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• which providers have the cheapest opening and closing charges for SIPPS
• We have been told by our compliance company to not advise people to use the loophole. This is mainly fear of accusation of mis-sale. Something that MSE doesnt have to worry about.
  Some providers have said they will not be issuing products or allow their products to be used for using the various so called loopholes either as HMRC has said that if they will close down areas of abuse.
• The small pension rules also say:
  your total pension pots under all the schemes you belong to are worth Ј30,000 or less
  So if you have existing pension pots you need to make sure you never go over the Ј30K total as well as the individual Ј10K limit.
  If you already have Ј30K in pension pots then I don't think you can do this.
• The new rules do not say that once you start drawing your pension you'll only be able to contribute Ј10,000 a year. That only happens if you draw more than the 25% tax free lump sum plus any amount that you are drawing within your current capped income drawdown limit.
  It is not necessary for a higher or top rate tax payer to fill in a tax return. They can phone or write a letter to HMRC telling HMRC the gross amount paid in (after adding the 25% to give basic rate tax relief) asking HMRC to adjust their tax code. HMRC will do it within a few weeks during the current year. This means that they can get their tax relief this year from reduced tax on their existing pension or income. That can free up more money to use for this.
  "you pay tax on at your tax rate" could be confusing. The amount taken out beyond the 25% tax free amount is added to normal taxable income in the year in which it is taken. That can push people into the basic, higher or top rate tax band for some of the money taken out. You explain this later but I use the alternative wording "added to your taxable income in the year in which you take it" to try to avoid this mistake.
  "The rules only apply if the tax-free cash is more than 1% of the lifetime allowance (basically the total amount of cash you can whack into a pension in your lifetime) and this limit is a whopping Ј1.25m for 2014/15." is confusing. What is the "limit", is the 1% Ј1.25 million (no). 1% of Ј1.25 million is Ј12,500. Since the maximum tax free lump sum that can be taken on Ј30,000 paid in is Ј7,500 it's not possible to go over that limit using this rule. Some care is needed because it is the total of all pension commencement tax free lump sums taken in the previous twelve months including the new ones that counts as the limit. A person who is taking a pension normally might go over this limit either because they took a lump sum previously or because they do so within the next twelve months. A person who might go over the limit can reduce the chance of trouble by taking the 25% and putting it into a savings account until after all of this has been completed, so that there is less chance that HMRC might mistakenly consider it to be recycling the lump sum.
  A person who is retiring soon may end up having some unused personal allowance that they can use to make more from this because some of the 75% will be tax free. They can even usefully defer claiming the state pension until a later tax year to free up more of their personal allowance and as a bonus their state pension will increase by 1% for every five weeks it's deferred, 10.4% a year. A person who has already claimed their state pension can defer once in their lifetime anyway. Deferring for higher income is best for those under 70 in good health, perhaps up to 75 depending on life expectancy. Others can take the pension in a lump sum after ending the deferring.
• Capped drawdown and the Ј10,000 limit. Notice that even next year it is permitted to take out the whole 25% tax free lump sum and all money up to the usual GAD limit if a person commences capped drawdown before April 6 2015. A person who will want to make contributions over Ј10,000 could usefully start capped income drawdown before then so that they can use that extra withdrawing limit. It will allow at least 6% of the remaining pension pot to be taken each year without triggering the cap.
  This is not connected to age except the need to be at least 55. A person should be sure to reinvest any lump sums taken to do this unless they will need to spend the money anyway soon.
• I have read and more or less understood Martin's article on the loophole. However I & my OH are at the moment non-taxpayers. I may be about to come into a small inheritance. Could I use this loophole for him & myself? I quite like the idea of getting a better return on my money than currently offered by ISA's NISA's, savings accounts.
  Yours R
• As non Tax Payers with no earned income you can both put in Ј2880, this will be topped up to Ј3600, making you a total of Ј720. However if you have earned income you can put in 80% of that even if you are not in the bracket to pay tax.
• [QUOTE=jamesd;66308648]The new rules do not say that once you start drawing your pension you'll only be able to contribute Ј10,000 a year. That only happens if you draw more than the 25% tax free lump sum plus any amount that you are drawing within your current capped income drawdown limit.
  This sound like you can withdraw and put back in gaining a further 25% ?
  Say you had Ј100,000 in a Sipp
  withdraw Ј20,000, free of Tax
  Put Ј20,000 back in and gain the top up again
  per the new rules is this correct?
• With Ј100,000 in a SIPP a person who is at least 55 years old could:
  1. Take out a 25% tax free lump sum of Ј25,000.
  2. Enter capped income drawdown before April 6 2015 and get a GAD limit calculated. Using the August 2014 gilt yield of 3% the limit for some sample ages would be:
  Age 55: 7.20%
  Age 60: 7.95%
  Age 65: 8.85%
  Age 70: 10.355
  Age 85 (the maximum): 22.05%
  So this year the person could in addition take out an extra 7.20% to 22.05% within their GAD limit, taxable.
