire at 55 may still be able to allow access to benefits at 55.

Transfers into the schemes that have a protected 55 MPA have been blocked.

Cheers

Nik

[Intelligent Money]

Om said:

Thanks Nik. I shall be very careful with how I continue to contribute to my DC pensions in which case.

One additional question - if I take the PPF pension am I correct in my assumption that as it is a DB pension or at least a proxy for one - there is no danger of triggering the MPAA allowance and the regular max of £40k/yr payment limit continues?

Cheers!

Hi OM

The PPF pension should be treated as a DB so MPAA should not be triggered.

Cheers

Nik

[Intelligent Money]

JeffreyD said:

A question along similar lines to the above

Can you make a lump sum payment into a pension after you have started to drawdown?

It would be way over their annual income.

Hi JeffreyD

If you have only drawn tax free cash (PCLS) then you still have the usual pension contribution allowance of £40k or 100% of Net Relevant Earnings whichever is the lower.

If you are drawing income from your pension then the MPPA will apply so the contribution allowance is £4k p.a.

Cheers

Nik

[Intelligent Money]

Jasey_ said:

Intelligent Money said:

JeffreyD said:

A question along similar lines to the above

Can you make a lump sum payment into a pension after you have started to drawdown?

It would be way over their annual income.

Hi JeffreyD

If you have only drawn tax free cash (PCLS) then you still have the usual pension contribution allowance of £40k or 100% of Net Relevant Earnings whichever is the lower.

If you are drawing income from your pension then the MPPA will apply so the contribution allowance is £4k p.a.

Cheers

Nik

Plus up to three years of previous unused allowance (or whatever it's called).

Just make sure you aren't recycling

You need to remember that while you may be able use carry forward to increase the amount you can contribute you will only get tax relief up the value of net relevant earnings in the year of contribution.

Nik

[Intelligent Money]

JeffreyD said:

Thanks for the replies.

I've been tasked/lumbered with managing my mother's finances as she is in hospital long term.

In essence she's got a (relative) load of cash and doesn't need income. 300k or so.

A pension payment would potentially also help with iht - if we don't claim any tax relief does that make a difference?

Hi JeffreyD

There are a few wrinkles around age and how the contribution is made but it is likely that it would treated as an overpayment and subject to the annual allowance charge and the contribution returned.

If she has drawn income from a DC pension and MPPA is applied it is very unlikely that you can find an option to make a £300k contribution.

Happy to take a look at the situation and see what options you have if that would help. Just drop me a mail at [e-mail].

Cheers

Nik

[Intelligent Money]

AnotherUsername said:

No, I haven’t used search…

Your own limited company and SIPP vs dividends.

For simplicity sake.

Company makes profits of 100k
Corp Tax £20k
Take dividends of 50k and salary of 10k
Additional tax payable of £5k
Net take home of £55k


If I pay £10k into my SIPP does that reduce company profits by £10k?
Is there any additional tax to pay on the payment?

So profit of 90k
Corp Tax of £18k
Salary £10k
SIPP £10k
Dividends £40k
Additional tax £4k
‘Net pay £56k’?

Hi anotherusername,

Any company pension contribution is treated as a business expense so it does reduce your company profit by the amount of the contribution.

The maximum contribution the company can make is £40k per tax year.

Regards

Nik

[Intelligent Money]

Mr Pointy said:

I'll ask this question in here as the answers may be of use to others.

I thought I'd stopped working (CV19, no travel etc etc) so in 2020/21 (ie last tax year) I took £15,000 as a UFPLS - £3,750 TFLS, £11,250 in the drawdown fund, £2250 tax paid. I have only taken the TFLS, the "income" part remains invested in IM.

I knew this would trigger the MPAA of £4,000 for the future. In June someone made me an offer I couldn't refuse so I've started working again. Normally I would max out my pension payments (I will be HR tax payer this year) to reduce my tax bill - note I'm a Sole Trader, not a Limited Company.

Is there any way I can make pension payments up to the £40,000 level & get tax relief or am I forever limited to the £4,000 figure?

Hi Mr Pointy

You have mail

Nik

[Intelligent Money]

CAPP0 said:

IM people - is there somewhere online where we can access our pension P60s for 20/21 please?

Hi Cappo.

I will get a copy sent out to you

Cheers

Nik

[Intelligent Money]

Groat said:

The wife just stuck a bit more cash in her SIPP.

When does the HMRC bit get added?

Hi Groat

As others have said it is typically 2-3 months after the contribution that the HMRC relief arrives.

You will see it in the contribution section as RAS (Relief as Source) when it arrives.

Cheers

Nik

[Intelligent Money]

SteveM46 said:

Carbon Sasquatch said:

SJP can have some pretty nasty exit fees too - so you could struggle a bit if you have time pressure.

I would expect crystallisation to be close to free - though Julian will be able to advise on what they would charge. What work are you being told is included ? Feels to me it's tick a box - calculate the % of LTA (which will be automatic), release tax free cash as requested & the rest of the pot stays the same, just marked as 'crystalised'. It's just mechanical.

The high fees are part of their business model as you already know - I'm not sure how much flex they will offer, but definitely worth getting them to break it down as far as you can & challenging the effort vs cost of each piece. The 'advice' pieces will usually be more expensive than the mechanical / execution pieces.

Thanks, this is useful. The exit fees are transparent - 6% dropping by 1%/year to 0% if assets are held for less than 6 years. Curiously, I've been told there may be an 'exit charge' of about £4k moving the lump sum from the drawdown pot to a unit trust; I've challenged this on the basis that the lump sum will be staying with SJP so surely isn't applicable. If it really is then I'm minded to take the lump sum out altogether and manage it myself.

