Considering transferring Investment money into Pension - is this wise?

JamTomorrow

I've just turned 40 and have been going though a financial health check of mine and my Wife's current financial situation versus financial goals.

Broadly our main financial goals are to 'pay off' the mortgage (£215k) by age 40 and have sufficient funds (ISA + Pension) to sustain a pensionable income of £30k-£40k from the age of 55-60.

Goal 1 is in good shape with ~£230k of investments across workplace SAYE/Partnership Shares, ISA's, Funding Circle & ZOPA.

I continue to invest ~£17k/year into these investments but took the decision not to have the feel good factor of actually paying the mortgage off as my investment returns significantly exceed the cost of the mortgage debt. In theory I could liquidate these reasonably quickly and pay off the mortgage if required.

My pension goal of having sufficient income in retirement is less certain and the continued changes to pensions make it more difficult to plan. I currently have ~£230k in my pension and through maxing company matching will make contributions of ~15k per annum. Wife's pension is smaller - I just make contributions in her name of £2,880/year to get the top up to £3,600. She should have a pension of £100k-£150k between 55 & 60.

When I eventually pay off the mortgage out of the investments I will use what's left as a tax free source of income to top up the draw down from my pension during retirement. I don't plan to draw down above the current 20% income tax rate or whatever it is by then.

The potential for upcoming changes in the tax benefit have got me thinking whether I should utilise some of my unused pension allowance from previous years and make a one-off contribution out of my investments and into my pension to get the tax boost?

Based on annual allowance of £40k I should have ~£75k of unused allowances which would only cost me £45k net of tax. Using the 'rule of 72' I estimate the 'extra' £30k top up from the government could grow to ~£100k-£150k over the next 15-20 years. Assuming this is would have been at the same rate of return as my non pension investments from where I would be taking the cash then this would effectively be £100k-£150k of money I would otherwise not have had.

From that perspective it seems like a no brainer to create £100k-£150k through tax benefits but then that cash is tied up until I am at least 55 (if the rules aren't changed) and would then be taxed when drawn as income in retirement.

I'm assuming I would not exceed the LTA before my 55th birthday but that this extra pension contribution should help me reach my financial goal earlier - retire nearer to 55 than 60.

Anything else I haven't considered or is it really a no brainer? Not sure why I have't thought of this sooner but I guess the thought of losing/reducing the 40% tax-boost focuses the mind!

Thanks in advance for any thoughts.

jem16

Just to check - have you enough earnings this tax year to cover the £75k pension payment and get 40% tax relief on it all? To do that would require earnings in excess of £118k approximately.

SailorSam

Was it last yrar there was a change in the rules which made it easier for people to cash-in part of their pension ? Well since then a lot of them have done so, which makes you think the returns they were going to get are going to be so low maybe it's better to do something else with the money.

atush

What rate of tax do you pay, and what is your annual income?

JamTomorrow

jem16 wrote: »

Just to check - have you enough earnings this tax year to cover the £75k pension payment and get 40% tax relief on it all? To do that would require earnings in excess of £118k approximately.

Ah yes, schoolboy error on my part. I expect my P60 gross income to be ~£97k for 15/16 tax year. I assume my income in year limits what I can get the 40% boost on then?

JamTomorrow

atush wrote: »

What rate of tax do you pay, and what is your annual income?

See above - approx. £90k-£100k dependent upon bonus. Usually get low single digit pay rise each year.

JamTomorrow

SailorSam wrote: »

Was it last yrar there was a change in the rules which made it easier for people to cash-in part of their pension ? Well since then a lot of them have done so, which makes you think the returns they were going to get are going to be so low maybe it's better to do something else with the money.

The funds I invest in in my ISA's aren't that dissimilar, and some overlap, to what I invest in my SIPP, therefore the return would be broadly similar, except the pension returns give me a tax boost now which will grow over the next 15-20 years.

atush

well as a HRTaxpayer, you should fill your boots with the pension as you describe. As each 100 into it, will only cost you 60. No brainer really.

all taxable savings in your OH name, and fill your S&S isas too.

Is she claiming CB in her name for State pension credits? Even if the CB is down to 0? It will come back online if you put 75K in this year and some more next year?

JamTomorrow

atush wrote: »

well as a HRTaxpayer, you should fill your boots with the pension as you describe. As each 100 into it, will only cost you 60. No brainer really.

all taxable savings in your OH name, and fill your S&S isas too.

Is she claiming CB in her name for State pension credits? Even if the CB is down to 0? It will come back online if you put 75K in this year and some more next year?

It felt too good to be true - I guess the cost is I can't access it for (at least) 15 years but then I don't have any financial goals over the next 15 years which doing this would limit.

The FC & ZOPA is in my OH name so we get those returns gross.

When we stopped getting CB it was in her name and we stopped it rather than receiving and then having to do a tax return. Fantastic call on getting the CB back if I overpay - hadn't even thought of this. With 3 kids that would be another £2.5k boost.

Practically how would I go about this? Would I have to submit a request to HMRC? 14/15 was the first year I have not been asked to submit a tax return having worked abroad for a number of years.

jem16

JamTomorrow wrote: »

Ah yes, schoolboy error on my part. I expect my P60 gross income to be ~£97k for 15/16 tax year. I assume my income in year limits what I can get the 40% boost on then?

It not only limits the 40% tax relief but also limits your total tax relief.

So with £97k, only £54k approximately will get higher rate tax relief and the rest 20%.

jem16

SailorSam wrote: »

Was it last yrar there was a change in the rules which made it easier for people to cash-in part of their pension ? Well since then a lot of them have done so, which makes you think the returns they were going to get are going to be so low maybe it's better to do something else with the money.

It will be nothing to do with returns and all to do with simply wanting the money regardless of how much tax it costs them.

JamTomorrow wrote: »

Practically how would I go about this?

You would need to start claiming Child Benefit again and then complete a tax return.