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Can retired people set up SIPPs?

zico
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Can retired people set up SIPPs?

#257166

Postby zico » October 11th, 2019, 2:49 pm

From the brief Google searches I've done, it seems like the answer is "yes", but seems odd to be able to take advantage of tax breaks as I'm already receiving a pension.

Dod101
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Re: Can retired people set up SIPPs?

#257172

Postby Dod101 » October 11th, 2019, 3:08 pm

Only if you are under 75 as far as I know. Is there not a maximum you are allowed to contribute of £2800 per annum?

Dod

PinkDalek
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Re: Can retired people set up SIPPs?

#257173

Postby PinkDalek » October 11th, 2019, 3:11 pm

zico wrote:From the brief Google searches I've done, it seems like the answer is "yes", but seems odd to be able to take advantage of tax breaks as I'm already receiving a pension.


I recall a thread of yours at Pensions - Practical Problems and have found it as linked below.

viewtopic.php?f=17&t=8973

Does that not answer your questions?

zico
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Re: Can retired people set up SIPPs?

#257174

Postby zico » October 11th, 2019, 3:14 pm

You can pay up to 100% of your annual earnings into your SIPP each tax year, with a maximum SIPP contribution of £40,000. Pension tax relief is given at a rate of 20% (higher rate taxpayers can claim higher levels of tax relief via self-assessment). Your employer can make contributions to your SIPP, as well as or instead of a workplace pension. These contributions count towards your annual allowance, but are not limited by your income.

If you do not have any earnings in the tax year, you can still contribute up to £2,880 into your SIPP.


I got the above info from Interactive Investor website, but it's not clear. I'm getting income via a final-salary pension, do you know if this counts as income I can use, or not?
(Related question - if I've put too much into a SIPP, how would HMRC find out??)

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Re: Can retired people set up SIPPs?

#257175

Postby ursaminortaur » October 11th, 2019, 3:16 pm

zico wrote:From the brief Google searches I've done, it seems like the answer is "yes", but seems odd to be able to take advantage of tax breaks as I'm already receiving a pension.


Yes you can pay into a pension up until the age of 75. However unless you have relevant earnings which usually means earnings from employment and definitely doesn't include money you receive from pensions then all you can contribute is £3600 gross ie actual contributions of £2880.
Also if you do have relevant earnings but are taking money out of a drawdown pension (other than just having taken the tax free lump sum) then the annual allowance is reduced from £40,000 per year to £4000 per year ie you will only be able to contribute £4000 gross (a maximum contribution of £3200) when contributing to a money purchase/DC pension like a SIPP.

https://www.moneyadviceservice.org.uk/en/articles/tax-relief-on-pension-contributions

In the tax year 2019-20, if you start to take money from your defined contribution pension, this can trigger a lower annual allowance known as the Money Purchase Annual Allowance or MPAA.

For the tax year 2019-20 the MPAA is £4,000.

Whether the MPAA applies depends on how you access your pension pot and there are some complicated rules around this.
.
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and

If you have no earnings or earn less than £3,600 a year, you can still pay into a pension scheme and qualify to have tax relief added to your contributions up to a certain amount.

The maximum you can pay is £2,880 a year. Tax relief is added to your contribution so if you pay £2,880, a total of £3,600 a year will be paid into your pension scheme, even if you earn less than this or have no income at all.

This applies if you pay into a personal or stakeholder pension yourself (so not through an employer’s scheme) and with some workplace pension schemes – but not all. The way some workplace pension schemes give tax relief mean that people earning less than the personal allowance (£12,500 in the 2019-20 tax year) won’t get tax relief.



https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100#qualifying


The maximum amount of contributions on which a member can have relief in any tax year is potentially the greater of:

the ‘basic amount’ - currently £3,600, or
the amount of the individual’s relevant UK earnings that are chargeable to income tax for the tax year.
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.
.
Relevant UK earnings means any one or more of the following types of income:

employment income, such as: pay, wages, bonus, overtime, or commission - but only if taxable under Section 7(2) Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) - so including:
.
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For the avoidance of doubt a pension is not classed as earnings and cannot be included in the definition of relevant UK earnings.

zico
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Re: Can retired people set up SIPPs?

#257180

Postby zico » October 11th, 2019, 3:29 pm

PinkDalek wrote:
zico wrote:From the brief Google searches I've done, it seems like the answer is "yes", but seems odd to be able to take advantage of tax breaks as I'm already receiving a pension.


I recall a thread of yours at Pensions - Practical Problems and have found it as linked below.

viewtopic.php?f=17&t=8973

Does that not answer your questions?


Thanks it does - sorry I'd forgotten about that.
So that brings me to my 2nd question - I've put £40k into a SIPP in 2019/20 which I now realise I shouldn't have done, so presumably should I contact AJ Bell and ask them to move those contributions from my SIPP account to my ISA account?

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Re: Can retired people set up SIPPs?

#257183

Postby swill453 » October 11th, 2019, 3:38 pm

zico wrote:So that brings me to my 2nd question - I've put £40k into a SIPP in 2019/20 which I now realise I shouldn't have done, so presumably should I contact AJ Bell and ask them to move those contributions from my SIPP account to my ISA account?

It may not be that simple. If you told them it was income from employment they'll have applied to HMRC for the basic rate tax relief.

Scott.

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Re: Can retired people set up SIPPs?

#257192

Postby Dod101 » October 11th, 2019, 4:15 pm

I am amazed that it is so simple to contribute to a SIPP with no questions asked.

Furthermore as I am sure zico knows, he can only contribute a maximum of £20,000 per annum to an ISA so a) presumably he has a wife who also has an ISA and b) neither has made any contribution during this tax year.

Dod

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Re: Can retired people set up SIPPs?

#257194

Postby swill453 » October 11th, 2019, 4:19 pm

Dod101 wrote:I am amazed that it is so simple to contribute to a SIPP with no questions asked.

Well they do ask, I guess it's just that the SIPP provider has no way of verifying your answer.

It'd probably come out in the wash once HMRC have all the figures.

Scott.

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Re: Can retired people set up SIPPs?

#257223

Postby monabri » October 11th, 2019, 6:35 pm

What would be the cheapest method of setting up a SIPP based on say a minimum £2880 pa contribution?

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Re: Can retired people set up SIPPs?

#257229

Postby Laughton » October 11th, 2019, 7:03 pm

"It'd probably come out in the wash once HMRC have all the figures"

Oh yes. And don't expect them to be happy about it or accept that "you didn't realise". Better to get in there first and rectify the mistake.

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Re: Can retired people set up SIPPs?

#257343

Postby Charlottesquare » October 12th, 2019, 12:09 pm

monabri wrote:What would be the cheapest method of setting up a SIPP based on say a minimum £2880 pa contribution?


Suspect it depends how you want to invest the money and how much activity you expect.

I use Hargreaves Lansdown for mine but I chose them because of the fee cap of £200 pa as the fund is a reasonable size. Suspect there are cheaper operators but currently, if no funds held which have additional charges ,they are 0.45% pa of funds invested up to the £200 cap. You do of course pay broking fees but as I buy and sell very infrequently (max four purchases a year, sometimes only two) these do not bother me.

This link may assist.

https://moneytothemasses.com/saving-for ... y-pensions


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