Teachers Pension and buying additional years

fizio

Just to clarify - there is no tax savings/benefit here. Its simply a case of taking 90k of my earned income from a savings account and using it to buy OH additional pension at £15K for £1k per anum.
I have already maxed my HRT pension contributions and ISA etc so its a case of deciding if 90k invested in S&S/VCT etc now can yield me a better result in 10 years time than taking the guaranteed extra pension for my OH. Plus the extra pension is index linked and also means she is just about at £10k income on retirement so no tax

This is all assuming I can actually do this which i'm waiting on confirmation from TPS

Andy_L

jem16 wrote: »

Main pension has moved to CPI linking now.

Correct, but the post I replied to is comparing the cost of extra pension to annuity purchase, apologies for makinbg that unclear by saying pension rather than annuity. AFAIK you can't buy a CPI linked annuity, only level or RPI

jem16

haf63 wrote: »

Just to clarify - there is no tax savings/benefit here. Its simply a case of taking 90k of my earned income from a savings account and using it to buy OH additional pension at £15K for £1k per anum.

Your wife may not qualify for a tax benefit but she still has an annual allowance of £50k plus the ability to use some previous years' allowances if not used already.

With £90k she needs to be careful that she is not going to be charged extra tax for contributing over her allowance.

fizio

jem16 wrote: »

Your wife may not qualify for a tax benefit but she still has an annual allowance of £50k plus the ability to use some previous years' allowances if not used already.

With £90k she needs to be careful that she is not going to be charged extra tax for contributing over her allowance.

Thats the nub of it really and i need TPS confirmation. My OH's 'earned' income over past 3 years has been pretty low and nowhere near 90k so if thats a factor then my plan is scuppered. If the 50k limit is a factor then thats less of an issue as that can go back 3 years or i can split it over 2 tax years. I'll have to get the OH to call TPS as they seem rubbish at responding to online queries. Trying to avoid the OH having to call them as she is clueless about pensions and will need a detailed script. I doubt they will let me call on her behalf with all this data protection nonsense.

jem16

haf63 wrote: »

Thats the nub of it really and i need TPS confirmation. My OH's 'earned' income over past 3 years has been pretty low and nowhere near 90k so if thats a factor then my plan is scuppered. If the 50k limit is a factor then thats less of an issue as that can go back 3 years or i can split it over 2 tax years.

OK - what you have to understand is that annual allowance for the purposes of pension contribution and allowances for tax relief are two separate entities.

Tax relief wise, it's the greater of £3600 or 100% of earned income. Note that earned income means exactly that and does not include savings, investments or pension income. Tax relief is limited to the actual tax year in which the contribution is made. With a lump sum to the TPS, you would have to apply to HMRC for any tax relief due.

The annual allowance is £50k at the moment, dropping to £40k from 2014. This is the amount that can be paid into a pension during the pension input period. This amount includes any employer contribution as well as employee.

With a final salary pension, what matters is not the actual contribution but the growth in pension from one input to the next x 16.

So if your wife has not contributed much over the last year then the growth in pension may well be just the £6k - this might be more if there has been an increase in salary. However let's just assume it's £6k for the moment. That would then be £6k x 16 which is £96k. So even though the contribution was £90k, the actual contribution would be £96k.

The carry forward rule for the annual allowance goes back over 3 years. It's going to be quite important that you don't breech this amount as there will be a tax charge.

Of course all of this is reliant on the TPS accepting that your wife is actually a contributing member which may not be the case having not worked for at least a year.

fizio

Thanks Jem, That does clear things up a bit and if TPS don't reply to my online query next week then it will have to be a phone call to try and clear this up. I'm not overly worried about the 90k in terms of backdating or splitting between this and next tax year - so main query is simply can you use the 'buy additional years' facility having not worked for a while. I could argue that its not her fault that there has been no supply work rather so no reason why the facility should not be available to her.
See what happens and will post an update here

I am a little surprised that no-one thinks spending 90K this way may not be the best idea - hopefully its because its a good deal

jem16

haf63 wrote: »

I am a little surprised that no-one thinks spending 90K this way may not be the best idea - hopefully its because its a good deal

I think from a no-risk point of view it's an excellent deal. It's possible it could be beaten depending on investment return and whether drawdown or annuity is used.

Does your £90k quote include spousal benefits or not?

fizio

The £15k for £1k annual pension excludes 'dependent benefits' and when I add that option to the modeller, it comes to £16k so an extra thousand pounds will buy a 50% dependent pension.
The costs also go up by approx £500 per £1k if i delay the purchase a year - which isn't too bad really

fizio

Ok - I managed to call up TPS and talk to someone who seemed knowledgeable - to a point.

The nett of it is that my OH is eligible, as a supply teacher, to buy additional pension upto £6k annualy for £15k per year lumpsum.

It is linked to Annual and Lifetime Allowances

So - I will fill in the paperwork and see if i can get a chunk done

jem16

haf63 wrote: »

The nett of it is that my OH is eligible, as a supply teacher, to buy additional pension upto £6k annualy for £15k per year lumpsum.

Presumably you mean £15k for each £1k of pension with a maximum of £6k annually?