paying lump sums into a SIPP? (and vanguard question)
Discussion
Another pension question from me.....
I have a couple of dormant personal pensions but, for reasons I wont go into, I am not currently paying into any pension. To sort this I am thinking of starting a SIPP.
So, I am employed and lets say I am earning a nominal £35,000 a year. However this is nominal, it might go up, but (perhaps more importantly) it could go down during the year. I also have significant savings in cash that I would like to make better use of.
My understanding is that I can pay a max of my gross salary (ie £35k) a year. And this is the amount after tax relief. So I could pay up to £29k and the SIPP provider gets £6k relief from HMRC.
Is that correct?
2nd question: Any reason why I should not open a SIPP pension now and pay a lump sump of £29k into it to maximise the tax relief for this current tax year? Then obviously keep contributing for the next tax year and beyond.
A couple of other, sightly unrelated questions. I have been looking at the Vanguard SIPP.
In their key facts is says there are two ways of taking a pension income. Annuity and transfer to another pension provider. Does this mean Vanguard do not allow me to leave the pot with them and drawdown? Is this usual for SIPP providers?
2nd question: If I took a vanguard sipp and selected one of their target retirement funds, is there an option to change that later to either another target fund or select my own funds?
I have a couple of dormant personal pensions but, for reasons I wont go into, I am not currently paying into any pension. To sort this I am thinking of starting a SIPP.
So, I am employed and lets say I am earning a nominal £35,000 a year. However this is nominal, it might go up, but (perhaps more importantly) it could go down during the year. I also have significant savings in cash that I would like to make better use of.
My understanding is that I can pay a max of my gross salary (ie £35k) a year. And this is the amount after tax relief. So I could pay up to £29k and the SIPP provider gets £6k relief from HMRC.
Is that correct?
2nd question: Any reason why I should not open a SIPP pension now and pay a lump sump of £29k into it to maximise the tax relief for this current tax year? Then obviously keep contributing for the next tax year and beyond.
A couple of other, sightly unrelated questions. I have been looking at the Vanguard SIPP.
In their key facts is says there are two ways of taking a pension income. Annuity and transfer to another pension provider. Does this mean Vanguard do not allow me to leave the pot with them and drawdown? Is this usual for SIPP providers?
2nd question: If I took a vanguard sipp and selected one of their target retirement funds, is there an option to change that later to either another target fund or select my own funds?
brman said:
Another pension question from me.....
I have a couple of dormant personal pensions but, for reasons I wont go into, I am not currently paying into any pension. To sort this I am thinking of starting a SIPP.
So, I am employed and lets say I am earning a nominal £35,000 a year. However this is nominal, it might go up, but (perhaps more importantly) it could go down during the year. I also have significant savings in cash that I would like to make better use of.
My understanding is that I can pay a max of my gross salary (ie £35k) a year. And this is the amount after tax relief. So I could pay up to £29k and the SIPP provider gets £6k relief from HMRC.
Is that correct?
2nd question: Any reason why I should not open a SIPP pension now and pay a lump sump of £29k into it to maximise the tax relief for this current tax year? Then obviously keep contributing for the next tax year and beyond.
A couple of other, sightly unrelated questions. I have been looking at the Vanguard SIPP.
In their key facts is says there are two ways of taking a pension income. Annuity and transfer to another pension provider. Does this mean Vanguard do not allow me to leave the pot with them and drawdown? Is this usual for SIPP providers?
2nd question: If I took a vanguard sipp and selected one of their target retirement funds, is there an option to change that later to either another target fund or select my own funds?
To get £35k gross into a pension you only need to contribute £28k net, not 29k.I have a couple of dormant personal pensions but, for reasons I wont go into, I am not currently paying into any pension. To sort this I am thinking of starting a SIPP.
So, I am employed and lets say I am earning a nominal £35,000 a year. However this is nominal, it might go up, but (perhaps more importantly) it could go down during the year. I also have significant savings in cash that I would like to make better use of.
My understanding is that I can pay a max of my gross salary (ie £35k) a year. And this is the amount after tax relief. So I could pay up to £29k and the SIPP provider gets £6k relief from HMRC.
