Question about 25% lump sum

mark1959

C_Mababejive wrote: »

The tories and indeed others including the misguided and ignorant media continue to chant this rubbish usually including one or all of the following..

middle class
gold plated
final salary

The truth is that there are plenty of ordinary working men and women who have been paying into FS schemes all their lives and if they had the luxury of retiring at 55, might only draw an annual pension of 15 to 20k. Its hardly a kings ransom isnt it? I wonder how George osbourne would survive on 15-20k pa? but no he and others perpetuate the myth that it is only the so called middle classes living in ruralshire and having holidays in Tuscany who apparently luxuriate with a FS pension.

There are people on benefits who have never done a days work in their lives who gross more than 15-20k pa.

Are there really some people who have never done a days work?

jamesd

talexuser wrote: »

Yes, already drawing state pension.

Then she can get 10.4% on any money she uses to fund deferring her state pension, for life, mostly inheritable by her spouse. Deferring the state pension is one of the best deals around. If she wants a lump sum, just use the money to defer and save or invest the higher income, or only some of it.

A person who is not yet 75 but who is 55 or older can also make gross pension contributions of £3,600 a year to get some nice free money via the tax free lump sum. It's an even better deal when income is well below the personal allowance, like when deferring, because the whole amount might be tax free.

Pretending that she has plenty of unused personal allowance she could pay in £2,880, get basic rate tax relief added to take it up to £3,600 automatically. Then take out all £3,600 tax free, making a gain of £720 a year for as long as she does it and has enough personal allowance available to cover the taxable 75%, £2,500.

If the taxable portion was all taxed at 20% due to none being in the personal allowance range she'd get £2,160 from the taxable 75% plus 900 for the 25% tax free lump sum. Total net of £3,060, so a gain of £180 on the deal.

AnotherJoe

I'm wondering if this loophole may be closed in the budget, eg no more contributions once you've drawn any money. It seems like a crazy loophole to me.

greenglide

I'm wondering if this loophole may be closed in the budget, eg no more contributions once you've drawn any money. It seems like a crazy loophole to me.

It is not a "loophole".

Certain pension schemes "insisted" that people took their pensions at the scheme date, often 60. I am in receipt of an LGPS pension - I left the local government in 1996 and have been in a private sector DB scheme since 2001. The LGPS at that time had no options to defer the pension - it was "take it or leave it" and my private sector schemes at the time were not brilliant so I "needed" to keep contributing and I "needed" to "dispose" of the income I didnt want yet.

The problem is with the tax relief given to people who havent actually paid any tax but this is mainy for low paid, part time staff who have the greatest need.

Sterlingtimes

Deneb wrote: »

https://www.towerswatson.com/en-GB/Insights/IC-Types/Ad-hoc-Point-of-View/Commentary-on-Pensions-Tax-Changes

George Osborne, should he be crowned "Gordon Brown The Second" on Budget Day, may have felt immune from Conservative voters turning to Corbyn, but as the Tower Watson blogger points out unhappy Conservatives may just show there frustration by voting to Leave the EU.

The model suggested here would imply that employer and employee contributions would be subject to Income Tax and National Insurance. That would take many basis rate earners into higher rate tax. It is not mentioned anywhere that the interest and growth is lost on the present untaxed element.

The pain of waiting is getting intense.

littlerock

Re earlier comments, my brother in law moved overseas in his twenties. Worked on low wage in a non EU under developed country until approaching 60 then returned to UK with much younger wife. Now he gets around £2250 per month to keep them both as he is retired and still gets allowance for wife as well although she is of working age. (She does cash in hand work.). He has never worked in the UK and never paid social security. He has no savings and no other income. I don't really understand how he is entitled to anything but assume it is some kind of fudge as otherwise he would be destitute.

greenglide

I don't really understand how he is entitled to anything but assume it is some kind of fudge as otherwise he would be destitute.

A reciprocal agreement with the country he worked in?

If he moved overseas "in his twenties" did he not work in UK before that? He would have a couple of years contributions from then.

He would possibly qualify for Pension Credit and if his SPa date was before April 2010 he may get ADI for his wife until 6/4/2020 or her SPa date if earlier.

kidmugsy

dunstonh wrote: »

You have enough of a window to act on it before the end of the tax year as long as you get the forms now and have them ready to post.

Wouldn't that depend on the provider? My memory is that if you instructed Hargreaves Lansdown to act on, say, March 17th, they would not normally get the money to you until April. It would certainly be worth checking.

kidmugsy

littlerock wrote: »

I don't really understand how he is entitled to anything

Because long ago the postwar government decided to reform the existing welfare state into one that made handouts to people who had paid no money in. It was a conscious choice, made against the recommendation of the great expert of those days, Beveridge.

I imagine that the motive was the usual one of buying votes.

dunstonh

kidmugsy wrote: »

Wouldn't that depend on the provider? My memory is that if you instructed Hargreaves Lansdown to act on, say, March 17th, they would not normally get the money to you until April. It would certainly be worth checking.

Good point. A slow provider could require more time.