Advice re last-minute pre-budget lump sum / monthly contributions?

borborygmous

I just woke up and realised what the situation is with the potential reduction to pension tax relief. I'm a higher rate taxpayer and am not currently contributing (I realise that is a bad idea).

If I can I would like to start making regular payments before March 16th, and also make a lump sum contribution (for anybody reading a previous post of mine: the lump sum is not from remortgaging). The desire to start regular payments is in case of possible phasing-in rules capping regular contributions at present levels. Obviously, assuming it is even possible to do either in time for the 16th, I don't have much time at this point to plan. As it happens my regular payday falls after the 16th, and whether a "regular" payment before then counts as such will depend on what is announced on the day, so of course I understand that nobody can tell me that.

Any advice?

(Other than to generally pay attention and get a grip, which would be fair...)

Some specific questions in my mind at the moment -- I will be making phone calls and speaking to people of course, but any pointers are appreciated:

1. Lack of planning means that, though I have a stakeholder pension scheme from my previous employer, I have not recently put any thought into what specific investments I should make. Presumably I could open a new SIPP just as a means of holding cash in a pension and then later transfer it to either my existing pension or a different one? Pros / cons?

2. If my employer cannot make either regular or lump sum contributions in time via that route, Am I correct in thinking I can make a contribution directly and then reclaim tax to an equivalent level (as if I had done it directly through my employer)? If so, is that likely to result in complications, for example needing to complete a full tax return?

3. Any suggestions re actions I can suggest to my employer to help them start "regular contributions" (in some sense!) before the usual payroll, without creating a lot of work for them?


Thank you

bowlhead99

borborygmous wrote: »

The desire to start regular payments is in case of possible phasing-in rules capping regular contributions at present levels. Obviously, assuming it is even possible to do either in time for the 16th, I don't have much time at this point to plan. As it happens my regular payday falls after the 16th, and whether a "regular" payment before then counts as such will depend on what is announced on the day, so of course I understand that nobody can tell me that.

Any advice?

(Other than to generally pay attention and get a grip, which would be fair...)

Yes, "get a grip" is fair.
Firstly, the idea that someone making 'regular contributions' can just go ahead and keep taking a tax break while someone else who was not would be denied a tax break, is laughable. It is never going to happen. What is your pattern of making contributions that you want to preserve? You put money in a pot every month and get tax relief so you can keep doing it, but I can't? That's not how tax law works.

Also, what are the amounts involved? Say you make a contribution in the next two weeks of £1000. Oh, in the 2015/16 tax year 'borborygmous' contributed £1000 to a pension? Well, seems fair to let him contribute at least £1000 to his pension every tax year with 40% tax relief for the forseeable future even if nobody else is allowed that. We wish him well with his £10k at the end of a decade.

Thirdly, the idea that if that ludicrous concept were to come in as a new rule, you could somehow establish a pattern of "making monthly contributions" before March 16... There is two weeks left. What, you're going to pay every single month, for two weeks? How can you possibly say "look at this historic record, i have been paying every month!". It pulls the wool over the eyes of precisely nobody. The answer is "Shut up, you have paid once. Ever."

1. Lack of planning means that, though I have a stakeholder pension scheme from my previous employer, I have not recently put any thought into what specific investments I should make. Presumably I could open a new SIPP just as a means of holding cash in a pension and then later transfer it to either my existing pension or a different one? Pros / cons?

You could put cash into your existing stakeholder pension and transfer it later, or keep it You could put money into a new SIPP and transfer it later. You could put money into a new SIPP and decide to keep the SIPP but still not actually buy any investments within the SIPP for months or years. If your goal is simply to make a contribution that qualifies for tax relief, it doesn't matter what you do.

But the idea that the Chancellor is going to suddenly split the current tax year and say that a contribution from April 6 to March 16 gets 40% tax relief and a contribution from March 16 to April 5 gets lower tax relief is a joke.

Maybe they will tweak the maximum you can contribute, although they already did that this year. Under those transitional arrangements for the very highest earners who will ultimately get a restriction to how much they can put in per year, they actually did a one off increase by saying you can have what you put in before x date under the old rules AND you can put in a full year's contribution under the new rules, so some people will be able to put in almost £80k this year - almost doubling the amount for some people - because they didn't want to be accused of taking something away mid way through a tax year because it was politically unacceptable.