Is that correct?
2nd question: Any reason why I should not open a SIPP pension now and pay a lump sump of £29k into it to maximise the tax relief for this current tax year? Then obviously keep contributing for the next tax year and beyond.
A couple of other, sightly unrelated questions. I have been looking at the Vanguard SIPP.
In their key facts is says there are two ways of taking a pension income. Annuity and transfer to another pension provider. Does this mean Vanguard do not allow me to leave the pot with them and drawdown? Is this usual for SIPP providers?
2nd question: If I took a vanguard sipp and selected one of their target retirement funds, is there an option to change that later to either another target fund or select my own funds?
No reason whatsoever to do this. Even if you didn't want to put the whole of the money into the markets straight away you can just get it in for the tax relief and hold it in cash within the pension/SIPP and drip feed it into the markets (I am not sure Vanguard facilitate this though).
Vanguard do not allow you to take tax free cash or drawdown at the moment. Yes, this is very unusual. They do say they are planning to offer this soon though.
Yes, you can switch between funds at any time with any SIPP.
JulianPH said:
brman said:
Another pension question from me.....
I have a couple of dormant personal pensions but, for reasons I wont go into, I am not currently paying into any pension. To sort this I am thinking of starting a SIPP.
So, I am employed and lets say I am earning a nominal £35,000 a year. However this is nominal, it might go up, but (perhaps more importantly) it could go down during the year. I also have significant savings in cash that I would like to make better use of.
My understanding is that I can pay a max of my gross salary (ie £35k) a year. And this is the amount after tax relief. So I could pay up to £29k and the SIPP provider gets £6k relief from HMRC.
Is that correct?
2nd question: Any reason why I should not open a SIPP pension now and pay a lump sump of £29k into it to maximise the tax relief for this current tax year? Then obviously keep contributing for the next tax year and beyond.
A couple of other, sightly unrelated questions. I have been looking at the Vanguard SIPP.
In their key facts is says there are two ways of taking a pension income. Annuity and transfer to another pension provider. Does this mean Vanguard do not allow me to leave the pot with them and drawdown? Is this usual for SIPP providers?
2nd question: If I took a vanguard sipp and selected one of their target retirement funds, is there an option to change that later to either another target fund or select my own funds?
To get £35k gross into a pension you only need to contribute £28k net, not 29k.I have a couple of dormant personal pensions but, for reasons I wont go into, I am not currently paying into any pension. To sort this I am thinking of starting a SIPP.
So, I am employed and lets say I am earning a nominal £35,000 a year. However this is nominal, it might go up, but (perhaps more importantly) it could go down during the year. I also have significant savings in cash that I would like to make better use of.
My understanding is that I can pay a max of my gross salary (ie £35k) a year. And this is the amount after tax relief. So I could pay up to £29k and the SIPP provider gets £6k relief from HMRC.
Is that correct?
2nd question: Any reason why I should not open a SIPP pension now and pay a lump sump of £29k into it to maximise the tax relief for this current tax year? Then obviously keep contributing for the next tax year and beyond.
A couple of other, sightly unrelated questions. I have been looking at the Vanguard SIPP.
In their key facts is says there are two ways of taking a pension income. Annuity and transfer to another pension provider. Does this mean Vanguard do not allow me to leave the pot with them and drawdown? Is this usual for SIPP providers?
2nd question: If I took a vanguard sipp and selected one of their target retirement funds, is there an option to change that later to either another target fund or select my own funds?
No reason whatsoever to do this. Even if you didn't want to put the whole of the money into the markets straight away you can just get it in for the tax relief and hold it in cash within the pension/SIPP and drip feed it into the markets (I am not sure Vanguard facilitate this though).
Vanguard do not allow you to take tax free cash or drawdown at the moment. Yes, this is very unusual. They do say they are planning to offer this soon though.
Yes, you can switch between funds at any time with any SIPP.
