Contributing 100% of gross salary

Judwin

jamesmorgan wrote: »

A pension pot of around £160K will pay an annuity of £8K at age 55. .

It won't. Single life flat annuitys at age 55 are around 4.5%. So you'd need almost £180K.

And retiring at 55 with a flat annuity doesn't sound like a good idea to me. Single life RPI linked rates at 55 are more like 2.4% curently, so you'd need £330K for that.

And the govenment are increasing the tax free earnings limit to 10K ish - so you'd need £400K in your pot.

Agree with the rest of your post though

Linton

Judwin wrote: »

....

At age 54 years and 364 days, you pay in 100% of this years salary, by transferring the money from SSISA to PP. At age 55 years and 0 days, you commence the pension.

You don't get state pension for another 12/13 years, so what is it that is taking up your tax free allowance?

OK, it works. Whether it's necessarily the best idea may be open to discussion. There is the disadvantage that you are converting a flexible lump sum in hand into a pension where you could never retrieve all the money unless you have sufficient other income to permit flexible drawdown.

jamesmorgan

Judwin wrote: »

It won't. Single life flat annuitys at age 55 are around 4.5%. So you'd need almost £180K.

And retiring at 55 with a flat annuity doesn't sound like a good idea to me. Single life RPI linked rates at 55 are more like 2.4% curently, so you'd need £330K for that.

And the govenment are increasing the tax free earnings limit to 10K ish - so you'd need £400K in your pot.

Agree with the rest of your post though

OK - agreed my annuity rates are out of date (not difficult in the current climate!). However, in order to maximise the benefit of the scheme you want to take as much pension as you can between 55 and NRA. Once you hit NRA your personal pension is likely to be subject to standard rate income tax. So whilst I agree a flat annuity is not normally good advice, it would be the best way of maximising the tax advantages of what you are suggesting.

Judwin

Linton wrote: »

OK, it works. Whether it's necessarily the best idea may be open to discussion. There is the disadvantage that you are converting a flexible lump sum in hand into a pension where you could never retrieve all the money unless you have sufficient other income to permit flexible drawdown.

Thanks. Yes point taken about the relative merits of pensions vs other means of saving/investing.

So the implication is that anyone with a salary/NRE between £8105 and HRT can pay in 100% of their salary/NRE and reclaim an additional £1621 from HMRC for free.

And next years allowance is going to be £9205, so anyone with a salary between £9205 and HRT can pay in 100% of their salary/NRE and reclaim an additional £1841 from HMRC for free.

Now to get my head around the recycling rules for the TFC :beer:

Judwin

jamesmorgan wrote: »

OK - agreed my annuity rates are out of date (not difficult in the current climate!). However, in order to maximise the benefit of the scheme you want to take as much pension as you can between 55 and NRA. Once you hit NRA your personal pension is likely to be subject to standard rate income tax. So whilst I agree a flat annuity is not normally good advice, it would be the best way of maximising the tax advantages of what you are suggesting.

Ok, agree with the non bolded bit, but surely the best way to get the most out between 55 and NRA is income drawdown? GAD is currently about 4.4% for a 55 year old. They're putting the GAD limit back up to 120%, and I think that means rates will be circa 5.8%. Once (if!) you get to SPA, then re-assess the amount you're drawing down.

Yes Drawdown is a higher risk proposal than annuities.

jamesmorgan

Judwin wrote: »

Ok, agree with the non bolded bit, but surely the best way to get the most out between 55 and NRA is income drawdown? GAD is currently about 4.4% for a 55 year old. They're putting the GAD limit back up to 120%, and I think that means rates will be circa 5.8%. Once (if!) you get to SPA, then re-assess the amount you're drawing down.

Yes Drawdown is a higher risk proposal than annuities.

Yes, I agree the new GAD rules would make drawdown more attractive. This would limit the size of pot to around £140K. I assume that the scheme is only really of interest to someone who has significant other income (eg in an ISA or rich spouse) as few people would want to live off £8K/annum. As such, the risks of drawdown vs annuity are not likely to be that important.

Judwin

jamesmorgan wrote: »

Yes, I agree the new GAD rules would make drawdown more attractive. This would limit the size of pot to around £140K.

£140K after the TFC/PCLS has been taken, so about £190K before.

And assuming the govt keeps it's promise to up the tax allowance to 10K in the next year or two, then that's £180K after PCLS, £240K before PCLS.

I've got 7 years till I'm 55 though so it'll all probably change before then anyway :eek:

kidmugsy

The great downside of pensions is that your money is tied up until you are 55. As you approach 55, this downside becomes less onerous.

Anyway, you could open a couple of stranded pots too, eh?