Advice re: putting lump sum into pension scheme please

learjet

Hi,

I have a question about putting a lump sum into a pension scheme.

My situation: - I am 52 and expect to stop full time work at 55. My salary is £30k and I have just started receiving a pension of £15k which pushes me into the 40% tax bracket. When I stop work at 55 £15k won't be enough for me and the wife to live on so I need to generate monthly income for 10 years until other pensions kick in.

MY questions relates to using a lump sum to generate a monthly income. Can I put for example £150k into a new personal pension and effectively get 40% added ? If so when I am 55 could I immediately take 25% as cash leaving the rest to buy an annuity ? Or are there restrictions on doing this e.g. length of time you have had the pension etc.

Also I've read that you can put in 100% of your earnings p.a. into your pension. Is this a maximum ? i.e. can I only put £45k into a pension each year -thereby taking over 3 years to put in the £150k ?

Any advice on the rules surrounding this and whether this is a wise thing to do gratefully received.

Thanks
LJ

dunstonh

MY questions relates to using a lump sum to generate a monthly income. Can I put for example £150k into a new personal pension and effectively get 40% added ?

No. You get tax relief upto 100% of your earned income and its pro rata. i.e. only the income above 40% gets 40% relief. Anything you pay above your earnings will suffer a charge which cancels out tax relief. Therefore making the transaction pointless (there are times it can be worth it but not in your case).

You would have to do it over the years. Dont forget spous/partner as they have an annual allowance as well.

learjet

Dunstonh,

Thanks for the clarification on that point. Could you explain a bit more about how I would use my wife's allowance ?

Thanks

LJ

MikeJones_2

In theory
If your own earned income is £45k (£30k plus £15k) and for example your wife's is £15k (and she does not make any current pension contribution), you could put in £45k into your pension this tax year and on 6th April 2009, another £45k making a total of £90k. Your wife could do the same up to £15k this tax year and another £15k on 6th April 2009, making a total of £30k. So, you'd have used your £120k in the next 6 months.

In practice
Don't even think about doing this until you've seen an IFA, who'd look at your entire situation and make recommendations accordingly (pensions and other investments which could go towards forming part of your retirement planning) which would include maximising tax efficiency for you and your wife.

Mike Jones

I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.

learjet

Thanks for the info and guidance. Message received and understood

I've identified a local IFA specialising in pension so will arrange a visit.

Cheers

LJ