Anything wrong with this plan for a person over 50?

[Fred Bloggs]

Triviality rules apply to ALL the pensions you have. As long as they collectively are not worth more than 1% of the lifetime allowance, and in 2009/10 that 1% equals £17,500, then you can commute them under Triviality. However, if they exceed that amount then you can't. So if you had 2 pension pots, each with £14k in then Trivial commutation wouldn't be an option for you.

Thanks, counts me out, my various "pension pots" taken together are probably collectively about £300k right now.

[glashIFA@Paramount]

Hmmm, interesting thought. I have the £14k available right now, but I can't work out why everyone doesn't just have a whole series of these trivial pensions if it was that easy to get your hands on totally tax free cash?

Triviality rules apply to ALL the pensions you have. As long as they collectively are not worth more than 1% of the lifetime allowance, and in 2009/10 that 1% equals £17,500, then you can commute them under Triviality. However, if they exceed that amount then you can't. So if you had 2 pension pots, each with £14k in then Trivial commutation wouldn't be an option for you.

[Fred Bloggs]

Hmmm, interesting thought. I have the £14k available right now, but I can't work out why everyone doesn't just have a whole series of these trivial pensions if it was that easy to get your hands on totally tax free cash?

[ASB]

Thank you, that is exactly my intention.

Just another thought. If you happen to have another 14k lying around (so it's not the same money) could you not perhaps put that into an immediate vesting personal pension getting at least some tax relief (probably limited to the de minimus 3600 contribution if you have no other income) then having taken the 25% take out the rest as cash using the small fund relaxations rather than having to buy an annuity. [I dare say there is a reason why this couldn't work but it might just be worth investigating]

[Fred Bloggs]

Thank you, that is exactly my intention.

[glashIFA@Paramount]

Anyone see anything wrong with this plan for a person over 50?

You have £42k in a SIPP that you then top up with a £14k Ltd Co contribution to make £56k total in the SIPP. You then pull out 25% of the total SIPP which is £56/4 = £14k. You have saved you Ltd Co about £3k in Corporation Tax (£14k x 0.22) so you can now put this £3k saved tax into your SIPP.

Hence you have £14k tax free in your hand and you now have £45k in the SIPP (original£42k + £3k saved tax). Gordon gets zero.

Sounds like a good deal to do before April 5th eh?

Of course, if the £3k goes in as a Ltd Co contib then you save Corp Tax on that too! However, if you intend to make the £3k contrib from the tax free proceeds you receive then you just need to be mindful of the "recycling tax free cash" rules which the Revenue are a bit keen on at the moment.

Either way, the £3k should go into a new contract. The original contract has now been crystallised by taking the tax free cash so there is no entitlement to future tax free cash from that contract. With the £3k going into a new contract you start the process again and can access 25% of whatever thats grown to, tax free, in the future.

[Fred Bloggs]

Thanks both, that's very useful to know.

[Tarquin Farquhar]

But watch the taxation treatment. Your 25% drawdown is tax free, as is the remaining 75% in the fund. The additional £3k isn't though, because it's not part of the original drawdown sum. It is best to keep it separate (although still in a SIPP or whatever) so the tax position remains clear.

My IFA went thourgh this with me recently - I needed to do the drawdown pension thing to survive the last year but now I'm back in work, any new pension contributions will go into a new fund. You still aggregate them all up when you do retire properly, but there's no risk of confusing which bits are still (potentially) taxable. Talk to a professional

I also had to do this recently. My Hargreaves Lansdown SIPP used to show online 1 single SIPP account. Now it shows 2: one is the original, it has less money left in it now, by the total amount that I put into drawdown, but it is still a straightforward SIPP; the other is a new Drawdown account, which received the full 100% of the amount that I put into drawdown, with the 75% now left in it (the 25% being out and spent by now), I can only add to that account by more drawdown from the other account.

So the part of your SIPP that is still in savings mode, and the part that is in drawdown mode, are clearly and simply kept separate.

[malvolio]

But watch the taxation treatment. Your 25% drawdown is tax free, as is the remaining 75% in the fund. The additional £3k isn't though, because it's not part of the original drawdown sum. It is best to keep it separate (although still in a SIPP or whatever) so the tax position remains clear.

My IFA went thourgh this with me recently - I needed to do the drawdown pension thing to survive the last year but now I'm back in work, any new pension contributions will go into a new fund. You still aggregate them all up when you do retire properly, but there's no risk of confusing which bits are still (potentially) taxable. Talk to a professional

[Fred Bloggs]

Anyone see anything wrong with this plan for a person over 50?

You have £42k in a SIPP that you then top up with a £14k Ltd Co contribution to make £56k total in the SIPP. You then pull out 25% of the total SIPP which is £56/4 = £14k. You have saved you Ltd Co about £3k in Corporation Tax (£14k x 0.22) so you can now put this £3k saved tax into your SIPP.

Hence you have £14k tax free in your hand and you now have £45k in the SIPP (original£42k + £3k saved tax). Gordon gets zero.

Sounds like a good deal to do before April 5th eh?