putting aside £750 pm towards pension egg

jem16

Interestedparty wrote: »

The effect of the higher rate tax relief would mean that if you wanted to invest the whole of your £750 per month into a personal pension then you could have £1250 per month invested by the pension company. Over a 10 year period this would give an extra £60000 worth of investment into your pension plan from the tax relief.

If the OP paid in £750 net the pension company would invest £937.50 as it can only reclaim 20% from HMRC. The other 20% (£187.50) would be reclaimed from HMRC via the tax return but will not reach the pension unless the OP paid in more.

To get the whole £1250 invested in the pension plan the OP would need to pay in £1000pm net. Pension compnay would then make this up to £1250 and the OP would then claim the other £250 from HMRC so in effect costing £750.

peterg1965

jem16 wrote: »

If the OP paid in £750 net the pension company would invest £937.50 as it can only reclaim 20% from HMRC. The other 20% (£187.50) would be reclaimed from HMRC via the tax return but will not reach the pension unless the OP paid in more.

To get the whole £1250 invested in the pension plan the OP would need to pay in £1000pm net. Pension compnay would then make this up to £1250 and the OP would then claim the other £250 from HMRC so in effect costing £750.

Not necessarily so, I get my higher rate relief via an increased tax code, so in effect I get it back monthly by paying less PAYE. I still have to fill in a 'short' tax return every year and usually get a further refund as I increase my contributions through the year. The tax code for the following year is usually then adjusted to my previous years contributions.

My current tax code is something like 1625L

jem16

dutchism1958 wrote: »

I am awaiting the latest batch of figures Jem16.
Interestedparty,your advice on ISA's possibly being the best way forward in the interim period to keep my options open is what most are saying so that may be the way I will go initially.

It looks fairly likely that with your 2 final salary pensions plus state pension ,you are not going to get the higher personal allowance as even with the reduced pensions you are about £27k - add in state pension of £5k and you are up to £32k. Still gives a bit to play with before reaching higher rate tax though.

You need to remember that whenever you decide to pay a lump sum into the pension the higher rate tax relief will only be on the amount you are in the higher rate tax bracket by. So if you are currently in that higher rate tax bracket by £5k you would get the 40% tax relief now. If you paid in a lump sum of £25k in 5 years time you would only get £5k of higher rate tax relief (assuming your income stayed the same for ease of calculation).

My S&S ISA's are with Hargreaves Landown in an Invesco Perpetual Income Fund for the long-term.

Just one fund?

jem16

peterg1965 wrote: »

Not necessarily so, I get my higher rate relief via an increased tax code, so in effect I get it back monthly by paying less PAYE.

Yes I know the higher rate tax relief can be reclaimed through the tax code and therefore less tax is paid so the net result is £750pm.

However my point was that paying £750 into the pension will not see £1250 invested - £1000 will have to be invested. The OP may well have realised what was meant but there have been recent threads on higher rate tax relief with pensions that shows many do not understand.

Aegis

peterg1965 wrote: »

My current tax code is something like 1625L

You might want to check that... 1625L would be a personal allowance of £16259 per year, which would be a pretty big miscalculation on the part of the revenue, and might lead to a rather big bill when they noticed!

peterg1965

Aegis wrote: »

You might want to check that... 1625L would be a personal allowance of £16259 per year, which would be a pretty big miscalculation on the part of the revenue, and might lead to a rather big bill when they noticed!

It is (almost) correct and is not a miscalculation, in fact having just checked my HMRC coding letter it is not quite as high, my tax code is 1596L. Personal allowance + job expenses + professional subscriptions + Personal Pension contributions relief. £6475+ £2925+£6537+£24 = £15961.

Aegis

peterg1965 wrote: »

It is (almost) correct and is not a miscalculation, in fact having just checked my HMRC coding letter it is not quite as high, my tax code is 1596L. Personal allowance + job expenses + professional subscriptions + Personal Pension contributions relief. £6475+ £2925+£6537+£24 = £15961.