So the idea that they are going to be so desperate for cash that they are going to say, right, we are stopping this from *today* because we can't wait two weeks for the end of the tax year and would prefer to have a massive administrative headache for HMRC and all taxpayers, is frankly ridiculous.

Anyhow, something tells me you are not proposing to put an entire year's maximum contribution of £40k in during the next fortnight. So whatever amount you can afford to put in, can be done by the end of the tax year.

SIPPs are cheap(ish) DIY tax wrappers which can hold 10,000 different investments. Most people don't need the choice or flexibility of 10,000 different investments and would be happy with just a 'normal' personal pension. However SIPPs are the ones that have got the most popular in the 'DIY' market without advice because the idea of someone running a tax wrapper for your and you just throw money into it and buy things (like you could with a self-select ISA) is quite straightforward, as a concept.

So, it you are not sure what you want, open a cheap SIPP which does not charge much in terms of fixed fees and does not have large 'transfer out' charges. There are loads of them about.

2. If my employer cannot make either regular or lump sum contributions in time via that route, Am I correct in thinking I can make a contribution directly and then reclaim tax to an equivalent level (as if I had done it directly through my employer)? If so, is that likely to result in complications, for example needing to complete a full tax return?

If you put the money in privately, for every £80 you put in, the pension company will go and claim £20 to make it up to £100 - basic rate tax relief. You then tell HMRC you have done this (does not need to be a full tax return if you don't have other stuff to disclose) and HMRC say OK, you put in £80 to buy that £100 investment but with higher rate relief it should have cost you £60 net, so we will write you a cheque for £20, or adjust your tax code for next year.

3. Any suggestions re actions I can suggest to my employer to help them start "regular contributions" (in some sense!) before the usual payroll, without creating a lot of work for them?

I don't know if your company already has a pension scheme and you just haven't joined, or it doesn't have one at all? I can guarantee that if it does have a standard pension scheme for all employees they are not going to admit you to the scheme AND make a contribution before 16 March before we even get to payroll. Not going to happen.

Setting aside the ridiculous notion that the government is going to treat 'regular contributions' differently to irregular contributions... or that if you had a regular contribution you would be able to keep it going for the rest of the tax year which is some sort of advantage when there are zero more months in the tax year after March anyhow... or that you can create a pattern of 'regular contributions' by making one payment, once....

You say you don't want to create a lot of work for them? As someone who has run a business I can tell you that urgently creating a pension scheme for someone and making a contribution in a two week window outside of normal payroll is a whole bunch of admin that nobody in HR or Finance has got time for. Especially if it is just to help you save a few pounds of tax by making a contribution before some fake deadline because you are nervous about tax rules. It is a joke, and a self-respecting boss would fire you for wasting their time by even suggesting it.

If there is a pension scheme at work, join it. There is likely some kind of contribution from the employer which you don't get if you don't join, which is free money. So it is a good thing to be in. But if you join for March and payroll is not till the end of March your money will not be with the pension company by 16 March.

If there is not a pension scheme at work yet, then the only way they would put money into a scheme for you is by contributing to your private pension. As they are already paying you all the money they want to pay you as salary, the only way they can afford to put money into your private pension is by formally reducing your salary with a bunch of paperwork. Maybe they will let you do that (it is called salary sacrifice and saves both you and them some national insurance because the salary is officially lower). But still, getting cash sent to your pension provider ahead of payroll amounts to paying you early, so I can't see why they would do that.

Bottom line, if you are worried about this fake urgency to put money into a pension by 16 March, deal with it yourself by making your own private arrangement to put money into a pension by 16 March.

The pension companies love uncertainty about the removal of limits so will all be saying "make sure you give us your money and lock it up for 30 years so we can start charging you fees on it by 16 March, because you never know what will happen after that, maybe something will change with immediate effect and there will be more tax to pay". It is a sales tactic which amounts to a scam, but they will get away after the fact when no legislation changed by innocently saying "well, it was better to be on the safe side". Yes, better for them.

borborygmous

I try to avoid meta comments and stick to the subject at hand, but I'll make one here: Where is the anger coming from, bowlhead? That's quite an essay, and though some is helpful advice which I genuinely appreciate, thanks - too much of it is unneeded speculation, together with what I think I am restrained in calling exaggeration of what I wrote. Please calm down a little. You might consider delaying a few hours or a day before posting where you feel strongly, to improve the tone of your reply - I find that useful sometimes.

