Early-retirement wannabe

coyrls

itm2 said:

I will try to contact HMRC to confirm.

There really is no need, it is quite clear that no more contributions are required.

jamesd

george_jetson said:

Maybe I should have made different choices years ago but as I am 53 now is it still worth opening a SIPP?

It's worth £7,150 in tax relief on basic in, basic out if you can get all £110,000 in, so yes.

Given your spending you might be able to defer the work pension for a few years and get all out tax free. 

It looks as though you're on about £3,000 gross a month, £36,000 a year. Pay in £28,800 net from savings and 25% will be added to give basic rate relief on it all. After two years you have taken £57,600 from pay and savings for contributions and have £72,000 in the pension. You can take out 25% as a tax free lump sum, £18,000, leaving £54,000 taxable. Say you retire but don't take the work pension yet, instead take £12,500 from the pension each year for 4 years. That's another £50,000 out tax free. £4,000 left so take £1,000 taxed each year as well, net £800 a year, £3,200 total.

Net in: £57,600
Net out: £71,200

With just two years paying in that's a gain of £13,600 without having to take any investment risk.

The work pension will normally be higher due to the wait, an extra lifetime benefit..

atush

hugheskevi said:

michaels said:

8k pa extra pension taxed at 20% is 6 and a bit k so quite a lot of years to get back 165k especially as that 165k would be invested and earning an income of its own.

I don't think that is the right comparison though, as it doesn't take account of tax relief on the £165,000 pension payment.

With a redundancy payment of £170K (of which £60K is tax free) as well as normal salary for part of the year, it is likely that bristrew and partner will both have a lot of income in the higher rate tax band, so will receive 40% relief (or even 60%) relief on some or even all of the contribution. That would make a very meaningful difference to the pay back period as the net cost of the £165,000 might be closer to £100K after tax relief.

Not to mention you could put a lot of the redundancy over the 30K limit pp into a DC pension to remove the tax hit.  Given that you are over 55, monies could be taken immediately of need although waiting until the next tax year is better.

george_jetson

jamesd said:

george_jetson said:

Maybe I should have made different choices years ago but as I am 53 now is it still worth opening a SIPP?

With just two years paying in that's a gain of £13,600 without having to take any investment risk.

Well. 

Some eye opening figures there. All I can say in my defence is that I'm of an age where the word "pension" was often followed by "scandal" in the news...

Doing this I am almost treating a DC pension as a savings account, with the government paying the "interest" at a one off rate of 25% rather than an annual amount? So the longer the money is in there, the greater "diluting" effect of time is? Therefore in a way it makes sense to whack as much as I can in at the last minute?

So for this tax year I leave my money in Marcus to get the interest there, then towards the end stick (say) £25,000 in, to which the government will add 25%. Do the same next year and then I can take 25% out tax free when I turn 55 - or delay my retirement plans by a year and do the same again.

This would mean for the first few years after stopping work I would be living wholly on my savings rather than using them to "top up" what I get from my pension on a monthly basis?

Sorry for the numpty questions but this is a whole new kettle of fish for me.

Finally (sorry) I assume any DC pension provider will let me leave my money in as "cash" rather than investing in a fund.

Thank you for all this - I"m off to play with Excel for a bit!

mark55man

some will let you leave it in cash, some won't.  for those that don't there are plenty of cash like funds

there are plenty of threads on here about safe ways of storing money for a 1-3 years.  The answer usually ends up as NS&I or Premium Bonds which isn't helpful to you!

gadgetmind

LeadFarmer said:

I reckon it was a deliberate policy not to publicise these changes, think of the money the Govt will save! I wonder how many other people will get caught out by this. I am fortunate in being able to (very reluctantly) pay the five year shortfall but it hurts at around £780 for every year.,

 

The change to Single Tier was well publicised but people weren't sent a notification of what their foundation amount was and they needed to get a state pension forecast. There is no NI on pension payments of any sort, so nothing to take automatically. And yes, £780pa is a lot of money, which is why many people (including my wife) tell HMRC they are self employed, declare a few bob of income on tax return, and pay the much cheaper Class 2.