Fair play. I'm more used to seeing those things on tax returns than through the PAYE system, hence the confusion.

dutchism1958

jem16 wrote: »

It looks fairly likely that with your 2 final salary pensions plus state pension ,you are not going to get the higher personal allowance as even with the reduced pensions you are about £27k - add in state pension of £5k and you are up to £32k. Still gives a bit to play with before reaching higher rate tax though.

You need to remember that whenever you decide to pay a lump sum into the pension the higher rate tax relief will only be on the amount you are in the higher rate tax bracket by. So if you are currently in that higher rate tax bracket by £5k you would get the 40% tax relief now. If you paid in a lump sum of £25k in 5 years time you would only get £5k of higher rate tax relief (assuming your income stayed the same for ease of calculation).



Just one fund?

Morning Jem 16.Thanks for your comments.
I thought the higher rate tax started at about £23K or am I confusing that with tax rate of 40%?.
When does the higher personal allowance kick in?
Also, how did you calculate my pension at £27K?.Was this based on retiring at 62 and the estimated calculations of the value of the pensions when i am 65?
Yes, understood the point on 40% tax relief.
I currently earn £50K per annum so a decent amount of tax relief is still to be had?.
It seems to me the best option is to go with maximising my S&S ISA's(?) each year for the time being to keep my options open and to build up a healthy sum to make a single contribution to a pension plan upon retirement and gain tax relief in a lump sum if still available.
I have just invested £10200 for 2009/10 & 2010/11 with The Invesco Perpetual Income Fund.
I also have £5k with Newcastle BS in a FRISA giving 4% over 4 yrs.
I have another £5K waiting to invest & am looking at the Vantage S&S's ISA with HL and going with Newton Higher Income Fund to diversify and expand that further in the following tax year.
As you can tell Jem16, I am new to all of this.Have been nursing a sick wife for the last 15 years & have decided I need to take ownership of the finances and educate myself on what you people know so much about.
Once again thanks,it is appreciated.Gary.

jem16

dutchism1958 wrote: »

I thought the higher rate tax started at about £23K or am I confusing that with tax rate of 40%?.

At age 65 you are entitled to a higher personal allowance of £9490 so long as your total taxable income is less than £22,900 - by around £29k you have lost that extra allowance and are back at the normal £6475 allowance.

Higher rate tax starts at £43,875.

Also, how did you calculate my pension at £27K?.Was this based on retiring at 62 and the estimated calculations of the value of the pensions when i am 65?

Really just took the values (with higher lump sum ) of the 2 final salary pensions at normal retirement date that you quoted earlier;

Pension 1 - £9600
Pension 2 - £16,600

Total = ££26,200

It was only a rough guide

I currently earn £50K per annum so a decent amount of tax relief is still to be had?.

Around £6k

It seems to me the best option is to go with maximising my S&S ISA's(?) each year for the time being to keep my options open and to build up a healthy sum to make a single contribution to a pension plan upon retirement and gain tax relief in a lump sum if still available.

Based on today's tax and income figures you would still only get 40% tax relief on the first £6k and 20% on £44k. You only get tax relief on 100% of your earnings.

Based on the figures you have given, but dependent on updated final salary pension figures, I would be looking at getting that higher rate tax relief from pension contributions now rather than later.

One thing you don't mention is your wife's retirement provision - has she any and will it use up her £9640 personal allowance?

dutchism1958

Morning again Jem16,

Thanks for answering my questions-has clarified some issues.
My wife died recently.
You mentioned you would be looking at getting that higher rate tax relief from pension contributions now rather than later.
Sorry...showing my lack of understanding Jem16 but how do I go about initiating that?
Am I right in thinking you would look at the possibility of a personal pension plan or are you suggesting AVC's via my company pension.(which are not viable at present)to obtain the higher rate tax relief?
Sorry...lots of questions!
Thanks.Gary.