SIPP for a 55 year old

[itcouldbeworse]

Now, I'm pretty sure I've seen threads on this before but damned if I can find them.

Mrs itcouldbeworse is 55 years old and stopped paid employment some time ago. Am I right in thinking that as a non earner she can still contribute up to £2,880 net into a SIPP. The tax man will then top it up by £720 to give the max contribution of £3,600. As she is over 55 she can then effectively withdraw 100% of he money straight away. As a non taxpayer, she will then effectively get a tax free bonus of £720. She can do this every single tax year.

If this is the case, possibly people can help me with the practicalities if they have done this themselves:
1. What SIPP provider do people use. I have my own SIPP with HL and the charges for drawdown seem to be zero. However, I can't understand why HL would let someone do this, as its hardly a money making strategy from their point of view. Presumably some minimum amount must be left in the SIPP to keep it open (£100?)
2. Does the SIPP provider take tax off the amount in excess of the TFLS, leaving it to the individual to reclaim any tax paid or is it all paid gross to begin with?
3. I see that there in some cases backdated contributions can be made if the individual hasn't utilised their full allowance in previous tax years. Does this apply in this case (the amount of earned income Mrs itcouldbeworse has for the last few taxyears, is minimal)

£720 "free" from the taxman seems too good to be true, so would be good to hear from others who have actually put this strategy into practice.

Thanks in advance!

[Chrysalis]

Yes, I am sure this is possible (not done it myself but it is definitely within the rules).
To answer your questions:
1. Ask them. I hear nothing but praise for HL so I am pretty sure that if anyone allows it, they will.
2. Yes I think it likely that tax will be deducted and need to be claimed back. Again ask the provider.
3. No, carry forward doesn’t apply to the non earners allowance.

[JuanDB]

Withdrawing money from a pension just to pay it back in is called recycling and is not allowed.
Yes, as a non earner she can contribute £3600 per year gross (£2880) net.
If you withdrew the full value in one lump I believe it would be taxed as the assumption is you are making monthly withdrawals. So a lump sum of £3600 would be assumed to be the first payment of 12*3600 and taxed as such.
You can claim up to 3 prior years allowance but only up to the value of earned income. If she had no earned income then I do not believe carry forward would apply.

Thanks,

Juan

[vrdiver]

would be good to hear from others who have actually put this strategy into practice.

Mrs VRD is a non tax payer.

She pays £240 each month into her Youinvest SIPP.
Youinvest collect £60 from the taxman each month.
She withdraws £300 each month

Each year she has paid in £2880 and withdrawn £3600.

Youinvest charge £220 per year (£100 annual SIPP management and £120 annual SIPP in drawdown/UFPLS mode). (In Mrs VRD's case, the SIPP also has other income, otherwise she would reduce the UFPLS payment by £18.34 each month so as to cover the costs.
There is a minimum balance of £1k otherwise they will close the SIPP. Can be in equities or cash.

All of the above is perfectly legal and does not breach any of the pension recycling rules (because it is under the threshold values).

So yes, the taxman will give everybody £720 pension relief, but you don't need to tie up £2880 to get it - you can make £240 work hard for you instead...

VRD

[vrdiver]

Withdrawing money from a pension just to pay it back in is called recycling and is not allowed. In this case, not applicable. See my post above
Yes, as a non earner she can contribute £3600 per year gross (£2880) net.
If you withdrew the full value in one lump I believe it would be taxed as the assumption is you are making monthly withdrawals. So a lump sum of £3600 would be assumed to be the first payment of 12*3600 and taxed as such. which can be quickly reclaimed: https://www.gov.uk/government/publicati ... -claim-p55
You can claim up to 3 prior years allowance but only up to the value of earned income. If she had no earned income then I do not believe carry forward would apply. Agreed. For the scenario of "no earned income" this is a straightforward single tax year only proposition; no previous years are considered, just the current year.

Thanks,

Juan

[JuanDB]

Vrdriver. Thanks for correcting my understanding.

Mrs Juan is within spitting distance of 55 and also encumbered by earned income. Nice to know there’s a simple, compliant, process.