OK, enough of that!

bowlhead99 wrote: »

Yes, "get a grip" is fair.
Firstly, the idea that someone making 'regular contributions' can just go ahead and keep taking a tax break while someone else who was not would be denied a tax break, is laughable. It is never going to happen. What is your pattern of making contributions that you want to preserve? You put money in a pot every month and get tax relief so you can keep doing it, but I can't? That's not how tax law works.

I don't know for sure what George Osborne will do, and I think you don't either, though you are likely much better informed than I am.

The suggestion that there may be some fudge along these lines to "soften the blow" does not originate with me, as you appear to assume. Instead, I am reacting here to another commenter's guesses about likely fudges.

Also, what are the amounts involved? Say you make a contribution in the next two weeks of £1000. Oh, in the 2015/16 tax year 'borborygmous' contributed £1000 to a pension? Well, seems fair to let him contribute at least £1000 to his pension every tax year with 40% tax relief for the forseeable future even if nobody else is allowed that. We wish him well with his £10k at the end of a decade.

Though you begin with a question, this appears to be essentially speculation about my circumstances and exaggeration of the point I made about possible "softening the blow", followed by anger (at Osborne? at me? why?) in reaction to your own speculation.

Thirdly, the idea that if that ludicrous concept were to come in as a new rule, you could somehow establish a pattern of "making monthly contributions" before March 16... There is two weeks left. What, you're going to pay every single month, for two weeks? How can you possibly say "look at this historic record, i have been paying every month!". It pulls the wool over the eyes of precisely nobody. The answer is "Shut up, you have paid once. Ever."

Here is a possible rule: if there is an existing arrangement to pay monthly, that arrangement may remain in place and earn tax relief at the old levels for a period of one year (from April 2016 to April 2017).

I'm not really in the business myself of guessing whether that it a plausible rule, just reacting to others' guesses about that here. I welcome your contribution to that.

You could put cash into your existing stakeholder pension and transfer it later, or keep it You could put money into a new SIPP and transfer it later. You could put money into a new SIPP and decide to keep the SIPP but still not actually buy any investments within the SIPP for months or years. If your goal is simply to make a contribution that qualifies for tax relief, it doesn't matter what you do.

That's a helpful response, thank you!

But the idea that the Chancellor is going to suddenly split the current tax year and say that a contribution from April 6 to March 16 gets 40% tax relief and a contribution from March 16 to April 5 gets lower tax relief is a joke.

That was not the guess that I was (in part) responding to here. See above ('Here is a possible rule').

Maybe they will tweak the maximum you can contribute, although they already did that this year. Under those transitional arrangements for the very highest earners who will ultimately get a restriction to how much they can put in per year, they actually did a one off increase by saying you can have what you put in before x date under the old rules AND you can put in a full year's contribution under the new rules, so some people will be able to put in almost £80k this year - almost doubling the amount for some people - because they didn't want to be accused of taking something away mid way through a tax year because it was politically unacceptable.

The maximum contribution is not the subject of my question, but I see that you make this point to support the idea that a rule about existing contributions is impractical or unlikely: fair enough.

To myself as a tax layperson, that argument does not seem compelling, because the tax system is in fact a fairly complicated system of rules. Frankly, I don't think I have anything to contribute to that debate, but perhaps you can now understand what's behind my question better.

So the idea that they are going to be so desperate for cash that they are going to say, right, we are stopping this from *today* because we can't wait two weeks for the end of the tax year and would prefer to have a massive administrative headache for HMRC and all taxpayers, is frankly ridiculous.

Anyhow, something tells me you are not proposing to put an entire year's maximum contribution of £40k in during the next fortnight. So whatever amount you can afford to put in, can be done by the end of the tax year.

Correct. But there is another matter: what I can afford to put in next tax year. That is what motivates the speculation about monthly contributions that I responded to.

