Pension contributions

Pobby

Bit confused as to what amount of money you can place into a pension. I understand that you can put in lump sums of pre paid tax amounts, i.e savings. I guess then more money goes in from HMG as the tax free bit. Confused with that. So if someone is earning, say £20k a year, can they put is , say £50k of savings and get some tax relief on top?

In my case we have various smallish pots but a fair amount in savings. Could we do that and still get 25% tax free when we chose to draw them.

tirednewdad

I am sure someone with greater knowledge than me will comment, i think you can put in !00% of your earnings into a private pension (not sure if you can put in any more than that)
You can ask for your entire wage to be put into the pension and just live of your savings for a bit.

Remember with a pension scheme the money will be locked in until a set date, however with savings your able to get it when you need it. Perhaps look into ISA's aswell as pensions.

Also remember you are taxed on your pension when taking it out again (bar 1 tax free lump sump of 25% of your pension value). Pensions are really good if you are a high tax earner- if your in the 22% bracket though a combination of ISA's and pensions are good.

tawl_2

Contributions paid by you to a personal pension plan or a stakeholder pension scheme are made net of basic rate tax (i.e. 20%). This means that for every £100 you want to save, you only pay £80. Tax relief of £20, topping your contribution up to £100, is then added by HM Revenue & Customs (HMRC).

If you are a higher-rate tax payer (i.e. 40%), you can claim an additional 20% through your tax return. The effect of this is to give you total tax relief of 40%, meaning that every £100 you save costs you £60.

Limits
The maximum annual amount you can contribute to a personal pension plan or stakeholder pension scheme, and on which you can receive tax relief, is 100% of your earnings or £3,600, whichever is greater. This is capped at the Annual Allowance (see below).

You can pay more than this but there will be no tax relief on the excess.

Contributions can also be paid by the employer and these count towards the Annual Allowance.

The Annual Allowance
The Annual Allowance is an annual limit set by HMRC. Contributions paid in excess of this amount are unlimited but will give rise to a tax charge on the pension scheme member.
The Annual Allowance for the tax year 2009/10 is £245,000, inclusive of your own contribution and any other amounts paid into an approved pension scheme. The Annual Allowance increases each year.

Pobby

Thanks for your replies. We are lower rate tax payers and have been contributing between us about £150 a month between us for the over 20 years, we have cash and stock isas however we do have a six figure sum to play with,about 30 per cent is in equities and the rest is cash based and as I said, isas and equities. There are a couple of small frozen company pensions and also a little feller I took out in my 20`s. Oh btw, I mean a low six figure sum, around £130k. On top of this we have no mortgage and 2 full state pensions plus about £50 per week jointly in serps, well that`s the food paid for, lol.

I am semi retired with about a 20k income from the part time work that I do, but that will probably finish when I reach 65.

Having said that, the idea of sitting about all day is not my bag so i am looking to train in a different field to run another part time business. Just wondering the way forward.

Pension forecast on all the little bits and pieces stood at about £160 per week, not including state stuff, right now I think we might be lucky to see just over £100 but then the market is down.

Just trying to sort out the best route in this very difficult time. If interest rates were say around 8% as they used to be it would have been a no brainer, just pay that in each year but as things are now it`s a real rethink.

Pobby

A little bump.

CLAPTON

what's the question?

lay out the facts too would help

bendix

The question has already been answered Pobby. You can't put in more than your annual income, with a cap of £245k this financial year.

Pobby

Yes bendix, the question was answered. Didn`t read it right. Too many lemonade sherberts, lol.

techno12

tawl wrote: »

If you are a higher-rate tax payer (i.e. 40%), you can claim an additional 20% through your tax return. The effect of this is to give you total tax relief of 40%, meaning that every £100 you save costs you £60

I thought this only applied to the proportion of your earnings over the 40% threshold. I've been in that band for a few years, but as I earn just over, any rebate will be minimal.

Or is it an "all or nothing" (like tax on savings)? I've never had to deal with tax returns but I'll ensure I'm on their radar if the above is true and as soon as you creep into the 40% band you get the higher relief on all contributions (as they will owe me loads!)

jem16

techno12 wrote: »

I thought this only applied to the proportion of your earnings over the 40% threshold. I've been in that band for a few years, but as I earn just over, any rebate will be minimal.

Yes you are correct. If you are only into the higher rate tax band by £1,000 that's all you will get 40% tax relief on.

Or is it an "all or nothing" (like tax on savings)?

Savings isn't an all or nothing either - it works exactly like the tax relief on pensions.