To clarify, the bit I put in bold, did you mean that? ie there is no reason to put a lump sum in for this year? Or that yes, I should do that, with the proviso that I might want to start with cash and drip feed later to reduce risk of short term market fluctuations?
Thanks also for the correction on the tax relief amount, I was calculating it from the wrong end so to speak
brman said:
Thanks Julian.
To clarify, the bit I put in bold, did you mean that? ie there is no reason to put a lump sum in for this year? Or that yes, I should do that, with the proviso that I might want to start with cash and drip feed later to reduce risk of short term market fluctuations?
Thanks also for the correction on the tax relief amount, I was calculating it from the wrong end so to speak
Idiotic mistake of mine! To clarify, the bit I put in bold, did you mean that? ie there is no reason to put a lump sum in for this year? Or that yes, I should do that, with the proviso that I might want to start with cash and drip feed later to reduce risk of short term market fluctuations?
Thanks also for the correction on the tax relief amount, I was calculating it from the wrong end so to speak
I missed the word "not" out, as in there is no reason whatsoever not to do this!
In my defence I hadn't even had a cup of tea when I posted earlier this morning!
brman said:
no problem, thanks for clarifying
Looks like I should get a move on and sort something out although it looks like I need to check out a few other sipp providers.
Like you my income was variable & I used to make lump sum payments into my SIPP but the events of the last week have shown how this can go wrong. There are several posters who have made recent (some very recent) lump sum deposits & are now down by thousands due to the falls inspired by the Coronavirus issue. I'd suggest that next year you look at making a regular monthly investment & then top it up towards the end of the tax year so at least some of your investment takes advantage of cost averaging.Looks like I should get a move on and sort something out although it looks like I need to check out a few other sipp providers.
You might consider opening a SIPP, paying the money in but leave it uninvested as cash until the current situation settles down & then picking a fund or funds to invest in. Don't forget you can go back three years to use up any unused allowance, although you must use up all of the current year's allowance first (2019-20, then go back to 2016-17).
Don't focus too much on what the institution you select can offer in terms of features like drawdown; SIPPs are portable & come retirement you can transfer them to a more flexible institution. Performance & fees are the key issues in the investing phase.
Don't forget an emergency fund & ISAs: a SIPP locks your money away until you are 55 in exchange for the tax relief & is subject to income tax when you withdraw the money (with some provisos). Gains in an ISA are tax free.
You might want to read the IM sticky thread at the top of this forum.
https://www.pistonheads.com/gassing/topic.asp?h=0&...
Thanks,
Mr Pointy said:
Like you my income was variable & I used to make lump sum payments into my SIPP but the events of the last week have shown how this can go wrong. There are several posters who have made recent (some very recent) lump sum deposits & are now down by thousands due to the falls inspired by the Coronavirus issue. I'd suggest that next year you look at making a regular monthly investment & then top it up towards the end of the tax year so at least some of your investment takes advantage of cost averaging.
You might consider opening a SIPP, paying the money in but leave it uninvested as cash until the current situation settles down & then picking a fund or funds to invest in. Don't forget you can go back three years to use up any unused allowance, although you must use up all of the current year's allowance first (2019-20, then go back to 2016-17).
Makes sense, and I think this was the point Julian was making too. It doesn't help that the sipp providers aren't always clear what is available cash/funds wise. eg vanguard do have a low risk "Sterling Short-Term Money Market Fund" but I am not clear if that is really just cash. I get the impression not?You might consider opening a SIPP, paying the money in but leave it uninvested as cash until the current situation settles down & then picking a fund or funds to invest in. Don't forget you can go back three years to use up any unused allowance, although you must use up all of the current year's allowance first (2019-20, then go back to 2016-17).
Mr Pointy said:
Don't focus too much on what the institution you select can offer in terms of features like drawdown; SIPPs are portable & come retirement you can transfer them to a more flexible institution. Performance & fees are the key issues in the investing phase.
Thanks for that, a good point. I think this is why I was initially looking at Vanguard as they appear to have a reasonable reputation with lower than average cost. The trouble is there are so many to choose from that seeing the wood from the trees is difficult!Mr Pointy said:
Don't forget an emergency fund & ISAs: a SIPP locks your money away until you are 55 in exchange for the tax relief & is subject to income tax when you withdraw the money (with some provisos). Gains in an ISA are tax free.
