Marcosplace
Striker
Has'nt been the same since the Back of the Shaft closed .....
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Retirement
- Thread starter Shieldsman
- Start date
That's woosh from meHas'nt been the same since the Back of the Shaft closed .....
I look at it a similar way but it's not as clear cut.
If I take the extra money now I'll pay 40% tax. If I put it in my pension I'll pay nothing now but likely pay 15% later, made up of 20% basic rate but with 25% of that tax free.
So I effectively pay 25% less tax but defer when I get the money
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Edinburgh Black Cat
Striker
As @kladum says, simplistically yes.
But it depends on your personal circumstances; how much you currently earn, how much you project you'll earn in the future, need for childcare benefits etc., what size your pension pot is likely to be when you retire, when you want to retire.
For example, if you earn £80k now but you're a high flyer and likely to double that with a couple of promotions then you may be better taking the tax hit now, invest in a S&S ISA each year and contribute extra to your pension later when it becomes even more tax efficient.
Also, fyi. In your £50k scenario you mention, you could optimise even further by alternating lump sum contributions into your pension so you save NI at the 8% rate rather than 2%. Relies on your work scheme allowing frequent changes to contributions mind.
archiesdad
Midfield
If you drip out upur pension to just under the start of taxation and make anything else up from say isa its a win win though. Just depends on what you have where as a total .
Matt Hopkins
Winger
You're confusing changes to state pension with changes to "private pensions" The change to including DC pensions in IHT contributions was about 3yrs so a reduction in the tax free allowance could be similar or even immediate
42
Striker
In general for both state & private, Where the change is age related change, they tend to give plenty of notice. Where its tax related its a lot shorter.
If someone has the pot to take out the full £268K, is it worth just taking it all out at the start or in big lumps over the first few years?
If the growth on that part of the fund will be taxed, it seems like a good idea to get it into ISAs, pay off what's left of the mortgage, get the house shipshape for retirement, go on a few hols etc, early doors. Can you see any reason to keep it in the pot long term?
Nice problem to have, anyway.
Edinburgh Black Cat
Striker
Comment relates to the new rules as of April 2027...
If you want to spend it or gift it to family etc., taking it out early as you say seems the best option to me.
Where it might be best to keep it in, I'm interested in other views on this. My initial thoughts:
- you believe the tax or inheritance rules will change to be more favourable (personally I don't).
- if you have no dependents and want to give the lot to charity when you die
- possibly if you don't want it to be considered for any means tested benefits (care home costs perhaps, I'm not an expert on the nuances of that)
If you have a biggish pot and might be risking higher rate tax each year by taking out 50K plus, taking out the tax free element in small annual amounts might help avoid that. I guess that's one reason not to do a lumper.
What would be silly is to take out £250K in one go and put it in an account where you end up paying a lot of tax on the interest earned, even after using up ISA allowances.
I needed the wife to explain it to me, but it's quite simple. I've conveniently since forgotten again but I'm sure someone else will outline it for you. Basically it was only costing me about £70 for every £100 I was paying in AVC's
That's genius. Not something I've ever considered or seen suggested anywhere
Shambo
Striker
Can you explain this further? I am not sure i follow it, and mu work scheme does allow frequent changes
Its not that it brings your earnings up, but instead allows you to change your salary which you are giving 42% away in tax & NI, to keeping 100% of it as long as you put it all into your pension
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Nice quandary to have
Marcosplace
Striker
Murton lad?
Immigrant, 2011 .
Southwick lad
Marcosplace
Striker
oh right. The 'Back of the Shaft' (mining reference) was the name given to the Dalton Inn Pub and the bottom of Murton - now closed of course?. Was called the Travellers Rest and The International in my time.
Didn't realise you were a Suddicker...
Technically Monkwearmouth, born in Chilton St. My older siblings born sheepfolds .
Edinburgh Black Cat
Striker
Let's say your Gross Pay is £60k per year (imagine that's a flat £5k per month).
You suggested contributing into your pension to bring that down to £50,270. Which works out £4189 per month and saves you 42% (40% tax & 2% NI) on the £921 you put in your pension.
Phasing of contributions makes no difference to income tax allowance, it is calculated annually. But NI is calculated based on the period in which you're paid (in this example, the month) - over £4189 per month NI is 2%, under is 8%
Which means if you alternate your contributions; month 1 £5k per month, month 2 you contribute £1842 to pension and you save 2% NI on the first £921 and 8% on the second £921.
It's more obvious when a one-off bonus is involved. Let's say your base pay is £4189 per month (£50270pa) plus a £10k bonus. Anything you salary sacrifice from your usual wage you'll save 8% in NI but any sacrifice from your bonus you'll only save 2%. So a bonus month is often the worst time to contribute to a pension, but many people do it.
Obviously, keep up any minimum contributions required to get your employer matched contributions. And don't salary sacrifice too much that takes you below minimum wage or they might remove you from the salary sacrifice scheme altogether.
