No Pension

NorthernGeezer_2 · 5 March 2018 at 12:57PM

My wife dosn't have a pension, works part time and earns £8k pa but has access to £60k in savings.
Can she start a pension with this £60k or are there tax implications?

MallyGirl · 5 March 2018 at 1:04PM

you can't contribute more to a pension than you earn but she could gradually pay the £60k into a pension at £8k per year. She would get tax relief on the full 8k even though she won't have paid any tax. Well worth it

GunJack · 5 March 2018 at 1:08PM

Also worth getting her an up-to-date state pension forecast - some of the £60k might be better spent topping up her NI years if required.

https://www.gov.uk/check-state-pension

NorthernGeezer_2 · 5 March 2018 at 1:19PM

She already has a pension statement which details she gets a full pension entitlement at 66.
Any thoughts on a provider for this amount over a period of 3 years?

ProDave · 5 March 2018 at 1:33PM

Another point slightly off topic.

If she only earns £8K it would be worth while transferring part of her tax allowance to you via the marriage allowance that would reduce your tax bill a little without affecting her position.

NorthernGeezer_2 · 5 March 2018 at 1:52PM

Already done that ProDave but thanks for the 'heads up' for anyone else

lisyloo · 5 March 2018 at 2:11PM

I can only see downsides to putting this in a pension over putting it in an ISA such as

1) subject to income tax when withdrawn
2) subject to any laws and tax bands at the time
3) Can't withdraw until at least 55

Am I missing something?

NorthernGeezer_2 · 5 March 2018 at 2:27PM

Thanks for the reply lisyloo.
Its a short term requirement for 3 years till she retires and gets her state pension.
Given the above it looks like she can only deposit £6400 pa of her own cash in to a pension as she will get the 20% tax break (£1.6k) from HMRC.
After 3 years she will have £24k in the pot, take her 25% tax free amount leaving her £18k.
She will withdraw this as needed to top up her state pension, keeping her under her tax threshold.
When she's retired she will still contribute the £2880 amount to get the tax break.

Its a no brainer as far as I can see, or am I missing something.

Audaxer · 5 March 2018 at 2:43PM

NorthernGeezer wrote: »

Thanks for the reply lisyloo.
Its a short term requirement for 3 years till she retires and gets her state pension.
Given the above it looks like she can only deposit £6400 pa of her own cash in to a pension as she will get the 20% tax break (£1.6k) from HMRC.
After 3 years she will have £24k in the pot, take her 25% tax free amount leaving her £18k.
She will withdraw this as needed to top up her state pension, keeping her under her tax threshold.
When she's retired she will still contribute the £2880 amount to get the tax break.

Its a no brainer as far as I can see, or am I missing something.

You are right, it is no brainer, especially as she will be under her personal tax allowance when she starts to draw it out, so effectively the tax relief is free cash.

Is she planning to leave it as cash in the SIPP or invest it? If she is only planning to withdraw relatively small amounts to top her State Pension, I think it would make sense to invest it so that it lasts throughout her retirement.

NorthernGeezer_2 · 5 March 2018 at 3:02PM

That's the plan Audaxer.
Probably invest it in a SIPP, I'm thinking with HL as they seem to have a good reputation.
Her pension statement is for £153 per week (£7956pa) allowing her to withdraw around £3.5k pa before hitting her tax threshold.

lisyloo · 5 March 2018 at 3:04PM

Its a no brainer as far as I can see, or am I missing something.

Nope you are right. I missed the tax break. Cheers.

No Pension

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