Another good point but not a problem for me. I can max out my ISA allowance as well as have plenty left for short term emergencies. This is just a belated attempt to maximise what I have left for retirement rather that see it diminish in real terms just sitting in the bank. Mr Pointy said:
You might want to read the IM sticky thread at the top of this forum.
https://www.pistonheads.com/gassing/topic.asp?h=0&...
I have, but it is quite long and by the end of it I was forgetting what I had read at the start. Maybe I need to read it again and see if I can digest a bit more!https://www.pistonheads.com/gassing/topic.asp?h=0&...
Mr Pointy said:
Don't forget you can go back three years to use up any unused allowance, although you must use up all of the current year's allowance first (2019-20, then go back to 2016-17).
btw, just on this point. Am I right in thinking that, as I have not actually been contributing to a pension for the last few years I cannot use my allowance from previous years? I am not sure where I read that but it stuck in my head somehow!But I am assuming I could still start a SIPP now with a smaller amount then, next year, ramp up the payments to use all of next years allowance PLUS the remainder of this years allowance? Is this what you were suggesting?
Edited by brman on Wednesday 26th February 14:05
LeoSayer said:
My understanding is that you won't get tax relief on untaxed contributions.
So whilst you can put the full £35k into the SIPP, you will only get tax relief on the taxed part of that salary ie. £22.5k.
Is this right? I have looked at a few tax relief caculators online and they say differently.So whilst you can put the full £35k into the SIPP, you will only get tax relief on the taxed part of that salary ie. £22.5k.
eg. https://www.which.co.uk/money/pensions-and-retirem...
Put in 35k as a salary and 35k as a pension contribution and you get a payment of 28k with a tax relief of 7k.
It does almost sound too good to be true as the gov are paying back more that was originally paid in tax but it does appear to be the case?
brman said:
LeoSayer said:
My understanding is that you won't get tax relief on untaxed contributions.
So whilst you can put the full £35k into the SIPP, you will only get tax relief on the taxed part of that salary ie. £22.5k.
Is this right? I have looked at a few tax relief caculators online and they say differently.So whilst you can put the full £35k into the SIPP, you will only get tax relief on the taxed part of that salary ie. £22.5k.
eg. https://www.which.co.uk/money/pensions-and-retirem...
Put in 35k as a salary and 35k as a pension contribution and you get a payment of 28k with a tax relief of 7k.
It does almost sound too good to be true as the gov are paying back more that was originally paid in tax but it does appear to be the case?
Apologies for giving the wrong info originally.
ILikeCake said:
You get carry forward as well. Unless you maxed out contributions for the previous 3 years you can chuck in a large amount and not worry about it.
But can I actually make use of them. See my previous post....brman said:
btw, just on this point. Am I right in thinking that, as I have not actually been contributing to a pension for the last few years I cannot use my allowance from previous years? I am not sure where I read that but it stuck in my head somehow!
But I am assuming I could still start a SIPP now with a smaller amount then, next year, ramp up the payments to use all of next years allowance PLUS the remainder of this years allowance? Is this what you were suggesting?
Looking at this further eg: https://www.pensionsadvisoryservice.org.uk/about-p...But I am assuming I could still start a SIPP now with a smaller amount then, next year, ramp up the payments to use all of next years allowance PLUS the remainder of this years allowance? Is this what you were suggesting?
Edited by brman on Wednesday 26th February 14:05
implies I can use previous years as I have a pension I am not paying in to but also not taking income from. So I am a "a deferred member with paid-up pension benefits"?
But later it says
If you are using carry forward to make larger pension contributions, you will only receive tax relief on total contributions that you pay into your pension scheme(s) that do not exceed your earnings in the tax year that you pay them.
So, although i can use carry forward to increase contributions it is better to use the allowance in the relevent year as it gives more tax relief.
Have I got this bit right?
