Paying lump sums of cash into pension pot.

Emmdaz

Hi all, i have been reading all the info from MSE and the forums regarding pensions but i am still slightly confused. It would be great if someone could point me in the right direction.

I use my cash ISA allowance every year and i also have a small military pension of about 5k which pays out at 60.

I am now self employed in a very unpredictable and irregular career, as in i dont get paid weekly/monthly etc but get large lump sums on completion of work. I am currently in the 50% tax bracket and can envisage it been the same for the next few years at least.

I want to start a pension, but i dont want to commit to a regular monthly payment, but to pay in around 10 - 15 k a year in large deposits. I aim to put all my spare cash towards this now so it may even be more, as i want to retire as early as possible.
So i suppose what i am asking is if this is something that pension companies cater for and what sort of restrictions/rules these may have.

Any info would be gratefully appreciated. I have got an appointment with a IFA next week but i wanted to understand my options better before i see him.
Many thanks

Linton

Pensions can be set up to receive one off rather than regular monthly payments.

Aegis

Emmdaz wrote: »

Hi all, i have been reading all the info from MSE and the forums regarding pensions but i am still slightly confused. It would be great if someone could point me in the right direction.

I use my cash ISA allowance every year and i also have a small military pension of about 5k which pays out at 60.

I am now self employed in a very unpredictable and irregular career, as in i dont get paid weekly/monthly etc but get large lump sums on completion of work. I am currently in the 50% tax bracket and can envisage it been the same for the next few years at least.

I want to start a pension, but i dont want to commit to a regular monthly payment, but to pay in around 10 - 15 k a year in large deposits. I aim to put all my spare cash towards this now so it may even be more, as i want to retire as early as possible.
So i suppose what i am asking is if this is something that pension companies cater for and what sort of restrictions/rules these may have.

Any info would be gratefully appreciated. I have got an appointment with a IFA next week but i wanted to understand my options better before i see him.
Many thanks

It's certainly catered for, lump sums can be paid in at a considerably lower level than you've indicated. In terms of specific rules, there aren't that many on pension assets. In general, residential property and tangible moveable assets are barred, but otherwise there are pensions available to invest in more or less anything you want.

It's worth considering your stocks and shares ISA in addition to pensions, as it is more flexible and offers similar growth benefits (though you don't get the tax relief).

Post again if you have any more questions

Emmdaz

Thanks for the very quick reply.

It is good to know that there are pensions that will meet my needs. I couldnt really find information regarding this, as most answers quote a monthly payment.

Is there a maximum amount you can pay in one year which can be put against my taxable income, and for some years would it be possible for me not to pay anything at all.

Can you also specify when you would like to draw the pension, or is it normally set at retirement age? And i take it if you draw it early it would need to be a significantly larger pot.

Sorry for more questions. Again thanks for the reply.

Aegis

Emmdaz wrote: »

Thanks for the very quick reply.

It is good to know that there are pensions that will meet my needs. I couldnt really find information regarding this, as most answers quote a monthly payment.

Is there a maximum amount you can pay in one year which can be put against my taxable income, and for some years would it be possible for me not to pay anything at all.

At present you can put up to £50,000 a year into a pension if you have the income to offset. You can also carry forward any unused allowance up to three years if you want to exceed that level once in a while.

Can you also specify when you would like to draw the pension, or is it normally set at retirement age?

Under current legislation, it's any time from age 55 onwards. You don't need to take it at the same time as retirement.

And i take it if you draw it early it would need to be a significantly larger pot.

If you want it to last long enough to sustain you throughout retirement, then yes, though it's not a legal requirement to build up a certain amount before drawing. Bear in mind that annuity rates are age-related, so the later you draw, the higher the income (even drawdown is based on prevailing annuity rates unless you have the £20k lifetime income required for flexible drawdown).

Emmdaz

Thanks a lot Aegis, that answered all my initial questions, i will save the rest for the IFA.

Again thanks for the quick respnse.

jamesd

If you want to retire before age 55 that's where investments inside a stocks and shares ISA can play a role. You can drain that capital at any rate you need to hit an income target. After taking the lump sum the rate of income you can take from a pension in drawdown is capped by the GAD limit. So if your desire includes retiring before age 55 you'll need to consider a significant S&S ISA component.

You can move cash ISA money to a S&S ISA and you should expect that your IFA will recommend that to improve returns.

CKhalvashi

I’m in roughly the same position as you (My company can earn £1000000 in one month, then be ‘running skint’ the next 2 months), and for things like this, it’s ideal.

What makes things more difficult is that 2 of the companies under the holdings umbrella are pretty much constantly in credit, yet the third one (only 1 set of wages to pay, thank god!) is so volatile I tend to leave it until there’s a set amount in there before drawing anything out!

If there’s money on the side, best to reduce your tax rate to an effective 30% rather than paying tax over and over again. There are schemes designed for this.

Maxing out S&S is also going to play a vital role in retiring at 55. Much of mine’s in property at the moment, but that’s going to be subject to change come the interest rate rise.

CK