Isa savings into pension

gnash101

My employer is proposing to close DB scheme and make us deferred members. They are starting a DC scheme which will be linked and I am told the tax free lump sum could be taken from the DC pot thus preserving the DB for more income.

I am 53 and looking to retire at 56, accessing both parts of pension fund. The DB will have an actuarial reduction but I was hoping to boost DC fund with AVC's to compensate.

Would it be a wise move to make lump sum contributions from Isa cash savings to try and maximise AVC payments and tax relief over next 3 years.

AnotherJoe

Most likely yes especially if you are a higher rate tax payer. As long as you are happy that money is tied up fur the next two to three years,

PeacefulWaters

Pretty much my plan.

Fund employer subsidised share schemes > when funds are freed up divert them into DC pension with tax relief > retire early.

I'm currently 48. Work to 55. Draw DC pension down (potentially paying no tax by utilising my tax allowance and the 25% tax free lump sum) and then draw the DB pension at 60 with no actuarial reduction.

If there's anything left in the DC pension I'll probably use it to top up income until state pension age at 67.

mgdavid

Yes; the general consensus is to do everything you can to avoid an actuarial reduction of a DB pension.

gnash101

Appreciate the feedback/opinions

Basic rate taxpayer but feel even with basic rate tax relief, diverting some cash Isa savings into DC pot over next 3 years will far outweigh any return from the Isa's.

Would like to make a few lump sum payments over next couple years, but don't want to have to set up self assessment. Could I just contact Hmrc and would they deal with it over phone.

Thanks

greenglide

If you are a basic rate taxpayer HMRC have no interest in your pension contributions, there is no additional tax relief to claim.

Remaining in cash ISAs at low interest as opposed to pension (in cash?) isnt much difference.

Why are people so afraid of Self Assessment? It is not hard and you might learn something!

gnash101

greenglide wrote: »

If you are a basic rate taxpayer HMRC have no interest in your pension contributions, there is no additional tax relief to claim.

Remaining in cash ISAs at low interest as opposed to pension (in cash?) isnt much difference.

Why are people so afraid of Self Assessment? It is not hard and you might learn something!

If I can draw the whole DC pot in cash in 3 years time and have received 20% addition through tax relief, how does that not beat the measly rates on a cash ISA hands down

ischofie1

Don't forget whilst you're getting 20% relief, you'll still have to pay tax at 20% on 75% of withdrawal. This effectively gives you a gain of only 5%. Still good compared to a cash ISA.
Does the new DC offer inputs via salary sac?
If so you'd be much better off reducing your salary (down to a low as minimum wage) and using your cash ISA money to supplement your day to day living expenses.
That way as a basic rate tax payer you would also gain the NI, IE 13% + 5% = 18% gain.
Much better than lump sum contributions where you'd only effectively get the 5%.

gnash101

The DC pot is linked to the deferred DB fund so as long as the DC pot is no more than 25% of the total fund, when I retire and access my whole pension, the DC pot will be my tax free commencement lump sum.

gnash101

That would mean I was gaining the full 20% or am I missing something.

Company contributing 16% of my salary into DC fund for next 3 years, so that is why I am setting my goal to retire in 3 years to take advantage of this and also try and load it it up with my own contributions.