Final Salary lump sum time to rethink?

First_past_the_post

[FONT=&quot]As you can see from my earlier posts I have built up a decent cash reserve and this is largely because it’s only over the last few years we have been able to seriously set aside savings. Kids finished University and left home, mortgage paid down etc. And it is conservatively invested and I won’t be taking risks but you have got me thinking seriously now about a PP for both me and my wife. It won’t approach the annual allowance but I am thinking a lump sum this financial year and another early in the new tax year then drip feed. It’s also a chance to diversify more into stocks, trusts, funds so better balance. [/FONT]

Dunnit

If your wife has ten years before she draws her pensions then she could be drawing (10x11,000) /3*4= £146,666 from a private pension without paying any tax and gaining tax relief on the way in. It is a 20% boost to your savings.
I would be working out the maximum you can pay-in this fy and starting the pension immediately.

atush

kidmugsy wrote: »

I think you meant "earnings" rather than "income", atush.

OP, contribute the max to a pension for your wife: she will be able to withdraw it tax-free in the years before her state pension starts. Quick now, her 14-15 opportunity is about to vanish.


P.S. jem's quite right about checking. In my own case forgoing my lump sum wouldn't have got my widow an extra penny of pension. What did was "allocation": you should check whether your scheme offers it.

For illustration:
http://www.nhsbsa.nhs.uk/Documents/Pensions/Allocating_part_of_your_pension_to_a_named_dependant_factsheet_(V1)_08.2011.pdf

No, didnt' mean earnings as it is a word I dont use. I meant earned income

First_past_the_post

Dunnit wrote: »

If your wife has ten years before she draws her pensions then she could be drawing (10x11,000) /3*4= £146,666 from a private pension without paying any tax and gaining tax relief on the way in. It is a 20% boost to your savings.
I would be working out the maximum you can pay-in this fy and starting the pension immediately.

Dunnit try as I might I can't quite see the math, my fault not yours. 10yrs fine 11,000 PA Tax? plus 20% tax relief, £132000
What am I missing and it could be a lot:D

kidmugsy

First_past_the_post wrote: »

Dunnit try as I might I can't quite see the math, my fault not yours. 10yrs fine 11,000 PA Tax? plus 20% tax relief, £132000
What am I missing and it could be a lot:D

If she withdrew £11000 tax-exposed (but as it happens untaxed) it would be accompanied by a TFLS of one third that amount, because 25%/75% = 1/3. So total out annually = (4/3)*£11k.

atush

And it is conservatively invested and I won’t be taking risks

But you are taking risks. As in the last five years rates have been below inflation for the most part. Sure this quarter (due to the falling oil price) we have had no inflation, but I dont expect that to continue and expect oil to go up eventually.

So really you should take into account the risks for cash alongside the risks for investments. Cash risks are inflation risk (which i would say with 120K you have suffered) and shortfall risk (in that cash as it loses ground to inflation doesn't pay for things in the future the way you may want/expect it to so 120K 2 years ago would buy more than 120K this year.


If you invest a proportion of money into income producing funds/investment trusts, if you are happy with the income they pay (many pay between 4-5%) it doesn't matter if the price of the unit/stock goes up or down.

As you still receive the same (or in fact more with many ITs)

Take trust X, that pays 4% income. It has raised its income every year for 40 years. You buy 1000 worth on day one.

On day 366 you receive the 4% income (40 quid), year 2 the price goes down, but they have grown the div by inflation (say 2%) so year 2 div is 40.20. The fact the fund may have gone down (say 5%) to 950 doesn't mean so much to you as you are still receiving the income each year. And in this case have received 80.40 even though over 2 years the price is down 50 so you are ahead.

Each year you keep getting your dividend at an increasing rate and eventually if the price went down for the fund it goes up again. but even this doesn't mater too much if you are just taking the income increasing each year and leaving the capital sum for your nearest and dearest you might want to inherit.

If you dont want any one to inherit you just draw at a slightly higher rate than the income produced ie 5%-7%?

First_past_the_post

kidmugsy wrote: »

If she withdrew £11000 tax-exposed (but as it happens untaxed) it would be accompanied by a TFLS of one third that amount, because 25%/75% = 1/3. So total out annually = (4/3)*£11k.

Kidmugsy thanks I see it now. So my wife pays 7% into pension. The £40k limit will not apply as she earns £22k so I could invest into her PP up to the limit of her earned income less pension contributions both for this year, time permitting and next year. Thereafter investing up to the PA threshold till state pension drawn.

kidmugsy

First_past_the_post wrote: »

Kidmugsy thanks I see it now. So my wife pays 7% into pension. The £40k limit will not apply as she earns £22k so I could invest into her PP up to the limit of her earned income less pension contributions both for this year, time permitting and next year. Thereafter investing up to the PA threshold till state pension drawn.

That's the spirit!

OldBeanz

One of the main advantages of GO's reforms was to make pensions attractive for wives to fill the gap in their income which was created when their SP age was changed. So they can now draw the maximum amount out of their pensions within their tax limit plus 25% and pay no tax.
As you have already been advised, present pay less any pension contributions, multiplied by .8 and the PP reclaims the money from the tax man.
We have a SIPP with HL as at our age we would rather pay for a good service than talk to answer machines.
Anyway, fill yer boots.
PS If you are only going to manage 2 years of payments then remember even with no earned income she can contribute .8 of £3600 each year which would allow her another bundle of tax free cash in years 9 and 10.

First_past_the_post

Old beanz fill your boots, I like your style. As time is tight this tax year is it okay to just deposit a cash lump sum into the PP then choose funds later