Pension contributions as savings

malc_b

This is about getting good interest on savings for those nearing retirement so 50+ from April. Savings rates are currently rubbish so this is an alternate idea if you have some spare cash.

If you contribute to a pension, say your own sipp, then you get tax relief at source for 100% of your salary. So if you earn say just £10k then even though you haven't paid any tax you could pay £8k into a sipp and get that bumped up to £10k. An instant 20% profit. If you're near retiring then you can get 25% of your pension pot back as tax free lump sum so you can just think of it as depositing for a fixed period. Naturally don't put in what you may need.

This won't be for everyone. You'd need to have a salary but have lots of spare cash (just won the lottery, been left a large sum of money, etc.). Even if you have no salary you can put in £2880 and get than made up to £3600 each year.

savingGrace

I don't understand!

zygurat789

savingGrace wrote: »

I don't understand!

This is not new. All you need is spare cash lying around not earning very much.
No mention was made of the charges which may be levied by the others involved in these transactions.

malc_b

Maybe it isn't isn't new but it was new to me and probably others.

To me, you paid pension contributions free of tax so the gov weren't giving you anything, just not taking it away. This is now, NOT, the case. You get 20% rebate on contributions (i.e. 25% more) up to 100% of salary.

So earn 10k, pay zero tax. Put 8k into pension, get this topped up to 10k. Keep 2k.

Only works if you are near retiring and have spare cash I guess. But then that is not that unusually a situation. Yes there are pension fees but you are getting 25% extra.

zygurat789

malc_b wrote: »

Maybe it isn't isn't new but it was new to me and probably others.

To me, you paid pension contributions free of tax so the gov weren't giving you anything, just not taking it away. This is now, NOT, the case. You get 20% rebate on contributions (i.e. 25% more) up to 100% of salary.

So earn 10k, pay zero tax. Put 8k into pension, get this topped up to 10k. Keep 2k.

Only works if you are near retiring and have spare cash I guess. But then that is not that unusually a situation. Yes there are pension fees but you are getting 25% extra.

The amount of tax relief has not changed, it is just given to you in a different way. The 100% of salary is the change being much larger than it used to be.
There is no 25% extra, at least not over the last 10 years during which time this legislation has been in force. Don't get me wrong I'm not arguing against you. I'm just saying that this has been around for 10 years and is well known by people who advise on this. The fact that it is new to you just goes to show that nobody knows everything.

If you look back you will find where I posted that if you earn nothing and put £2880 into a pension the government will make it up to £3600.
You can do this for a non-working spouse as a way of soaking up the unused and untransferred personal allowance.

PennyForThem_2

I have a works pension. Into that I pay the mandated % of my salary and my employer also pays in the agreed % based on my salary.


What I contribute annually is well below what I could contribute annually to ANY pension scheme.


Because what HMRC allows is up to the maximum of your eligible income. (Income is defined - I get widow's pension and rent income and that is not counted for this pension calculation - although it is for tax lol)


So because I am paranoid about having enough to live on and because I have hopped around on jobs - I really , really wanted extra to kick in when 75 (I come from very long lived family - like everyone, smoked, drank, no other health problems).


So I started an additional self contributing pension couple of years ago - risk as, at that time it would be buy an annuity or draw down. Risk paid off it seems with all these new rules.


So..... start a pension it really is not too late - I started my 'independent' pension at 63 and am ploughing money into it because lol Gov gives 20% towards it. What is not to like?


[Edit] Forgot to add - you can add up to amt you are eligible as long as you are working but if you retire it is restricted to 2.8K (?)]

zygurat789

PennyForThem wrote: »

I have a works pension. Into that I pay the mandated % of my salary and my employer also pays in the agreed % based on my salary.
What I contribute annually is well below what I could contribute annually to ANY pension scheme.
Because what HMRC allows is up to the maximum of your eligible income. (Income is defined - I get widow's pension and rent income and that is not counted for this pension calculation - although it is for tax lol)
So because I am paranoid about having enough to live on and because I have hopped around on jobs - I really , really wanted extra to kick in when 75 (I come from very long lived family - like everyone, smoked, drank, no other health problems).
So I started an additional self contributing pension couple of years ago - risk as, at that time it would be buy an annuity or draw down. Risk paid off it seems with all these new rules.
So..... start a pension it really is not too late - I started my 'independent' pension at 63 and am ploughing money into it because lol Gov gives 20% towards it. What is not to like?
[Edit] Forgot to add - you can add up to amt you are eligible as long as you are working but if you retire it is restricted to 2.8K (?)]

A pension is to provide income when you stop work so all calculations will be based on earnings, not total taxable income.
The Govt. Doesn't exactly give you 20%, or 40% if you pay higher rate tax, it recognises the fact that you have given up income that you have been taxed on and refunds you the tax which you have already paid. It will, of course, take this from you again when you start to draw your pension, apart from the 25% TFLS.
It is, of course, a good idea to save for one's old age and it is always nice to avoid tax.

malc_b

zygurat789 wrote: »

The Govt. Doesn't exactly give you 20%, or 40% if you pay higher rate tax, it recognises the fact that you have given up income that you have been taxed on and refunds you the tax which you have already paid.

Exactly what I thought and WRONG.

This used to be case, long time ago, but now you can get 20% back on 100% of salary. That's 20% back on the first 10k of salary that you did not pay tax on.

zygurat789

malc_b wrote: »

Exactly what I thought and WRONG.

This used to be case, long time ago, but now you can get 20% back on 100% of salary. That's 20% back on the first 10k of salary that you did not pay tax on.

Ah now I see what you have been trying to say.
Yes that is how it works.
You earn £10K, put £8k into a pension and the Govt. make it up to £10K.
When you come to take the pension they will tax you on £7.5K if you take the lump sum and maybe nothing if your total income is less than the PA.
But that is what they want so that you will cost them less in benefits.