  3. Next year and all future years continue to take out an extra 7.20% to 22.05% depending on age without being subject to the Ј10,000 cap as long as they do not go over that limit.
  So a total of at least Ј25,000 tax free plus Ј5,400 taxable could be taken out this year, more depending on age.
  Once you have withdrawn the money you can do whatever you like with it but you must be aware of the limits on pension lump sum recycling. The MSE article gave the simplest of the limits, the 12% within a moving 1 month window rule but there are others. The Ј25,000 lump sum would be above the 1% limit of Ј12,500 so it would be necessary not to recycle the lump sum or to ensure that you do not meet one of the other requirements for it to not be permitted.
  Also note that the death benefits change when you take money out of a pension pot. Until you do that the whole pension pot can be inherited by anyone tax free. After you have done it a spouse or extremely limited range of financial dependants can get it tax free into a pension pot of their own or anyone can get it outside a pension subject to a 55% tax charge. The government has announced that it plans to reduce this charge. Because of this, if it is intended that it not go into the pension pot of a spouse, term life insurance or other steps should be taken to meet the inheritance targets you have. Term life insurance is usually very cheap for those in normal good health who are under about age 75 or so.
  As well as that death benefit case there is a removal of the right to a serious ill health lump sum that a person who is diagnosed as having a life expectancy of less than a year can get. This is the whole pension pot paid out tax free. The change to rules next year will let anyone get at the whole pot but 75% of it would be taxed, unlike this version.
  This isn't the trick that the MSE article is about. It's been possible for quite a while and until the recent deduction in the amount that could be paid into a pension each year from over Ј200,000 to just Ј40,000 it would have let the wealthy with sufficiently high incomes make quite a lot of money from recycling. The annual contribution limit greatly limits the scope for it, to the point that I'm not sure the lump sum recycling rule needs to exist any more.
• My Dad was looking into this - he has no job but does have pension income already (and is a basic rate taxpayer as a result).
  Would this mean that he can still put in the Ј2,880 but that he'd have to pay basic rate tax on the non-tax-free part of the outcome?
  So it would be:
  In
  Deposit: Ј2,880
  Top up: Ј720
  Total: Ј3,600
  Out
  tax free: Ј900
  taxable @ 20%: Ј2,700
  Tax to pay: -Ј540
  Total: Ј3,060
  Potential profit: Ј180
  Given the need to invest almost Ј3k in this, and the return is only Ј180 less fees - is it likely to be at all worthwhile?
• Interesting article, is it legal? is it moral?
  No its stupid!
  As they often say the devil is in the detail and in this case the devil is old NIC himself (National Insurance Contribution). Every Ј1000 of earnings (once you are above the NIC threshold) you pay 20% tax and 12% NI so you see Ј680! Gee wiz you get your 20% tax back on pension contributions but no one ever mentions the devil.
  Net of ALL tax's (that's all NIC is a tax by another name) Martins latest tip will leave you out of pocket!!
  Think about it
• Complete noob here.. so let me get this straight.. for example I pay an online SIPP Ј8k (I am assuming I can do this in one hit?).. 4-6 weeks later that online provider will top up that account with a further Ј2k (courtesy of the gov).. two days later that account is being shut down with Ј8.5 withdrawal? Mucho gracias
• Correct. There will be some charges but not enough to consume the whole Ј500.
  You also need to have at least as much in earned income as the total paid into all pensions in one tax year. So a person on Ј20,000 a year could use this only up to Ј20,0000 gross paid into the pensions, so two at Ј8,000 after tax pay each.
• Martins's article is clear on most things and there are good points added here by posters, but what appears to have been left out, for tax novices is the impact of contributions to Trivial Pensions, or to Trivial plus all other pensions, in this tax year, in respect of the tax rates.
  For example, a person earning a total of Ј45k, who contributes a total of Ј5k to pensions (any combination of occupational, AVC and personal) will safely drop below the higher tax threshold of Ј41k and pay tax only at the standard 20%, right?
  Crucially, will this person, on contributing Ј30k to Trivial Pension, and now receiving a total income of Ј45 + Ј22.5 (the taxed 75% of their Trivial payout) now have to pay any tax at 40%? In particular, will their new Ј30k Trivial contribution, plus their other Ј5k pension contribution, safely reduce their 'Taxable' income to Ј67.5 - Ј35, or Ј32.5k for the tax year?
• With today's Ј41,450 higher rate transition point the Ј5,000 would have Ј4,550 with higher rate relief and Ј450 with basic rate.
  The small pot lump sum would be added to that remaining taxable income and it would in turn be partly taxed at basic rate and partly at higher rate, though the 25% would escape that.
  The result is a bit of a tax rate gain overall, since some of the income becomes untaxed.