A few years - is it worth it.

triplea35

Can I ask for some advice of you knowlegable folk. I have read quite a lot on the subject but am just starting to confuse myself!
I am about to retire aged 52 with a final salary pension of £20,000 index linked.
However I am also to remain working part time and I estimate the salary and pension will put me into the higher tax rate by around £3500 in a full tax year.

I really do begrudge having to pay 40% tax on the £3500. I have paid taxes all my working life.

Would it be feasible to open a pension fund paying in a lump sum sufficient to reclaim the 40% tax paid on the £3500.
It might only to be for three years but possibly longer.
My thinking on this is that I will probably able to manage on my occupational pension and other investment income when I do finally retire.
The money saved in the private pension would obviously have a fantastic startup boost of 67% and I would intend to just leave it to accumulate in funds and use it as a bit of an 'insurance' fund. If I died my wife would have a reduced pension from my employee and therefore the lump sum from the fund would be useful. If I live until 75 then I appreciate I would have to get an annuity and the fund would be lost.

Does my reasoning make sense?
Can I leave the funds to accumulate until I am 75 without drawing on them.
Could I at anytime withdraw the 25% tax free lump sum but leave the rest to accumulate.?

dunstonh

Does my reasoning make sense?

Yes.

Can I leave the funds to accumulate until I am 75 without drawing on them.

yes.

Could I at anytime withdraw the 25% tax free lump sum but leave the rest to accumulate.?

Yes but would be pretty pointless in doing so.

triplea35

Hi dunstonh
Thanks so much for your reply. Nice to have some confirmation that I am on the right lines.
Just:
Quote:
Could I at anytime withdraw the 25% tax free lump sum but leave the rest to accumulate.?
Yes but would be pretty pointless in doing so.

Why would it be pointless in doing this? To have the opprutunity to get 25% as a lump sum would be useful but leaving the rest to accumulate as my wifes 'insurance' fund would remain the primary reason for taking out the pension( well that in conjunction with reducing my present tax liability!)

If I withdrew an income it would be taxed. I am sure I read recently there is also a threshold around £21000 when at age 65 any £1 above would reduce £1 of age related tax benefits. I appreciate thats a long way off and things may change butmay be a factor to take into consideration on whether it is worth drawing any pension from the fund.

dunstonh

Why would it be pointless in doing this? To have the opprutunity to get 25% as a lump sum would be useful but leaving the rest to accumulate as my wifes 'insurance' fund would remain the primary reason for taking out the pension( well that in conjunction with reducing my present tax liability!)

If you took the 25% out the remaining fund would be subject to a 35% tax charge on death. If you didnt take the 25% then the whole fund is paid tax free on death. If you dont need the money there is no reason to take it. Its sitting in a tax free investment wrapper. So go the distance to 75 if you can. One of the major benefits of stakeholder (and mono charged personal pensions) is for those that are already retired. They can be used to boost income later in life or for one person heavy in pension income with limited or no spouse benefit to build up a pot for the spouse.

Drumtochty_2

Triplea35

Worse than you thought, you will also be paying 11% going up to 11.5% NI on your earnings up to about the first £40k of earnings note the pension is O% NI. So after the first £5 k of part time work you pay NI. After around £43k combined pension and part time work you are paying 51% real taxation. 40% PAYE and 11% NI. You are aware that you will be working more time than you first budgeted to get things done properly!!!

At real retirement when you reach 65, you will be paying 30% tax on a good part of your state pension. As it will put you above the age related personal allowance limit when you start loosing the increased over 65 personal allowance but you will not go below the normal personal allowance.

So you will be self funding some of your state pension.

Happy days


>I am about to retire aged 52 with a final salary pension of £20,000 index linked.
>However I am also to remain working part time and I estimate the salary and pension will put me into the higher tax rate by around £3500 in a full tax year.