Will pensions soon be better than savings

ArchieVist

My income consists of a company pension plus returns on savings, total well below tax threshold. In some past tax years, I contributed lump sums into a stakeholder pension scheme, typically £2,500. Each payment was then topped up by HMRC to £3,125, and the scheme fund has been growing at more than 10% per year averaged over the past 5 years. So, evidently a good investment compared to savings accounts. After April 2015, subject to scheme rules, I could perhaps withdraw some cash, then re-invest it in the pension fund, and get another top-up from HMRC. That sounds too good to be true - free money every year. Or have I missed something ?

ViolaLass

How old are you?

ArchieVist

Over 55 (sorry, forgot to say)

kangoora

Well, you are basing this on the assumption that funds will always rise. It doesn't quite work if you get a 30% market drop that takes a few years to recover.

Although if you keep investing through the crash and it recovers you could even see better than 10% returns.

I wonder if some government will try and close this loophole at some point. I wouldn't be surprised if they make it you can't get tax relief unless you have earnings.

kidmugsy

kangoora wrote: »

I wonder if some government will try and close this loophole at some point. I wouldn't be surprised if they make it you can't get tax relief unless you have earnings.

Yup; seize the day!

Linton

ArchieVist wrote: »

My income consists of a company pension plus returns on savings, total well below tax threshold. In some past tax years, I contributed lump sums into a stakeholder pension scheme, typically £2,500. Each payment was then topped up by HMRC to £3,125, and the scheme fund has been growing at more than 10% per year averaged over the past 5 years. So, evidently a good investment compared to savings accounts. After April 2015, subject to scheme rules, I could perhaps withdraw some cash, then re-invest it in the pension fund, and get another top-up from HMRC. That sounds too good to be true - free money every year. Or have I missed something ?

If you are a non tax payer you can contribute up to £2880 grossed up to £3500 each year. If over 55 you then get 25% tax free and can withdraw the rest also tax free assuming that your total income including the 75% of £3500 is still below the tax allowance. By the time you get your state pension I guess you will be over the tax threshold.

Its not all free money - you will lose some in charges to the SIPP provider. Whether its worth the hassle is a judgement you would have to make. And you have to consider whether you would be better off leaving the money in the pension if it is rising by 10%/year. I assume you are aware that your money could nearly as easily drop by 10% in a year, so a pension isnt a substitute for savings accounts.

ArchieVist

1. Thanks for responses. It looks like I did miss reading The Pension Loophole article before I posted my query, plus recycling rules (not yet found all those). Apparently relevant is that I need to be over 60 (I'm actually over 65) to take advantage.

2. The lump sums I previously put into (Standard Life) stakeholder scheme up to 2012 were limited to 2,500 because I was, and still am, paying £20 per month into an Equitable Life annuity policy, and happy to continue that, having refused to join the panicking leavers - financial crashes don't scare me easily

3. BTW, I'm deferring my state pension to take advantage of the c.10% uplift for each year deferred (v. happy and healthy). I just wish the goalposts would stop moving.