Early Pension idea

[Gerry557]

Discussing pension ideas and want to know if my advice was sound.

Lady, non working but has small workplace pensions but all relatively small. I think its two or three. Not contributing and considering options. Full State pension when old enough but able to access the work pots now.

Due to the small sizes I think they are able to access the whole pot but need to check for any bonus or extra charges for doing so. So the discussion was around moving the pension pots into ISAs. This means they can have tax free access/income now and pay less tax when the state pension kicks in. Obviously tax might change by then.

They have unsheltered savings interest and married tax allowance to remove from their personal tax allowances. So could/should they move the remaining amount using the rest of the tax allowance. I assume there will be the 25% tax free option. Does this work per pot or total value of all pots.

The cons are Pensions are IHT free or outside estate for IHT. I think there might be limits then on adding any more to any pension (pension recycling) should they wish to change to wanting more pension assets. £3,600, made up of your contributions of £2,880 and the taxman’s contribution of £720. They could take income from the pots now effectively tax free using remainder of personal allowance until state pension kicks in but if fiscal drag continues it might make sense.

Assuming they have x3 £10k pots could they move this over to ISA over the next 3 tax years. Have I missed anything from the pro and con list.

I suppose another option is do nothing .... Yet and see how the wind blows

[kempiejon]

Lady, non working but has small workplace pensions but all relatively small. I think its two or three. Not contributing and considering options. Full State pension when old enough but able to access the work pots now.

Not working so not using full annual tax income allowance? not taking any income from the pension now, but not too far from normal pension age? £30k pot?

They have unsheltered savings interest and married tax allowance to remove from their personal tax allowances. So could/should they move the remaining amount using the rest of the tax allowance. I assume there will be the 25% tax free option. Does this work per pot or total value of all pots.

Could they not take the 25% tax free lump sum from all the pensions £7500, leave the remaining to draw an income from it, taking their personal allowance each year and put that into the ISA for the years it lasts or before they reach normal pension age. Depending on their allowance and years to NPA that might be more tax efficient because otherwise the personal allowance isn't being utilised. I think fill the ISAs first but the £2880 SIPP can be used as well. Never really considered it before and I am in a similar sort of position in the next few years able to access work pensions. I think accessing the pension to use the personal allowance but taking an extra £3600 and popping it back into a SIPP is about tax neutral as I think about it then withdraw another 25% tax free?

[Alaric]

I suppose another option is do nothing .... Yet and see how the wind blows

Utilising the Personal Allowance by drawdown is likely to be sensible, whatever use the money is put to. The option to do this will disappear once the State pension is claimed.

[mc2fool]

They have unsheltered savings interest and married tax allowance to remove from their personal tax allowances. So could/should they move the remaining amount using the rest of the tax allowance. I assume there will be the 25% tax free option. Does this work per pot or total value of all pots.
:
Assuming they have x3 £10k pots could they move this over to ISA over the next 3 tax years. Have I missed anything from the pro and con list.

Sounds like a reasonable plan. If her only income is savings interest and she transfers the maximum of £1,260 of her Personal Allowance to husband as marriage allowance, then that means that she'll have £11,310 left of it, so if she takes out full £10K "small pot" each year then that leaves £1,310 of the allowance to use up with savings interest.

Of course, she could have quite a bit more savings interest tax free, as then there's the £1,000 savings allowance and the 0% starting rate for savings for potentially another £5,000 of interest, however it's not clear to me how that income, even if it's not taxed, affects the marriage allowance.

https://www.gov.uk/marriage-allowance says "To benefit as a couple, you (as the lower earner) must normally have an income below your Personal Allowance - this is usually £12,570", so on the surface it looks like if she took the £10K small pot each year and had £2,571 or more of interest then she might lose the marriage allowance, so while she'd still not pay any tax her husbands tax bill might go up. More research needed on that point....

[Gerry557]

Lady, non working but has small workplace pensions but all relatively small. I think its two or three. Not contributing and considering options. Full State pension when old enough but able to access the work pots now.

Not working so not using full annual tax income allowance? not taking any income from the pension now, but not too far from normal pension age? £30k pot?

They have unsheltered savings interest and married tax allowance to remove from their personal tax allowances. So could/should they move the remaining amount using the rest of the tax allowance. I assume there will be the 25% tax free option. Does this work per pot or total value of all pots.