SIPPs are cheap(ish) DIY tax wrappers which can hold 10,000 different investments. Most people don't need the choice or flexibility of 10,000 different investments and would be happy with just a 'normal' personal pension. However SIPPs are the ones that have got the most popular in the 'DIY' market without advice because the idea of someone running a tax wrapper for your and you just throw money into it and buy things (like you could with a self-select ISA) is quite straightforward, as a concept.

So, it you are not sure what you want, open a cheap SIPP which does not charge much in terms of fixed fees and does not have large 'transfer out' charges. There are loads of them about.

If you put the money in privately, for every £80 you put in, the pension company will go and claim £20 to make it up to £100 - basic rate tax relief. You then tell HMRC you have done this (does not need to be a full tax return if you don't have other stuff to disclose) and HMRC say OK, you put in £80 to buy that £100 investment but with higher rate relief it should have cost you £60 net, so we will write you a cheque for £20, or adjust your tax code for next year.

More helpful information, thank you.

I don't know if your company already has a pension scheme and you just haven't joined, or it doesn't have one at all? I can guarantee that if it does have a standard pension scheme for all employees they are not going to admit you to the scheme AND make a contribution before 16 March before we even get to payroll. Not going to happen.

Yes, I think you're right! I thought no harm in asking anyway... In fact my question here was about what I see from your reply is called salary sacrifice, not admission to a pension scheme, but I think the answer is still the same.

As it happens, my employer does not have a company pension scheme. I had thought that my employer would still be involved in contributions, but I think they do not offer salary sacrifice at present.

Setting aside the ridiculous notion that the government is going to treat 'regular contributions' differently to irregular contributions... or that if you had a regular contribution you would be able to keep it going for the rest of the tax year which is some sort of advantage when there are zero more months in the tax year after March anyhow... or that you can create a pattern of 'regular contributions' by making one payment, once....

This is a misunderstanding. See responses above.

You say you don't want to create a lot of work for them? As someone who has run a business I can tell you that urgently creating a pension scheme for someone and making a contribution in a two week window outside of normal payroll is a whole bunch of admin that nobody in HR or Finance has got time for. Especially if it is just to help you save a few pounds of tax by making a contribution before some fake deadline because you are nervous about tax rules. It is a joke, and a self-respecting boss would fire you for wasting their time by even suggesting it.

Oh, nice. Again, not sure what appropriate response can be made to that, except that I'm sure your (ex?) employees love and respect you very much...

Taking you seriously: No. It is a reasonable question for an employee to ask (the one I actually would ask, not "I demand you urgently create a pension scheme"), because most employees are not expert in financial matters, and it's normally considered part of the job of e.g. HR to answer such questions. Most employees and employers are capable of civilly asking and answering such questions.

If there is a pension scheme at work, join it. There is likely some kind of contribution from the employer which you don't get if you don't join, which is free money. So it is a good thing to be in. But if you join for March and payroll is not till the end of March your money will not be with the pension company by 16 March.

If there is not a pension scheme at work yet, then the only way they would put money into a scheme for you is by contributing to your private pension. As they are already paying you all the money they want to pay you as salary, the only way they can afford to put money into your private pension is by formally reducing your salary with a bunch of paperwork. Maybe they will let you do that (it is called salary sacrifice and saves both you and them some national insurance because the salary is officially lower). But still, getting cash sent to your pension provider ahead of payroll amounts to paying you early, so I can't see why they would do that.

Here, you speculate that I want them to contribute extra money (not the case).

Bottom line, if you are worried about this fake urgency to put money into a pension by 16 March, deal with it yourself by making your own private arrangement to put money into a pension by 16 March.

The pension companies love uncertainty about the removal of limits so will all be saying "make sure you give us your money and lock it up for 30 years so we can start charging you fees on it by 16 March, because you never know what will happen after that, maybe something will change with immediate effect and there will be more tax to pay". It is a sales tactic which amounts to a scam, but they will get away after the fact when no legislation changed by innocently saying "well, it was better to be on the safe side". Yes, better for them.

A very reasonable point! On the other hand, I think the truth is that none of us really knows what the chancellor will announce until he announces it.