Yes I found the wording on the gov websites crap and unclear. I used the calculator:
https://www.gov.uk/guidance/check-if-you-have-unus...
You type in your earnings and contributions for past years and it tells you how much you can pay in.
This year I've used up some previous allowance above yearly earnings and have been given tax relief. So unless I get a nasty letter from HMRC it's looking good!
https://www.gov.uk/guidance/check-if-you-have-unus...
You type in your earnings and contributions for past years and it tells you how much you can pay in.
This year I've used up some previous allowance above yearly earnings and have been given tax relief. So unless I get a nasty letter from HMRC it's looking good!
ILikeCake said:
Yes I found the wording on the gov websites crap and unclear. I used the calculator:
https://www.gov.uk/guidance/check-if-you-have-unus...
You type in your earnings and contributions for past years and it tells you how much you can pay in.
This year I've used up some previous allowance above yearly earnings and have been given tax relief. So unless I get a nasty letter from HMRC it's looking good!
Yes, but I think there are two things here. https://www.gov.uk/guidance/check-if-you-have-unus...
You type in your earnings and contributions for past years and it tells you how much you can pay in.
This year I've used up some previous allowance above yearly earnings and have been given tax relief. So unless I get a nasty letter from HMRC it's looking good!
1) Annual allowance before tax is payable. That being 40k a year with up to 3 years being carried forward.
2) Annual allowance for tax relief. This is max your salary for the year but with no carry forward.
Have I got that right? It appears to contradict your last sentence.....
brman said:
Yes, but I think there are two things here.
1) Annual allowance before tax is payable. That being 40k a year with up to 3 years being carried forward.
2) Annual allowance for tax relief. This is max your salary for the year but with no carry forward.
Have I got that right? It appears to contradict your last sentence.....
Have a look at the information on the HL site:1) Annual allowance before tax is payable. That being 40k a year with up to 3 years being carried forward.
2) Annual allowance for tax relief. This is max your salary for the year but with no carry forward.
Have I got that right? It appears to contradict your last sentence.....
https://www.hl.co.uk/pensions/contributions
https://www.hl.co.uk/pensions/contributions/carry-...
https://www.hl.co.uk/pensions/tax-relief
You have to use all of this year's allowance before using carry forward for 2016/17.
I'd again suggest you consider getting in touch with Nik on the IM thread.
Damn, typed a reply and it disappeared.
I'm not so sure now. I have both workplace pension and a sipp. When taking the work pension into account the amount I've put into the sipp exceeds this year's allowance. I have however received tax relief on all my contributions.
So afraid I don't know the answers to your 2 points above. Not sure if I was meant to get tax relief, or if the tax man will come knocking...
I'm not so sure now. I have both workplace pension and a sipp. When taking the work pension into account the amount I've put into the sipp exceeds this year's allowance. I have however received tax relief on all my contributions.
So afraid I don't know the answers to your 2 points above. Not sure if I was meant to get tax relief, or if the tax man will come knocking...
Mr Pointy said:
Have a look at the information on the HL site:
https://www.hl.co.uk/pensions/contributions
https://www.hl.co.uk/pensions/contributions/carry-...
https://www.hl.co.uk/pensions/tax-relief
You have to use all of this year's allowance before using carry forward for 2016/17.
I'd again suggest you consider getting in touch with Nik on the IM thread.
unfortunately those links did not really help. https://www.hl.co.uk/pensions/contributions
https://www.hl.co.uk/pensions/contributions/carry-...
https://www.hl.co.uk/pensions/tax-relief
You have to use all of this year's allowance before using carry forward for 2016/17.
I'd again suggest you consider getting in touch with Nik on the IM thread.
eg "This could mean you can make a contribution of up to £160,000 in some cases." Ok, that sounds nice.
But "To receive tax relief on your personal contributions, you can only contribute as much as you earn each tax year". So that implies my max contribution is my gross salary for the year to get tax relief. Fair enough, but I cannot find anything that says what happens if you put in more than your gross salary but less that the allowance (including carry forward if needed).
I think you are right, I need to an expert to spell it out for me.
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