DairyQueen

gadgetmind said:

The change to Single Tier was well publicised but people weren't sent a notification of what their foundation amount was and they needed to get a state pension forecast. The is to NI on pension payments of any sort, so nothing to take automatically. And yes, £780pa is a lot of money, which is why many people (including my wife) tell HMRC they are self employed, declare a few bob of income on tax return, and pay the much cheaper Class 2.

It's peanuts compared to the benefit received. 'Your wife telling HMRC that she is self-employed' (apparently erroneously) smacks of tax evasion at best and mean-spirited avoidance of dues at worst. Judging from your previous posts, you could well afford the measly £780p.a. and there are plenty of other people that really, really need all the help they can get from the public purse.

So much for the 'new-norm' of community spiritedness.

No apologies for judging you. Nothing clever about what you are doing. It may be legal but it certainly isn't moral.

gadgetmind

DairyQueen said:
 'Your wife telling HMRC that she is self-employed' (apparently erroneously) smacks of tax evasion at best and mean-spirited avoidance of dues at worst. Judging from your previous posts, you could well afford the measly £780p.a. and there are plenty of other people that really, really need all the help they can get from the public purse.

Nothing illegal or immoral about it. She declares her self-employed income, which is usually a few £100, but was £10k a couple of years ago and she paid tax and Class 4 NI as a result. Of course she then put 80% of it into her SIPP, and got tax relief at 20% that was more than the tax she paid, so it was only the Class 4 that was wasted.

Note that many ex pats declare themselves as self employed and pay Class 2 from outside of the UK. Now that does feel like it's crossed some kind of line to me, but it's widespread and HMRC have never done anything to prevent or discourage it from what I can tell.

jamesd

george_jetson said:

Doing this I am almost treating a DC pension as a savings account, with the government paying the "interest" at a one off rate of 25% rather than an annual amount? So the longer the money is in there, the greater "diluting" effect of time is? Therefore in a way it makes sense to whack as much as I can in at the last minute?

That's right. Unless you use investments instead of cash.

george_jetson said:

So for this tax year I leave my money in Marcus to get the interest there, then towards the end stick (say) £25,000 in, to which the government will add 25%. Do the same next year and then I can take 25% out tax free when I turn 55 - or delay my retirement plans by a year and do the same again.

Yes, though you're free to take out the tax free 25% when you reach 55 even if not retiring.

This would mean for the first few years after stopping work I would be living wholly on my savings rather than using them to "top up" what I get from my pension on a monthly basis?

Yes. You can modify that based on what you want. Thinking ahead to state pension age and ignoring the increase in work pension from not taking it so early you'll have a taxable income of £12,000 + 52 x £175.20 = £21,110.40. After tax that's £19,388.32. Some people would want to draw on savings to get closer to that from the start, perhaps topping up savings again once the state pension is being paid.

george_jetson said:

Finally (sorry) I assume any DC pension provider will let me leave my money in as "cash" rather than investing in a fund.

Many will but if not you could use a "money market" fund.

shinytop

gadgetmind said:

DairyQueen said:
 'Your wife telling HMRC that she is self-employed' (apparently erroneously) smacks of tax evasion at best and mean-spirited avoidance of dues at worst. Judging from your previous posts, you could well afford the measly £780p.a. and there are plenty of other people that really, really need all the help they can get from the public purse.

Nothing illegal or immoral about it. She declares her self-employed income, which is usually a few £100, but was £10k a couple of years ago and she paid tax and Class 4 NI as a result. Of course she then put 80% of it into her SIPP, and got tax relief at 20% that was more than the tax she paid, so it was only the Class 4 that was wasted.

Note that many ex pats declare themselves as self employed and pay Class 2 from outside of the UK. Now that does feel like it's crossed some kind of line to me, but it's widespread and HMRC have never done anything to prevent or discourage it from what I can tell.

So someone retired but pre-SP age, but a few years short of full SP entitlement could set up a 'business', and then be eligible to top up with class 2 rather than class 3?  Surely not ...