One-off contribution help - so unfair!!

Youngpensionsaver

I would very much welcome your thoughts on my individual circumstances as am thinking about a one-off contribution prior to the chancellor's budget announcement on 16 March. I appreciate I am in a good financial position, however for the record I would point out the new rules on annual allowance are wholly unfair and I worry about the state of the nation's pension savings in 30 years!

So, to the detail:

35 year old
2015/16 taxable income: £220k
2016/17 taxable income: >£210k threshold (unless something goes very wrong!)

2012/13 to 2015/16 pension contributions made: employee + employer £60k (gross of tax, split 45%55%)

Pension pot: £150k, miles off the £1m cap and under this government I will never get there!

One-off capacity calculated as £120k (I ignore the uplift to £80k for 2015/16 as I don't understand this nuance! I have the spare cash to make a c£95k one-off and my pension provider adds the basic rate up to £120k and I then recover the additional £30k on my 2015/16 tax return. In total, £120k goes into my pot at a net cost of c.£65k.

I will then limit my pension contribution to £10k per annum and my employer will redirect their contribution to me essentially as additional salary.

My questions are:

1. Are my calculations broadly correct?
2. I am doing this to benefit from my 45% marginal tax rate. Not knowing what will happen on budget day, this has some risks but given I will have capped £10k per annum pension contribution allowance, I don't think I have much to lose (unless I have got this wrong!)
3. Any thoughts on whether a 35yr old should be worrying about this?! I am comfortable but do worry that £1m pots don't pay out anywhere near what I think I need in retirement.
4. Your thoughts on whether the chancellor will dare drop the tax relief to 25%?! Heaven help us, higher rate taxpayers should seriously weigh up the pros and cons of emigrating.


Sorry for the long message. Many thanks all!

Mistermeaner

I agree the changes are !!!!.... especially if you are taxed on the way out as well. If the plan is to encourage saving for our retirement i dont see how all this fits...

I dont earn anything like you but am a high rate tax payer and benefit from sizeable company contributions to my dc scheme.

I am assuming that any changes will be introduced over at least a couple of years as both i individuals will need time to adjust and tge system changes for hmrc and employers could be complex and huge.

Best thing to do is to max your contributions while you can. Rather than me repeating this article is quite good:

http://www.telegraph.co.uk/finance/personalfinance/pensions/11961369/Pension-tax-relief-cuts-what-you-need-to-know-and-do.html

Ive not been through your numbers but it looks like you are on this page already

I agree it feels somewhat unfair meddling..... can only hope those with final salary schemes are also somehow taxed equivalently so that the burden doesnt fall entirely in dc people.

How about all those final salary public sector pensions are massively reduced / contributions increased equivalently?

GunJack

Mistermeaner wrote: »

How about all those final salary public sector pensions are massively reduced / contributions increased equivalently?

they already have changed them to the detriment of the members....even less incentive to join the CS or public sector these days

EdSwippet

A couple of thoughts.

Pay very close attention to 'pension input periods'. These days many (most?) are aligned with tax years, but it is not always a dead cert. If your plans have odd PIPs you will want to be very careful about checking that both past and future contributions fall into the expected tax years.

The £80k 2015/16 'nuance' is, briefly: you have an £80k allowance for Apr to Jul, and £80k less whatever you contributed in Apr to Jul for the rest of the tax year, Jul to Apr, subject to a £40k limit. In practice this would mean that if your PIPs align with tax years and if you made pension contributions of less than £40k between Apr and the Jul budget, then you have a further £40k allowance between Jul and Apr.

How useful this £80k bump is depends on how much you happened to contribute to pensions between Apr and Jul. This is yet another 'lottery' aspect to the whole thing. Some people like to front-load their pensions, so they win here, while others who wait until the year end to be certain of their earnings lose the chance of this second bite at the cherry.

Triumph13

EdSwippet wrote: »

you have an £80k allowance for Apr to Jul, and £80k less whatever you contributed in Apr to Jul for the rest of the tax year, Jul to Apr, subject to a £40k limit.

Slight typo there I believe - that first £80k should be a £40k


On a separate note, much as I too feel thoroughly shafted by the changes to AA, LTA and probably higher rate relief (and I am very open to arguments based on the morality of taxation, income deferral and who's money it is in the first place), I am still amazed when anyone earning a six figure salary believes that there is a need for the government to incentivise them to make provision for their old age!

kidmugsy

"so unfair!!" And you claim to be thirty-five. God spare us.

EdSwippet

Triumph13 wrote: »

Slight typo there I believe - that first £80k should be a £40k

Not according to the Govt's transition notes:

"Everyone will have a total annual allowance of £80,000 for 2015 to 2016, plus any available carry forward. Individuals will then have an allowance of up to £40,000 for post-Budget savings plus remaining carry forward from 2014 to 2015, 2013 to 2014 or 2012 to 2013."

Of course, unless you've managed to put more than £40k into a pension in the first three months of the tax year it's a distinction without a difference.

Thrugelmir

kidmugsy wrote: »

"so unfair!!" And you claim to be thirty-five. God spare us.

Sad sad reflection of the world today. Many people I have known haven't even reached retirement or enjoyed very little time retired. Little one can say.

Triumph13

EdSwippet wrote: »

Not according to the Govt's transition notes:

"Everyone will have a total annual allowance of £80,000 for 2015 to 2016, plus any available carry forward. Individuals will then have an allowance of up to £40,000 for post-Budget savings plus remaining carry forward from 2014 to 2015, 2013 to 2014 or 2012 to 2013."

Of course, unless you've managed to put more than £40k into a pension in the first three months of the tax year it's a distinction without a difference.

Thanks Ed, I had misunderstood that one. I have to admit I can't understand why on earth they would give an allowance for the short period that was twice the allowance for a normal year?

Youngpensionsaver

Many thanks for that link, very informative.

Youngpensionsaver

Thanks Ed. as I said, rather nuanced any more typical of old labour's complexities.