Thanks again for the helpful parts of your reply, I appreciate it, and I think you've already answered all my questions.

bowlhead99

borborygmous wrote: »

I try to avoid meta comments and stick to the subject at hand, but I'll make one here: Where is the anger coming from, bowlhead? That's quite an essay, and though some is helpful advice which I genuinely appreciate, thanks - too much of it is unneeded speculation, together with what I think I am restrained in calling exaggeration of what I wrote.

There is no anger.

There is some speculation, as is often the case when a poster doesn't give us enough information to go on.

For example, the amount of money you are considering contributing pre 16 March, post 16 March, and in 2016/17 and beyond, are not mentioned. You don't mention whether your company even offers a pension scheme to which they could admit you, and yet one of your questions is are asking whether there is a way they could start making regular pension contributions before payroll date without causing themselves hassle. And the variety of reasons you might want to put money into a pension pre March 16 are really known only to yourself, because there are no hard facts about how pension change might happen, only speculation, and presumably you have bought into some of it not all of it.

For example, you have now clarified that you are not concerned with the media speculation of a potential reduction to this year's maximum allowance of £40k. And that your reason for wanting to establish a pattern of contributing pre 16 March in the current tax year is not to be allowed to continue to contribute post 16 March in the current tax year with the same rate of relief... but in the next tax year instead.

Based on previous implementation of tax changes I have not seen an example where the rule was: "if you've got into a habit of taking tax relief every month, before budget day, feel free to keep taking it after budget day and all through an entirely new tax year, but if you're not used to taking the tax relief then it's not available". To me it sounds like one of the least credible ways that the tax rules might change, and not one to focus on, so your own suggestion to tell you to get a grip and not be worried about this, is quite reasonable.

Please calm down a little. You might consider delaying a few hours or a day before posting where you feel strongly, to improve the tone of your reply - I find that useful sometimes.

Thanks for the idea. I'm not a customer service department keen to improve my tone. It is the type of thing I could reply to while having time to kill on a train, but is not something I'm going to interrupt my working day for and if I had waited a day until your post was not at the top of the pile of threads on the board I would not have bothered to look at it at all, like the thousands of other forum users who gave you zero responses between them.

It seemed like you needed an urgent answer as there were only 15 days for you to complete all your planning and account opening documentation and move your cash or your employer's cash before you hit the self-imposed deadline to act.

Though you begin with a question, this appears to be essentially speculation about my circumstances and exaggeration of the point I made about possible "softening the blow", followed by anger (at Osborne? at me? why?) in reaction to your own speculation.

Speculation about your circumstances is necessary when you haven't given us all your circumstances because you didn't want to write a long detailed essay yourself. Your contention was that if you somehow sneaked a contribution in before March 16 - I don't know what is reasonable for your circumstances and monthly salary: £50, £1000? - you would be able to do this for other tax years usefully into the future. When HMRC looks at your historic precedent of making a grand total of £50 or £1000 pension contributions out of the £40k annual limit for 2015/16, it is unlikely to think that you need special treatment for 2016/17 or beyond and a 'transitional arrangement' to soften your personal blow.

So it is not really an exaggeration, just trying to focus the mind on how unlikely this looks to an outsider as a way of 'gaming the system' to get yourself a tax advantage by acting by 15 March instead of leaving it to 17 March. Maybe you could call it sarcasm. It's not anger at Osborne nor you.

RickyB2000

Wow, people are getting worked up over all the speculation of budget changes. No one knows what will happen so there seems little point trying to 'play' the system. Like market timing it will probably backfire. I would work out what you want to do this year and next under current rules and get on with it. Try and do it by March 16th sure, why not.

To your specific questions,
1) yes, you can hold cash in a SIPP but usually at 0% interest. You can transfer if the other scheme allows it - watch for charges. You could just keep the SIPP. Or pay into the stakeholder. Or transfer the stakeholder? Look at charges.
2) yes, claim it back from the tax man on tax return
3) employer doesn't have to offer salary sacrifice. In fact they may not want to if the paperwork is greater than the NI saving. They must be small to not have to do workplace pensions yet? Again, I think it is up to them if they want to contribute any of their own money to your pension - if not required by law (workplace pension) or your contract.