£30,000 redundancy-which pot??

dutchism1958

Hi,

I have just received £30K tax free as part of a redundancy package.I invest my maximum each year in ISA's(cash & S/S)and am looking to invest the £30K towards my pension(I am 52)either in one lump sum or split.I want low risk so appreciate the return will be diminished.
I have a total of £35,000 in various ISA's & GSK shares.
I already have 23 years in a final salary pension with my 2 previous employers so view the 30K as a nest egg I would like to build up over the next 13 years until I retire.
I have just accepted a new role with a new employee so have funds coming in but no final salary pension(hen's teeth!).
Any advice greatly appreciated.

kidmugsy

If you expect to be exposed to higher rate tax in the future, there's a case for putting off contributing to an extra pension until then. Presumably you'll open whatever sort of pension your new employer offers, even if it's not a final salary scheme? (As long as there's an employer's contribution too.)

Loughton_Monkey

Your 23 years in Final Salary schemes is 'not to be sniffed at' but they will provide nothing like a 'good' proportion of your actualy final salary, since they are based upon (presumably lower) salaries when you left the companies.

Hence it makes perfect sense to feed this money into pension. As kidmugsy says, if there is a prospect of higher rate tax in the near future, wait for that. If not, don't waste time and get it invested in a good range of funds quickly.

dutchism1958

Thanks for your reply Kidmugsy & Loughton Monkey-have been away hence delay in reply.
I take your point re 23 years final salary.
My final salary with my 1st employer was £43K & my 2nd £51K.
My new employer is matching my current salary of £50K & offer a contributory pension scheme.If you put in 5% they match it for example which i will do.
Sorry to be thick(I'll ask anyway!).
I have been exposed to higher rate tax for years so assume I should go for a pension with my £30K now??
Thanks for your help-greatly appreciated.!!:)

kidmugsy

If I understand correctly: present tax-exposed salary is £50k pa less the 5% that you'll contribute to the employer's scheme = £47.5k pa. In 11-12, the 40% income tax rate starts at an annual income of (approx) £42.5 k, so you could reasonably aim to avoid the 40% tax by putting a further £5k pa (gross) into a pension. That means that in 11-12 you subscribe £4k net, the pension company claims £1k back from the tax man and you claim the rest of the tax back on your tax return.

So it would take you about 7 years to "hide" all £30k in your new pension fund. Does that appeal?

kidmugsy

Darn it, I'm wrong. Allowing for the tax reclaimed, it'd take about 10 years to get it all squirreled away. Or you could always wait to see whether the promised new index-linked savings certificates are attractive and just buy £30k's worth of them.

kidmugsy

Or do both and do without putting quite so much to your ISAs every year.

dutchism1958

Thanks for your replies Kidmugsy,

Hoping the new index-linked savings certificates will be attractive-if so 30K in there looks a good option.
Cheers.gary.

getmore4less

If you are earning then you will have that to pension to avoid 40% tax and fill up ISAs why not invest outside both of those wrappers if there is still spare cash?

You will have pension income that might cover the basic needs, any other pensions money gets tied up and the tax advanatges reduce once you are putting 20% taxed money in.

Outside you have more fleability and can always transfer into ISAs if your spending goes up. If you target capital growth rather than income then there will limited tax liabilities while you are 40% tax payer.

You can bed and ISA any capital gains each year

kidmugsy

The last pair of issues of Index-linked certificates allowed a £30,000 investment. On reflection, I'd be surprised if the next did. I wouldn't be surprised if NS&I were to cut back substantially on how much you can invest per issue. Time will tell.

dutchism1958

Getmoreforless & Kidmugsy appreciate your comments!!.
More food for thought!!
Thanks!