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  • AlanP_2
    AlanP_2 Posts: 3,257 Forumite
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    fiisch wrote: »
    Wait, what?


    I understand the tax relief side - but where is the "extra" coming from? Is this equivalent value, or is there some form of tax rebate?


    I'm a higher rate tax payer (£59k/annum), but weighing up contributing a higher percentage (15-20%) to reduce tax liabilities and qualify for child benefit. If there's additional benefits over and above, it's definitely a no-brainer....

    Not totally sure what "extra" you are referring to but I think you mean the pension tax relief, if not apologies for next statements.

    You could pay £8k of your taxed income into a pension and get it made up to £10k by BR tax relief (this would be claimed on your behalf by provider and added to your pot).

    You tell HMRC that is what you have done and they adjust your tax code to give you the HR relief you would also be entitled to, another £2k.

    You end up with £10k in pension pot at a net cost to you of £6k.
  • AlanP_2
    AlanP_2 Posts: 3,257 Forumite
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    edited 18 August 2017 at 6:42PM
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    mondeoglx wrote: »
    She not has a pension private or company would you suggest I open one for her with this money
    She's 59 so could do one for her till she's 65

    As you will both have a tax free annual allowance in retirement it can make sense to spread the income across both partners to minimise tax paid.


    EDIT - See comment in next reply below about limit on how much could be paid in for your wife if applicable. Does she work, does her employer have a pension scheme?

    What is your wife's State Pension situation? Have you obtained forecasts for both of you?

    If you both have a full SP due of say £9k by Age 65 and tax allowance is say £12k then both of you can withdraw £3k of taxable money from the pension and pay zero tax.

    If pension was all yours and you withdrew that £6k you would pay tax on £3k of it.
  • AlanP_2
    AlanP_2 Posts: 3,257 Forumite
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    Audaxer wrote: »
    Very interesting as I haven't really looked into SIPPs before. If a 58 year old was not planning to draw his private company pension until 60 and they opened a SIPP now at 58, would they still be able to contribute to a SIPP when they turn 60 and in receipt of the private pension? If so how much each year could they contribute to it?

    £2880 net / £3600 Gross or Relevant Income whichever is higher, for most people that means earned income form working so the pension payments wouldn't count.

    Can do that to Age 75 when the option ceases.
  • xylophone
    xylophone Posts: 44,525 Forumite
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    She not has a pension private or company would you suggest I open one for her with this money
    She's 59 so could do one for her till she's 65

    Does your wife have any "relevant earnings"?

    http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/member-contributions-tax-relief-and-annual-allowance/
  • fiisch
    fiisch Posts: 511 Forumite
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    AlanP wrote: »
    Not totally sure what "extra" you are referring to but I think you mean the pension tax relief, if not apologies for next statements.

    You could pay £8k of your taxed income into a pension and get it made up to £10k by BR tax relief (this would be claimed on your behalf by provider and added to your pot).

    You tell HMRC that is what you have done and they adjust your tax code to give you the HR relief you would also be entitled to, another £2k.

    You end up with £10k in pension pot at a net cost to you of £6k.

    Mind blown.

    Maybe I was a bit naive - I've maybe not looked into pensions as much as I should have, but a lot of working years ahead of me yet!!

    Thank you - first thing Monday my AVCs are getting boosted!
  • AlanP_2
    AlanP_2 Posts: 3,257 Forumite
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    fiisch wrote: »
    Mind blown.

    Maybe I was a bit naive - I've maybe not looked into pensions as much as I should have, but a lot of working years ahead of me yet!!

    Thank you - first thing Monday my AVCs are getting boosted!

    If it's an AVC aligned with your employer's Defined Benefit scheme where the payments will be taken direct from your salary the example above would not be right as you won't reclaim the extra HR tax relief as it will end up in your pension.

    You ask your employer to deduct £10k and pay it into the AVC, which if you had taken it as income would be taxed down to £6k.

    Same net effect but different mechanism.
  • barginfinder
    barginfinder Posts: 330 Forumite
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    Consider a SIPP over an AVC, it may offer more flexibility when you retire and also help diversify your holdings
    I need a better signature
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