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Pension Question


man o' the year

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man o' the year

I really didn't think I would be in this situation as I was previously under the impression that my pension was simple and straightforward. However it is not quite as straightforward as I thought as I have no experience of a SIPP. I would therefore be grateful for any advice from those who do have experience.

My pension will start in February when I turn 60. This is mainly a teachers' pension ( Yay - hooray for me!) but I also contributed to an AVC with Prudential which would normally be accessed at the same time. I had envisaged to simply take 25% of this tax free and to buy an anuity with the remainder. However it looks as if "drawdown" by transferring to a SIPP would be the way to go. I understand this would operate in the same way as my ISA with Interactive Investor and they say it will cost me no more than another £10 per month on top of the £10 per month I pay at the moment for the ISA. I would be OK with this.

My questions are :

Can I continue to contribute to the SIPP? I understand there are tax advantages to doing this - ie that the government will effectively add to the amount I pay in. How does this work?

Can I pay in and take money from the SIPP at the same time?

 

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Democorruptcy
On 22/12/2020 at 14:00, man o' the year said:

I really didn't think I would be in this situation as I was previously under the impression that my pension was simple and straightforward. However it is not quite as straightforward as I thought as I have no experience of a SIPP. I would therefore be grateful for any advice from those who do have experience.

My pension will start in February when I turn 60. This is mainly a teachers' pension ( Yay - hooray for me!) but I also contributed to an AVC with Prudential which would normally be accessed at the same time. I had envisaged to simply take 25% of this tax free and to buy an anuity with the remainder. However it looks as if "drawdown" by transferring to a SIPP would be the way to go. I understand this would operate in the same way as my ISA with Interactive Investor and they say it will cost me no more than another £10 per month on top of the £10 per month I pay at the moment for the ISA. I would be OK with this.

My questions are :

Can I continue to contribute to the SIPP? I understand there are tax advantages to doing this - ie that the government will effectively add to the amount I pay in. How does this work?

Can I pay in and take money from the SIPP at the same time?

 

Maybe have a read about Money Purchase Annual Allowance

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NogintheNog
On 22/12/2020 at 14:00, man o' the year said:

Can I continue to contribute to the SIPP? I understand there are tax advantages to doing this - ie that the government will effectively add to the amount I pay in. How does this work?

Can I pay in and take money from the SIPP at the same time?

Yes you can continue to contribute;

https://www.youinvest.co.uk/faq/can-i-make-additional-contributions-my-sipp-after-starting-drawdown

Yes you can pay in and take money out, but after the 25% tax free element it's all liable for tax at whatever rate you pay.:) 

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Harley
On 27/12/2020 at 19:28, NogintheNog said:

Yes you can continue to contribute;

https://www.youinvest.co.uk/faq/can-i-make-additional-contributions-my-sipp-after-starting-drawdown

Yes you can pay in and take money out, but after the 25% tax free element it's all liable for tax at whatever rate you pay.:) 

This is a tricky subject that needs proper advice depending on personal circumstances and goals.  For example, while the above seems true, I was also told you can still make the full cintributions (maybe the carry forwards too) if you only took the tax free 25% and did not drawdown beyond that. But I still won't believe that until I try.  So that could be both a yes and a no depending on the precise personal goals and circumstances.  Then there's the recycling rules.  Advice, not via internet forums, is easy and essential.

Edited by Harley
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  • 2 months later...
Chewing Grass

Here is another one, a few of the people I know, me included were in an old government superannuation scheme based on 40ths of final salary. Some of us paid more in to have an earlier retirement date of 60.

Guess what it turns out that it is non-deferrable and since 2015 non-transferable.

Now this means that we are effectively prevented/discriminated against by the fact at 60 we can only pay 4K per year into another pension and this is not through our choice.

I have a hole I now cannot fill and a tax bill I cannot offset and a friend who is 59 is royally pissed off.

Surely this is no acceptable legally or under pension freedoms.

Opinions / anecdotes please.

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Democorruptcy
3 minutes ago, Chewing Grass said:

Here is another one, a few of the people I know, me included were in an old government superannuation scheme based on 40ths of final salary. Some of us paid more in to have an earlier retirement date of 60.

Guess what it turns out that it is non-deferrable and since 2015 non-transferable.

Now this means that we are effectively prevented/discriminated against by the fact at 60 we can only pay 4K per year into another pension and this is not through our choice.

I have a hole I now cannot fill and a tax bill I cannot offset and a friend who is 59 is royally pissed off.

Surely this is no acceptable legally or under pension freedoms.

Opinions / anecdotes please.

Is that because you are 60 and have started taking the pension?

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Chewing Grass
11 minutes ago, Democorruptcy said:

Is that because you are 60 and have started taking the pension?

No, I'm 56 but the day I'm 60 I'm forced to take it, unless I kill myself.

Non-deferrable, non-transferrable.

Those are supposedly the T&Cs.

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Democorruptcy
Just now, Chewing Grass said:

No, I'm 56 but the day I'm 60 I'm forced to take it, unless I kill myself.

Non-deferrable, non-transferrable.

Those are supposedly the T&Cs.

If you mean you cannot put more than £4k into a another pension because when you start taking your pension at 60, you will trigger the MPAA, then I think you are wrong. The MPAA wasn't brought in for that, it was to stop people recycling money for the tax relief. DYOR etc but found one here:

Quote

 

The MPAA was introduced alongside the 'pension freedoms' changes of 2015 to discourage people from repeatedly taking money out of a pension, benefiting from the chance to take tax-free cash, and then reinvesting all the money back into a pension with another slice of tax relief top-up from the government.

The way that the system works is that the first time you take taxable cash out of a 'pot of money' pension, the MPAA is triggered.

When this happens, the annual amount of money you can contribute into a 'pot of money' pension in future years is limited by the MPAA.

Two things follow on from the definition I have just given:

1. Taking money from a salary-related pension does *not* trigger the MPAA; in your case, there is nothing to stop you contributing substantial sums into pot of money pensions even though you are drawing a salary-related NHS pension;

What are defined contribution and salary-related pensions?

Defined contribution pensions, sometimes called money purchase in industry jargon, take contributions from both employer and employee and invest them to provide a pot of money at retirement. 

More generous gold-plated defined benefit pensions, also known as 'salary related' or final salary pensions, provide a guaranteed income for life after retirement. This is Money

2. Just taking your tax-free cash from a pot-of-money pension does *not* trigger the MPAA; provided that the rest goes into a flexible drawdown account and is not touched, then the MPAA does not apply;

https://www.thisismoney.co.uk/money/pensions/article-7103723/Can-draw-old-pension-40-000-year-schemes.html

 

 

 

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Chewing Grass
7 minutes ago, Democorruptcy said:

If you mean you cannot put more than £4k into a another pension because when you start taking your pension at 60, you will trigger the MPAA, then I think you are wrong. The MPAA wasn't brought in for that, it was to stop people recycling money for the tax relief. DYOR etc but found one here:

 

 

Excellent answer, thanks, we shall see where that gets us tomorrow.

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SpectrumFX

I've got a non deferable final salary pension that kicks in at 60 and I had a bit of a panic about the MPAA. I read around a bit and came to the conclusion that the MPAA probably doesn't apply to defined benefit schemes. They change all the rules so much mind that i'm fucked if I can keep up it with all.

 

 

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