Paying into a pension after retirement

Hal17

Could I please request your opinion on the following. I took early retirement after being made redundant and have lived on some self employed work and savings for the last 3 years.

I am now 61 and will from January no longer be self employed. So will draw some cash from my drawdown pension in the new tax year, I have already taken my 25% tax free sum from my pension.

I have available cash reserves to consider paying in the basic £2880 allowance to my pension over the next 5 years which would be £14,400 and give me £3,600 in tax relief. I have read the forums here where the 25% tax free allowance may be withdrawn in the future, but I am assuming I will be okay.

My thinking is that the tax relief available is my best % return I will get from anywhere else and although the overall value could go down this is a good investment option to take. I was just wondering if I had missed anything. Many thanks.

saver861

Hal17 wrote: »

I am now 61 and will from January no longer be self employed. So will draw some cash from my drawdown pension in the new tax year, I have already taken my 25% tax free sum from my pension.

But if you are now ceasing work with no income other than savings, you are unlikely to be a tax payer? In which case you can draw more before reaching the tax threshold. Or am I reading it wrong?

Hal17 wrote: »

I have available cash reserves to consider paying in the basic £2880 allowance to my pension over the next 5 years which would be £14,400 and give me £3,600 in tax relief. I have read the forums here where the 25% tax free allowance may be withdrawn in the future, but I am assuming I will be okay.

My thinking is that the tax relief available is my best % return I will get from anywhere else and although the overall value could go down this is a good investment option to take. I was just wondering if I had missed anything. Many thanks.

Well if you are a non tax payer it is the equivalent of £720 per year for naught. That is, if you draw the money before moving into the next tax bracket.

If you are a tax payer, then it is less attractive, and the benefit is around £140 per year assuming brt.

In terms of the performance of your investment, that will be all relative in terms of the tax.

Hal17

Thank you for your reply, I do appreciate that.

Yes I will be a non tax payer until I draw my State Pension in 4.5 years, and then I would be in the 20% tax bracket.

I think the £720 is too good to turn down and my pension plan is cautious to moderate so I don't see me losing the tax relief value even if markets fall.

Superscrooge

Hal17 wrote: »

I have available cash reserves to consider paying in the basic £2880 allowance to my pension over the next 5 years which would be £14,400 and give me £3,600 in tax relief. I have read the forums here where the 25% tax free allowance may be withdrawn in the future, but I am assuming I will be okay.

My thinking is that the tax relief available is my best % return I will get from anywhere else and although the overall value could go down this is a good investment option to take. I was just wondering if I had missed anything. Many thanks.

Don't forget that you get 20% added on the way in. But are likely to be paying 20% tax on the way out. But if the rules aren't changed should be able to withdraw 25% tax free, so it seems a sensible investment decision to me.

dunstonh

Since the changes in 2001, it has become very common for retired people to continue using the pension tax wrapper all the way through to 75. It is no longer a product but a wrapper in the same way you think of ISAs and other tax wrappers. The 2006 changes and the recent changes both increased the occasions it should be used as a wrapper.

Al.

Agree. Also, it's not whole of life anymore either. It has increasingly useful applications for estate planning.

Hal17

Thanks everyone that all makes sense. Appreciate all the excellent feedback.

Linton

Watch out for the charges. With only £720 profit/year they could be a non trivial %.

zagfles

Linton wrote: »

Watch out for the charges. With only £720 profit/year they could be a non trivial %.

OP already has a pension so unless it has an odd charging structure (eg extra fixed charges for phased drawdown) it's unlikely to be an issue.

zagfles

Probably won't apply but be aware of the recycling rules:

http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm04104920.htm