55 Conundrum

jamesd

grocerjack wrote: »

Hi jamesd, thanks for this, I've just calculated that my total contribution including my employers is £9750 per annum. I can reduce this to as low as 2% and they will double it. Their cap is 10% contribution even if I pay in 6 or 7%.

OK, so just tell them about the reduced MPAA so you aren't breaking the law any more and they will send you notifications if you go over 10k. It's still worth paying in whatever they will double even with the annual allowance charge because that only takes back the tax relief you got, not any of the employer contribution. So you're way ahead on the deal.

grocerjack wrote: »

I will look at other options aside from an annuity but it's a complex issue with seemingly many different products.

You have plenty of time to learn and it's not really too bad with a little help. For those who want low maintenance it can be no more than two or three tracker funds and a bit of work once a year to follow some drawdown income level planning "rules". Well worth it for the potential to double your income for the same cost!

jamesd

grocerjack wrote: »

On the 'depreciating asset'....well I'm just one of those who doesn't see saving everything and being prudent/austere as really living. We have owned and loved our current mobile and it has given us some of the best holidays and times of our lives. We will do the odd cruise as well, maybe visit other places, but this is more like a second home than a holiday home. On retirement in 10 years or so I will be spending 8 months a year there! And for the rest....well i might just sell up and opt for the Med lifestyle.

Don't worry about it, each of us has to strike our own balance and you have plenty of income and are also planning sufficiently well for the future, particularly with the defined benefit pension.

What some do is put a higher priority on earlier retirement, or potential for it, and adjust accordingly. Always a balance to be struck and each person will have a different balance point.

My guess is that you both lost your personal allowance by going well over 100k income in the tax year and also paid 45% income tax on some of the money so it wasn't particularly efficient compared to doing it over two tax years, but actually doing it isn't a problem, just the possible inefficiency.

You might still have had too much income tax deducted, though. Did you take all of the money in the pot or only some of it? Did you actually file a tax return? Or make any reclaim for overpaid income tax? I'm wondering whether the pension firm might have used just the emergency rules which could have caused it to be required to assume that you were taking the lump sum every month for the remainder of the tax year, potentially greatly over-deducting income tax that you could then reclaim. Knowing just when it happened in the tax year, what tax code they used and the numbers from the payslip and P45 they would have issued would be useful to check this. Same with knowing whether you filed a tax return or not, so maybe that could be checked against what it should have contained. There's the potential of a tax refund of several thousand Pounds if it was the bad case.

atush

grocerjack wrote: »

Thanks for this. On the 'depreciating asset'....well I'm just one of those who doesn't see saving everything and being prudent/austere as really living. We have owned and loved our current mobile and it has given us some of the best holidays and times of our lives. We will do the odd cruise as well, maybe visit other places, but this is more like a second home than a holiday home. On retirement in 10 years or so I will be spending 8 months a year there! And for the rest....well i might just sell up and opt for the Med lifestyle.

Thanks for the comments and as with jamesd i will copy and keep the comments for future reference.

:)

It wasnt so much buying the depreciating asset (we all do this every time we buy a car)

but it was the wasteful tax bill, and the restriction of your ongoing pension allowance, when you could have knocked off all your debt with your 25% TFLS with a load left over.

You lost future allowances, and paid 40% tax on some of your pension, just to buy that asset. Which you didnt need as you already had a mobile home in that lovely area of france that you could holiday in. And $1250 left over for a spruce up of same.

Triumph13

In all this talk of reduced allowances, tax bills and lump sums people are missing the really startling thing about this thread. I didn't realise there was ANYBODY who still shopped in Argos!

grocerjack

I have received the P45 from the provider so I will check, however I'm on 40% tax full stop so my assumption was they'd just wallop me with that. looking at the sums it does look about right, but as you say worth checking. I did take the whole sum, hence the clean start with a new policy.

Thanks again for your help, are you an accountant by chance...you seem very knowledgeable

jamesd wrote: »

Don't worry about it, each of us has to strike our own balance and you have plenty of income and are also planning sufficiently well for the future, particularly with the defined benefit pension.

What some do is put a higher priority on earlier retirement, or potential for it, and adjust accordingly. Always a balance to be struck and each person will have a different balance point.

My guess is that you both lost your personal allowance by going well over 100k income in the tax year and also paid 45% income tax on some of the money so it wasn't particularly efficient compared to doing it over two tax years, but actually doing it isn't a problem, just the possible inefficiency.

You might still have had too much income tax deducted, though. Did you take all of the money in the pot or only some of it? Did you actually file a tax return? Or make any reclaim for overpaid income tax? I'm wondering whether the pension firm might have used just the emergency rules which could have caused it to be required to assume that you were taking the lump sum every month for the remainder of the tax year, potentially greatly over-deducting income tax that you could then reclaim. Knowing just when it happened in the tax year, what tax code they used and the numbers from the payslip and P45 they would have issued would be useful to check this. Same with knowing whether you filed a tax return or not, so maybe that could be checked against what it should have contained. There's the potential of a tax refund of several thousand Pounds if it was the bad case.

grocerjack

Ha ha, yes to my shame...but they do odd bits that are decent. We did get a very good deal on a new TV this year and I did research and price compare, they came top. I'm an online, cashback, research and price comparison shopper for the majority part...the only shop I like to wander around is IKEA! :cool:

Triumph13 wrote: »

In all this talk of reduced allowances, tax bills and lump sums people are missing the really startling thing about this thread. I didn't realise there was ANYBODY who still shopped in Argos!

grocerjack

atush wrote: »

It wasnt so much buying the depreciating asset (we all do this every time we buy a car)

but it was the wasteful tax bill, and the restriction of your ongoing pension allowance, when you could have knocked off all your debt with your 25% TFLS with a load left over.