Cheers,

Juan.

[itcouldbeworse]

Thanks for all the replies. I'm going to have a look round to see who is the lowest cost provider for this. I've currently got my own SIPP with HL and have had no problems - but I'm still a couple of years from being able to make withdrawals so haven't seen how that side works. She should have time to do one for the tax year just ending and then the new tax year.

[ursaminortaur]

would be good to hear from others who have actually put this strategy into practice.

Mrs VRD is a non tax payer.

She pays £240 each month into her Youinvest SIPP.
Youinvest collect £60 from the taxman each month.
She withdraws £300 each month

Each year she has paid in £2880 and withdrawn £3600.

Youinvest charge £220 per year (£100 annual SIPP management and £120 annual SIPP in drawdown/UFPLS mode). (In Mrs VRD's case, the SIPP also has other income, otherwise she would reduce the UFPLS payment by £18.34 each month so as to cover the costs.
There is a minimum balance of £1k otherwise they will close the SIPP. Can be in equities or cash.

In the first year with a YouInvest SIPP you need to be extremely careful that the value of the SIPP doesn't fall to £1k or below resulting in them closing the SIPP as there would then be a fee applied of £295 + VAT.

https://www.youinvest.co.uk/sipp/charges-and-rates

Closure of your SIPP through taking flexi-access drawdown payments or regular pension lump sums within 12 months of opening your SIPP £295
.
.
.
* The closure charge will apply where you have reduced the value of your SIPP to £1,000 or less through taking flexi-access drawdown or regular pension lump sums within 12 months of opening your SIPP. We will be entitled to close your account and pay the remaining funds to you, after deducting our charges.

[fisher]

would be good to hear from others who have actually put this strategy into practice.

Mrs VRD is a non tax payer.

She pays £240 each month into her Youinvest SIPP.
Youinvest collect £60 from the taxman each month.
She withdraws £300 each month

Each year she has paid in £2880 and withdrawn £3600.

Youinvest charge £220 per year (£100 annual SIPP management and £120 annual SIPP in drawdown/UFPLS mode). (In Mrs VRD's case, the SIPP also has other income, otherwise she would reduce the UFPLS payment by £18.34 each month so as to cover the costs.
There is a minimum balance of £1k otherwise they will close the SIPP. Can be in equities or cash.

All of the above is perfectly legal and does not breach any of the pension recycling rules (because it is under the threshold values).

So yes, the taxman will give everybody £720 pension relief, but you don't need to tie up £2880 to get it - you can make £240 work hard for you instead...

VRD

Are you able to give more information about the £100 charge please? I'm presuming the £120 charge is their charge for "regular income drawdown payments" which is £100+VAT but I can't see why she should be paying another £100 management charge. Their custody charge for holding cash is 0.

https://www.youinvest.co.uk/sipp/charges-and-rates

I'd be grateful if you would clarify in case I'm missing something.

Thanks.

[PinkDalek]

... but I can't see why she should be paying another £100 management charge.

Presumably the:

Shares custody charge (including investment trusts, ETFs, gilts and bonds)

0.25% of the value of the shares in your account
Maximum £25 per quarter

Mrs VRD's SIPP having other income and unlikely to be all in cash.

[fisher]

... but I can't see why she should be paying another £100 management charge.

Presumably the:

Shares custody charge (including investment trusts, ETFs, gilts and bonds)

0.25% of the value of the shares in your account
Maximum £25 per quarter

Mrs VRD's SIPP having other income and unlikely to be all in cash.

Thank you - that makes sense. I had missed the "other income".

In the OP's scenario I think you could get the charge down to £30 per annum by just taking a single annual ad-hoc withdrawal from a youinvest SIPP that only holds cash.

[airbus330]

would be good to hear from others who have actually put this strategy into practice.

Mrs VRD is a non tax payer.

She pays £240 each month into her Youinvest SIPP.
Youinvest collect £60 from the taxman each month.
She withdraws £300 each month

Each year she has paid in £2880 and withdrawn £3600.

