Can I Boost a Very Small Pension Pot?

pensioner-to-be

Today I received my ‘Claim Your State Pension’ letter which focussed my mind on my Pension Pot.
(Just like ex-RBS Chief Sir Fred Goodwin ~ but then HIS pot is £10 million).

Q - I need to know if/how to maximise my very Small Pension Pot and gain the maximum benefits of any Tax Relief available?

I am both a major shareholder & a director of a small Ltd Company (a family business) which also employs me on a part-time basis, at a small wage below the NI threshold. I am a basic rate taxpayer and the Ltd Co. is also subject to standard Corporation Tax rates. I am not deferring my State Pension and I will have to work for the company beyond my retirement age.

My Ltd Company, as my employer, currently contributes about £90/month to my stand alone HBSC pension. Unlike Sir Fred Goodwin, my recent HBSC Pension Statement projected a pot of a distinctly modest £10.5K at my retirement age in the middle of 2009.


I may be mistaken, but I understand that recent legislation allows tax-efficient options for a Pension Fund of below £15K to be taken either:

1. as 25% cash, the remaining 75% to be placed in an annuity, either on retiring or by the age of 75, latest.

Or,

2. The whole pot, below £15k could be taken as cash.



If my thinking is correct it would appear to me that I could boost this HBSC Pension Pot with £4.5k to circa £15K in my remaining 11 weeks before retirement age and gain Tax Relief by making either:

A personal, additional, contribution of around £4.5K (from personal funds which are earning v. little on deposit)

Or - by the Ltd Co. injecting a similar amount, on my behalf.

Of course the latter route would reduce the Ltd Co’s profit and any subsequent dividend due to me later…..


My accountants provide excellent Company and Personal Taxation advice but Pension complexities are not their remit. I know that I will probably have to invite the services of a decent IFA for the optimum solution, but any input from the more financially erudite members of this Forum could help me through these deliberations!!


PS ~ If a similar situation has already been resolved please provide a pointer to the relevant thread.


PPS ~ VITRIOL
<Like thousands of untold others, my family and I have all worked and paid B*****Y Hard throughout our lives & we all need to avoid pouring any more undue cash into the yawning pit of this imprudent administration’s coffers>
VITRIOL ENDS (for now.. .. ..)

lorweld

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EdInvestor

The Trivial Commutation rules allow you to take a pension in cash if you are over 60, and the total of all your pensions (excluding state) is below 16.5k.

So if the HSBC pension is your only one and you meet the age rules, you could do this, but make sure you allow for tax relief and investment returns so you don't go over the limit accidentally.

shaunrc

Hi pensioner to be

Firstly I am an IFA but please do not take this posting as formal advice as that has a specific meaning for a regulated person like me.

The limit for a triviality payment is 1% of the standard lifetime allowance so £16500 this tax year and £17000 after 6th April.

The most efficient route is for the limited company to pay in the money. It can charge it against profits and tax and national insurance do not become due. Get your accountant to confirm with the local tax office that they will allow a pension payment of this size.

When you take triviality remember that 25% is tax free and the 75% ( which would ordinarily buy an annuity) is taxed so be careful to factor this into your calculations.

Also be careful where you invest the money as for once you do not want it to grow! A fund value above the levels above invalidate the triviality rules. So if it is your plan to do this a fund value just above the limit would be very annoying! Also remember you have to be 60 and check with your pension company that they would pay triviality as whilst it is late at night and I may be wrong my memory is making me think that one or two will not pay out in this form

pensioner-to-be

For EdInvestor & Shaunroc,

The Ltd Co. top up to £16.5k appears to be the best route.

I will now do the rounds of HBSC/Accountant/Tax Office etc for final clarification.

Thank you both for your useful advice.
:T