Maximum Annual Pension Contribution

Laverda3C

Hi,
Am approaching 60 & need to start ensuring that I am best positioned for retirement in the next few years; hopefully at a time I choose!
Looking to leverage the combined wisdom of the community to provide their feedback on the following;
I have some ‘spare’ cash earning next to nothing. The most sensible use of this money seems to be to pay it into a pension purely for the tax relief uplift – is this sensible?
Looked at the rules which state a max contribution of £40K gross, as long as your earnings are higher. How is it measured – last (complete) tax year or current (incomplete) tax year? Have also seen reference to unused allowances; can anybody throw some light on what this is & how it works?
Have an ex-NPI, now Phoenix Life pension payable in the next few months. The pension has done nothing for years & carried a very high MVR so has been left. My plan for this is to take 25% cash & re-invest into my company scheme gaining tax relief & transfer the remaining amount to the same scheme; again is this the optimal approach?
Many thanks.

Linton

Contributions are measured against total earned income over the full current tax year ie the year in which the contributions are made. The annual £40k limit includes employer contribution. I don't know about unused allowances.

Does you NPI pension have any guarantees? Some old pensions have guarantees more valuable than the tax free benefit.

Laverda3C

Thanks.
That is my current understanding on contributions – would topping up a pension be sensible use of funds?
The NPI pension is a section 32 profit share. My feeling is that the only guarantee it provides is a minimum payout value with no GAR. However, it is a similar problem that I have with my multiple ex Scot Am pensions; nobody can or is willing to be specific about what benefits attach to each, though most need to be taken by the end of the year.

greenglide

though most need to be taken by the end of the year.

Is that truly "has to be" or is it really "can be"?

Lots of plans have a "date of retirement" which is only used for producing projections. Some of the older ones with potentially valuable guarantees only give the guarantees at a specific date / age.

You need to read the product documents carefully and if there is a lot of money involved an IFA may be of value?

Laverda3C

Hi Greenglide,
Was only addressing the "has to be" part of my pensions. Also have plenty of "can be" which I plan to keep running as long as needed which is why I want to understand the most efficient way to transfer the "has to be" across the fence to "can be" most efficiently.
Have all my original policy documents, have reviewed them many times but they are still unclear regards potential final bonuses & guarantees as are the company helplines
My aim is to get the best personal understanding of my position then engage an IFA.

xylophone

If you have multiple pensions with various terms and conditions, you might be best advised to get all your papers together and consult an IFA as soon as possible.

http://www.thepfs.org/yourmoney/find-an-adviser/

http://www.pensionsadvisoryservice.org.uk/about-pensions/pension-reform/freedom-and-choice

http://www.pruadviser.co.uk/content/knowledge/technical-centre/pension_switches_transfers/

http://www.pruadviser.co.uk/content/knowledge/technical-centre/annual_allowance/

http://adviser.royallondon.com/pensions/technical-central/information-guidance/contributions-and-tax-relief/recycling-of-tax-free-cash/

Laverda3C

Have 10 separate pensions spread across Prudential, Pru/Scot AM, Standard Life, Scottish Widows, NPI & Aegon. There then is a further set of 6 very small Pru/Scot AM policies created every time I made AVC's back in the 80's. Although small in value I believe that they have some attached benefits and I have never received an annual statement for these unless I call & receive a very variable value. Total pot is around £200K

jamesd

If you want to pay in more than £40,000 in one tax year and earn enough in that tax year you can use the unused part of the £40,000 allowance from the last three tax years, oldest year first. Last year is a special case because there were two allowances with some contributions counting against one of them and some against the other, ask if this actually matters to you.

For each of your money purchase pensions (those with investments like units in them) you should find out whether there are any "guaranteed annuity rates" or "guaranteed minimum pension". Either of those has the potential to be worth more than current open market options. GMP was for money from contracting out of the earnings-related part of the state pension. GAR was for money purchase pensions mainly started before around the year 2000.

Market value reductions can exist but usually won't be taken at whatever maturity age was specified. There can also be terminal bonuses on some older plans. So these are two other things to check for. Markets are broadly at quite high levels at the moment so any MVRs may be quite low.

If a money purchase pension has no guarantees or potential MVR or bonus then it's a candidate for combining with others to simplify things.

Unless there is a GAR or GMP the best value for money to increase your guaranteed income for life is probably deferring the state pension if your health is normal. This produces 5.8% a year inflation-linked increase in state pension, close to twice the open market annuity rate for inflation-linked annuities at normal retirement ages.

Company helplines tend not to be particularly good for old policies. A letter asking these specific questions and any others is likely to get you more reliable results but even that way you should cross-check with the original documents because mistakes do happen.

Laverda3C

Jamesd
Thank you for your comprehensive reply. Have identified the pensions with GAR’s which I fully understand & need to be taken at a specific date at the end of the year. Plan to reinvest the payout into another pension.
Could I just confirm what a GMP is – is it a guaranteed minimum pension amount payable at the elected maturity date?
You also mention terminal bonuses as a consideration. I have 2 main Scot Am pensions that carry GARS & terminal bonuses. These were within a company scheme, then transferred to me personally many years ago. Did some research and none of the Scot Am fund names on the Pru site match those on the original documents. For policies taken out in the years shown they carry TB’s of between 19% & 77%, however the Scot AM helpline says I have a 3.5% TB attached. Feels a bit like smoke & mirrors.
As advised previously in the post I will engage an IFA. Your advice re helplines is useful.
Thanks

xylophone

Are any of these policies S32 plans? These are policies which are likely to have a Guaranteed Minimum Pension.

http://www.financialadvice.net/s32_buy_out_plan/zone/1288

jamesd

Laverda3C wrote: »

Could I just confirm what a GMP is – is it a guaranteed minimum pension amount payable at the elected maturity date?

GMP obliges the scheme to pay an amount that is roughly comparable to what the earnings-related part of the state pension would pay. In effect it's a form of guaranteed annuity rate but with different rules. Even if the investments haven't performed well enough to provide that income, the pension has to provide it anyway.

Laverda3C wrote: »

Did some research and none of the Scot Am fund names on the Pru site match those on the original documents. For policies taken out in the years shown they carry TB’s of between 19% & 77%, however the Scot AM helpline says I have a 3.5% TB attached. Feels a bit like smoke & mirrors.

If you have documentation that disagrees with what they are saying it's worth providing them with a copy and asking them to explain. Not accusatory, just asking them to explain. Bonus rates can be variable and it might be as simple as that.