You lost future allowances, and paid 40% tax on some of your pension, just to buy that asset. Which you didn't need as you already had a mobile home in that lovely area of france that you could holiday in. And $1250 left over for a spruce up of same.

I do see your point, but I'd prepared for the tax bill. I have also got 2 very lucrative share schemes to save into. whichever way I went someone would have disagreed with me. The majority of feedback has been good, both here and in my circle of friends and colleagues and family (some of whom will no doubt be eyeing holidays in France!

The mobile could have been spruced up BUT in France you're tied to the local contractors who are approved to work on the site...a sort of closed shop. You can imagine how expensive everything is! When we emptied the old one out you could see signs of wear and tear on veneers and wall joins. It's been well used and we've had our moneys worth in my view.

However the final green light came from the vouchedfor.com IFA. He said if I was prepared for the hit on tax then there was no issue. As i recall he said about the £10k allowance, but as I'm under that with little or no prospects of a rise that would breach that £10k I'm not worried about any maximum, the position seems the same as before the UFPLS. I took the money, paid the tax and started again. My only remaining concern is if the Pru pension is treated as part of that allowance when all I'm doing is moving provider to put everything in one place. I'll seek advice on that.

My bigger point is that I'm debt free, apart from the lease on the car and the mortgage. It feels bloody brilliant and I should still be pretty Ok come retirement with what I build now added to the DB scheme and the SP. I have around 5 years before my employer would deploy the policy of early retirement to people over 60 instead of redundancy which would suit me as I think we'd be considering downsizing by then. So yes, it was tax inefficient but it's done, I'm smiling, the credit score will be excellent (not that I'm likely to need it) and I now have a single credit card, a single store card (yes I know...Argos!) a bank account for bills and one for personal use and savings. We will continue to micro-manage our finances as we have done since being caught in the debt trap as its very good and even enjoyable discipline, forcing me to think about ways of doing things and getting the best deals. And now we have close to £800 per month to use wisely, at least £200 of which will go into another savings account so we can make an annual overpayment to the mortgage. According to Martin's mortgage calculator this will bring it in 2 years early.

Sorry if my reply was harsh, but I'm actually feeling happy with this action and my plans for the future. Being almost debt free is a very nice feeling. :beer:

atush

Triumph13 wrote: »

In all this talk of reduced allowances, tax bills and lump sums people are missing the really startling thing about this thread. I didn't realise there was ANYBODY who still shopped in Argos!

Well we havent had one for at least 8 years, so no- dont shop there lol

atush

grocerjack wrote: »

I do see your point, but I'd prepared for the tax bill. I have also got 2 very lucrative share schemes to save into. whichever way I went someone would have disagreed with me. The majority of feedback has been good, both here and in my circle of friends and colleagues and family (some of whom will no doubt be eyeing holidays in France!

The mobile could have been spruced up BUT in France you're tied to the local contractors who are approved to work on the site...a sort of closed shop. You can imagine how expensive everything is! When we emptied the old one out you could see signs of wear and tear on veneers and wall joins. It's been well used and we've had our moneys worth in my view.

However the final green light came from the vouchedfor.com IFA. He said if I was prepared for the hit on tax then there was no issue. As i recall he said about the £10k allowance, but as I'm under that with little or no prospects of a rise that would breach that £10k I'm not worried about any maximum, the position seems the same as before the UFPLS. I took the money, paid the tax and started again. My only remaining concern is if the Pru pension is treated as part of that allowance when all I'm doing is moving provider to put everything in one place. I'll seek advice on that.

My bigger point is that I'm debt free, apart from the lease on the car and the mortgage. It feels bloody brilliant and I should still be pretty Ok come retirement with what I build now added to the DB scheme and the SP. I have around 5 years before my employer would deploy the policy of early retirement to people over 60 instead of redundancy which would suit me as I think we'd be considering downsizing by then. So yes, it was tax inefficient but it's done, I'm smiling, the credit score will be excellent (not that I'm likely to need it) and I now have a single credit card, a single store card (yes I know...Argos!) a bank account for bills and one for personal use and savings. We will continue to micro-manage our finances as we have done since being caught in the debt trap as its very good and even enjoyable discipline, forcing me to think about ways of doing things and getting the best deals. And now we have close to £800 per month to use wisely, at least £200 of which will go into another savings account so we can make an annual overpayment to the mortgage. According to Martin's mortgage calculator this will bring it in 2 years early.

Sorry if my reply was harsh, but I'm actually feeling happy with this action and my plans for the future. Being almost debt free is a very nice feeling. :beer:

I am super glad you are happy, but I still say foolish to pay 40% tax on a pension to fund a mobile home.

but dont think i dont understand the attractions of rural france, I own a gite and have done for 25 years. I bought it for the price of a second hand car lol. I'd love to upgrade it, but will wait until I can afford it w/o stripping out our pension.

I feel for you on the having to pay the highest price on tradesmen. The great thing about owning an actual home is you can hire whoever you like. or even do it yourself (the gite is where I learned t tile among other DIY skills lol).

grocerjack

grocerjack wrote: »

Yep i agree, but when the time is right I will re-mortgage on a new deal. For the time being the capital is reducing. I won't get caught again when renewing.

Blimey, went to mortgage provider to see what offers they had, they came straight back with 1.89% for 5 years fixed, no fee. Saving me £350 per month.

So, now it's off to find a vehicle for putting some of that towards an annual overpayment.