There is another point, that not all my pots are yet consolidated, so the FA does need to pull together valuations for all these in order to do the LTA calculation. I've done all of that myself, but we still have to go through the process of the FA contacting the pension providers on my behalf and getting valuations. This is straightforward, but still takes time.

Your point about crystallisation being simple and mechanical is key. I don't yet feel I've had any advice on this from SJP - I've been telling them what I want to do, they've raised the usual points about not knowing what the future holds, what the chancellor may do in future years etc. - but I get the strong sense I've thought far more about this stuff than they have, and maybe that I even understand some of it better. It's been disappointing, to be honest. If we could agree a flat fee of, say, £5k then I would feel a whole lot better about it!

Hi SteveM46

With any "tied solution" and SJP is just one example, be careful that the course of action that is offered is not guided by the limitations of the provider.

As an example linked to your case, not all providers offer full flexible drawdown and phased/segmented crystallisation of your pot. I believe that SJP do now offer this but it is a recent addition to their pensions.

There is a bit of work involved in a Crystallisation event, but the majority is a bit of administration to report to HMRC and provide you with a statement that lets you know how much LTA you have used for that event.

Cheers

Nik

[Intelligent Money]

Whatsmyname said:

Hi IM,

Looking for some advice on creating income for when I’m 50 so I can retire or at least go part time / seasonal.

I’ve got 10 years.

Basic idea with my limited knowledge would be to have something at 50 that I could draw down (ISA?) until pension at 57?

Are lump sums paid in a good idea to start or just drip it? Just thinking about pension allowance and the yearly isa allowance ie fill before April and drip after.

Hi Whatsmyname

Mike has just about covered it all in his reply, thanks Mike. Maxing your ISA allowance every year is a good start point, the tax advantages both while it grows and when you come draw income make them a good vehicle both for growth and drawdown.

Additional funds above your ISA allowance can be placed into a GIA (General Investment Account). Gains in a GIA are subject to capital gains tax, but you have a CGT allowance, currently £12,300, so with a bit of planing you can also minimise the tax that you pay on this savings.

As always if chatting your thoughts through would be useful please just drop me a message at [e-mail] and I'll be happy to set a call up, no cost and no obligation.

Cheers

Nik

[Intelligent Money]

Painless said:

Can someone help on pension tapering?

FY19 /20 my pension contribution was £3771.08, work put in £5,871.31 and tax relief was £942.77
In FY19 / 20 the tapering limit was £10,000, rather than the £4,000 it is now.

Does the £10,000 limit relate to what I contribute, what I and my employer pay or the total contribution including relief?

thanks

Hi Painless

Apologies for the delay in a reply. A busy week at IM towers!

The tapering limit applies to the gross contribution from any source into your pension, so in this case it is your gross contribution i.e. including tax relief and your employers contribution.

Regards

Nik

[Intelligent Money]

Condi said:

Quick question for any IM or Pensions people...

Until recently I had an DB pension scheme, and separately had an old DC scheme I continued to pay into post tax, and then reclaimed the tax back later. The DB scheme has now ended and we are being transferred to a salary sacrifice DC scheme, which comes out pre-tax, saving not only income tax but national insurance.

My question is do the contributions made post tax into the old scheme save National Insurance too? If not, then am I better stopping those contributions and putting more into the new scheme instead (above the maximum matched %), as this is taken out pre-tax and will therefore save on NI as well as income tax?

Hi Condi

Contributions to your old scheme will only gain income tax relief at your marginal rate, 20% into the pension and the additional relief via tax return if you are a higher rate payer. There is no NI relief.

A salary sacrifice scheme effectively increases the employer contribution to the scheme so no tax or NI is payable on the contribution.
If you are able to increase the amount that is payed via salary sacrifice into your new scheme this is a more tax efficient route than making personal contributions to your old scheme.

Regards

Nik

[Intelligent Money]

VR99 said:

Condi said:

LeoSayer said:

Salary sacrifice becomes even more valuable with the NI increase next year.

Yes, that was another consideration. 13.5% saving is quite considerable.

Could someone explain this in a bit more detail please, how exactly is the 13.5% saving figure derived? Layman's terms ideally as lot of this stuff goes over my head

For context I am a higher rate tax payer and for this tax year I am salary sacrificing all my earnings above £50k into the pension to both offset the higher rate tax and avoid HIBC for child benefit.
If we assume that in tax year 22-23, I don't 'zig zag' my salary sac contributions i.e: I sacrifice equal amounts each month would I still make a 13.5% saving on the NI?

Thanks

Hi VR99

In its simplest form Salary Sacrifice is swapping salary for a pension payment. This means that the pension payment made in return for the sacrifice is treated as a company contribution and is is not treated as income for the employee. Think of it as appearing on the left side of your pay slip, so before it goes through the tax system, rather than the right side which does go through the tax system.

If the money was paid to you as income your employer pays both employer NI, 15.05% in 22/23 and employee NI, 13.25% up to the Upper Earnings limited and 3.25% after that. In addition tax is paid at the marginal rates.

If you then make a personal pension contribution from your net pay, after tax and NI, you can claim the tax paid back but not the employer or employee NI.

When a salary sacrifice is made the employer pays no tax or NI on the contribution. In most cases they are happy to pass the saving onto you by paying the equivalent NI and Tax payments into your pension rather than to the revenue.

Regards

Nik