Youinvest charge £220 per year (£100 annual SIPP management and £120 annual SIPP in drawdown/UFPLS mode). (In Mrs VRD's case, the SIPP also has other income, otherwise she would reduce the UFPLS payment by £18.34 each month so as to cover the costs.
There is a minimum balance of £1k otherwise they will close the SIPP. Can be in equities or cash.

All of the above is perfectly legal and does not breach any of the pension recycling rules (because it is under the threshold values).



So yes, the taxman will give everybody £720 pension relief, but you don't need to tie up £2880 to get it - you can make £240 work hard for you instead...

VRD

Can I just clarify how you do this. I assume:
You start at SIPP with YouInvest and have a continuous balance of £1000 to avoid automatic closure.
Each year you add either £240/ month or £2880 per year to which HMRC adds the 20% tax relief.
All monies are kept in cash within the SIPP.
Each Month or once a year, you take the money in the SIPP into drawdown using UFPLS to withdraw the money from the SIPP.
Assuming no other investment with YouInvest, and Assuming you do this transaction on a yearly basis, you only incur one transaction cost of £25 from YouInvest for the withdrawal.

Have I missed anything out, because if so Mrs. Bus should be doing this.

[swill453]

Can I just clarify how you do this. I assume:
You start at SIPP with YouInvest and have a continuous balance of £1000 to avoid automatic closure.
Each year you add either £240/ month or £2880 per year to which HMRC adds the 20% tax relief.
All monies are kept in cash within the SIPP.
Each Month or once a year, you take the money in the SIPP into drawdown using UFPLS to withdraw the money from the SIPP.
Assuming no other investment with YouInvest, and Assuming you do this transaction on a yearly basis, you only incur one transaction cost of £25 from YouInvest for the withdrawal.

Have I missed anything out, because if so Mrs. Bus should be doing this.

That's pretty much right. The fee will be £25+VAT so £30.

Other minor things to bear in mind:
- The tax relief is added 6 or 7 weeks after the deposit.
- You have to get an online illustration from Youinvest and then fill in a paper form for each one-off (annual) UPLS withdrawal. A bit of a pain, works well but slowly.
- The taxable part of the UFPLS payment will be overtaxed (unless you get it at the end of the tax year). You can wait and eventually it'll be repaid automatically, or alternatively fill in an online P55 to reclaim it immediately https://www.gov.uk/government/publicati ... -claim-p55

Scott.

[fca2019]

Hi All, this sounds like a good idea.. except net of fees only making £500. Yes this free money, but.. surely not enough

What I think is more feasible for 55 years old assuming good health is to earn with part time jobs 12.5k all tax free, whilst continue to pay into SIPP's getting tax relief on that as well.

[airbus330]

Can I just clarify how you do this. I assume:
You start at SIPP with YouInvest and have a continuous balance of £1000 to avoid automatic closure.
Each year you add either £240/ month or £2880 per year to which HMRC adds the 20% tax relief.
All monies are kept in cash within the SIPP.
Each Month or once a year, you take the money in the SIPP into drawdown using UFPLS to withdraw the money from the SIPP.
Assuming no other investment with YouInvest, and Assuming you do this transaction on a yearly basis, you only incur one transaction cost of £25 from YouInvest for the withdrawal.

Have I missed anything out, because if so Mrs. Bus should be doing this.

That's pretty much right. The fee will be £25+VAT so £30.

Other minor things to bear in mind:
- The tax relief is added 6 or 7 weeks after the deposit.
- You have to get an online illustration from Youinvest and then fill in a paper form for each one-off (annual) UPLS withdrawal. A bit of a pain, works well but slowly.
- The taxable part of the UFPLS payment will be overtaxed (unless you get it at the end of the tax year). You can wait and eventually it'll be repaid automatically, or alternatively fill in an online P55 to reclaim it immediately https://www.gov.uk/government/publicati ... -claim-p55

Scott.

Thank you Scott, I had forgotten the tax business which is clunky, but this is free money for an hour of admin. The way I look at it, if we both do this, it is free car insurance for us until the age of 75.