Could they not take the 25% tax free lump sum from all the pensions £7500, leave the remaining to draw an income from it, taking their personal allowance each year and put that into the ISA for the years it lasts or before they reach normal pension age. Depending on their allowance and years to NPA that might be more tax efficient because otherwise the personal allowance isn't being utilised. I think fill the ISAs first but the £2880 SIPP can be used as well. Never really considered it before and I am in a similar sort of position in the next few years able to access work pensions. I think accessing the pension to use the personal allowance but taking an extra £3600 and popping it back into a SIPP is about tax neutral as I think about it then withdraw another 25% tax free?

I have no experience of how you actually take the 25% tax free. Is it as simple as ticking a box. How would they know of the amounts in other pots etc. If one looses a bonus if closed it makes sense to close a diffrent one etc.

Can you withdraw up to your personal allowance and put £2880 back in every year to gain the "free" top up? That doesn't seem fair ish but might be possible.

[Gerry557]

They have unsheltered savings interest and married tax allowance to remove from their personal tax allowances. So could/should they move the remaining amount using the rest of the tax allowance. I assume there will be the 25% tax free option. Does this work per pot or total value of all pots.
:
Assuming they have x3 £10k pots could they move this over to ISA over the next 3 tax years. Have I missed anything from the pro and con list.

Sounds like a reasonable plan. If her only income is savings interest and she transfers the maximum of £1,260 of her Personal Allowance to husband as marriage allowance, then that means that she'll have £11,310 left of it, so if she takes out full £10K "small pot" each year then that leaves £1,310 of the allowance to use up with savings interest.

Of course, she could have quite a bit more savings interest tax free, as then there's the £1,000 savings allowance and the 0% starting rate for savings for potentially another £5,000 of interest, however it's not clear to me how that income, even if it's not taxed, affects the marriage allowance.

https://www.gov.uk/marriage-allowance says "To benefit as a couple, you (as the lower earner) must normally have an income below your Personal Allowance - this is usually £12,570", so on the surface it looks like if she took the £10K small pot each year and had £2,571 or more of interest then she might lose the marriage allowance, so while she'd still not pay any tax her husbands tax bill might go up. More research needed on that point....

I was ignoring the other savings allowances for simplicity. I also mentioned using cash ISA to shelter the unsheltered savings etc to increase the amount that could be moved. I don't think a 3 year time frame is a problem though.

[kempiejon]

I have no experience of how you actually take the 25% tax free. Is it as simple as ticking a box. How would they know of the amounts in other pots etc. If one looses a bonus if closed it makes sense to close a diffrent one etc.

I have no experience either, I'm not taking my pension yet. When I do I will take the full 25%, I have 2 pension providers currently and will take 25% from each I hope they can explain to me how to take the 25% but leave the rest of the amount intact. I have no bonuses.

Can you withdraw up to your personal allowance and put £2880 back in every year to gain the "free" top up? That doesn't seem fair ish but might be possible.

I reckon so. Anyone unwaged can add £2880 every year until 75 and claim tax relief. There is a prohibition or penalty for pension recycling but I've not studied it but I don't think one would fall foul if they could afford to pay £2880 into their SIPP why shouldn't they.

[Gersemi]

Can you withdraw up to your personal allowance and put £2880 back in every year to gain the "free" top up? That doesn't seem fair ish but might be possible.

Yes you can. My OH is currently doing exactly this, he has his PA + marriage allowance from me, so he withdraws a sum equal to this + the 25% tax free amount. He then contributes another £2880, increased to £3600 with tax relief. He has quite a few years to go before he gets state pension.

[swill453]

Can you withdraw up to your personal allowance and put £2880 back in every year to gain the "free" top up? That doesn't seem fair ish but might be possible.

Yes you can. My OH is currently doing exactly this, he has his PA + marriage allowance from me, so he withdraws a sum equal to this + the 25% tax free amount. He then contributes another £2880, increased to £3600 with tax relief. He has quite a few years to go before he gets state pension.

I do it slightly the other way around. Deposit £2880, then immediately withdraw it plus another £9690 to make up the full personal allowance.

It saves having uninvested cash sitting in the SIPP for longer than necessary.

Scott.

[MrFoolish]

Does moving shares from a SIPP to an ISA inevitably involve selling the shares and buying them back (with all the costs) ?

[mc2fool]

Does moving shares from a SIPP to an ISA inevitably involve selling the shares and buying them back (with all the costs) ?

Yes.

[Gerry557]

£3.99 or a fiver depending on who you use plus 0.5% stamp. So around £50-£60 per £10k depending on how many share types you decide to buy.

Tax on that £10k at say 4% would be:-

£33.33 a month at 20% tax assuming your personal allowance goes on the state pension is £6.66. So cost effective in the long run.

Of course tax thresholds and rates can change.