Also, regarding the Online Illustration. Is it the case that you need to do this whenever you want to access a SIPP? The reason I ask is that tomorrow I am going to request my PCLS 25% from my HL Sipp leaving the rest invested and it seemed from the HL literature I needed to ask for an illustration before I did this, but couldn't see the point as I wasn't looking for advice. So it would seem that it is a legal requirement?

[swill453]

Also, regarding the Online Illustration. Is it the case that you need to do this whenever you want to access a SIPP? The reason I ask is that tomorrow I am going to request my PCLS 25% from my HL Sipp leaving the rest invested and it seemed from the HL literature I needed to ask for an illustration before I did this, but couldn't see the point as I wasn't looking for advice. So it would seem that it is a legal requirement?

Probably. My experience is with Youinvest so I don't know any specifics with HL.

Scott.

[Rajput1962]

Just to add my tuppence worth, am i right in thinking that when Vanguard (eventually) launches its own SIPP, it's free of all subsequent charges aside from the annual management fee, but depending on the overall amount invested in other accounts with Vanguard if the fee ends up being capped at £375 p/a, then it'll be possible to benefit and take advantage of the full tax rebate courtesy of the taxman?! (Although i understand that it won't be possible to do any draw down in 2020/21 but then again there's a whole year to contribute £2880).

[Joe45]

Just to add my tuppence worth, am i right in thinking that when Vanguard (eventually) launches its own SIPP, it's free of all subsequent charges aside from the annual management fee, but depending on the overall amount invested in other accounts with Vanguard if the fee ends up being capped at £375 p/a, then it'll be possible to benefit and take advantage of the full tax rebate courtesy of the taxman?! (Although i understand that it won't be possible to do any draw down in 2020/21 but then again there's a whole year to contribute £2880).

Yes, this is my understanding.

[EthicsGradient]

(Although i understand that it won't be possible to do any draw down in 2020/21 but then again there's a whole year to contribute £2880).

The way I read this (from Dec 2019), drawdown will be possible in 2020/21 (exactly when, I can't see), and that they're aiming to allow contributions in 2019/20:

When is it launching?
Early 2020 for investors who are building up their pensions[2]; the 2020-21 tax year for customer who wish to take payments from their pensions
...
From early next year, the Vanguard Personal Pension will be available to all investors who are building up their pension savings. This will allow investors to make the most of their annual pensions allowance before the end of the tax year. Our drawdown options for investors aged 55 and over who wish to take payments from their pension, such as flexible-access drawdown, will follow in the 2020-21 tax year.
...
The Vanguard Personal Pension will also be competitive for investors who want to enter drawdown over the age of 55, once this option is available in the 2020-21 tax year. Simply put, there will be no additional charges for going into drawdown in the Vanguard Personal Pension. Drawdown is where you can take a tax-free lump sum (usually up to 25%) from your pension, with the balance going into funds that allow you to draw an income.
...
[2] From early 2020, we will also be able to support annuity purchases elsewhere and the repayment of tax-free cash when a client purchases an annuity. We will also support transfers for clients looking to take drawdown options elsewhere.

https://www.vanguardinvestor.co.uk/arti ... al-pension

[Taverhamboy]

My wife moved a small pension fund into a SIPP with HL back in 2015. Since then she has added £2880 each year and received the tax relief. The money is invested in Shares and IT's and when she hit 55 3 years ago she started drawing an income as she is a non tax payer. She sells a share holding every 6 months or so and draws an income of £600 every 2 months plus an extra £1000 every now and again which she pays back in and keeps in cash to collect tax relief. The SIPP will be drawn down to nothing by the time she reaches 67 and collects a state pension. She will be reducing her withdrawals in the new tax year when she receives her Council Pension. Yes you do have to complete a form for every withdrawal and every 6 months complete a questionnaire either on paper or over the telephone. The fees are only 0.45% of the SIPP value plus a £11.95 for each share/IT sale. With banks offering under 2% interest her friends are amazed when she tells them she gets 25% within 3 months and it is guaranteed by the government. The dividends received cover all fees and this arrangement makes sense for any non taxpayer aged over 55.