The Final Countdown - any advice

enthusiasticsaver

OldBeanz wrote: »

Her LGPS is only paying £450pcm or £5400 pa so she could take the money out gradually ensuring she does not exceed her tax allowance. The starting rate of tax is going up to £12500 meaning that anyone can take £16,600 tax free (or £8,800 in this case). This only became viable post the 2014 review and is ideally suitable for those in DB pensions who are retiring in line with their older spouse.

That is something I could consider. From a tax point of view it is 2026 when my SPA kicks in that I will be pushed into paying tax unless the allowance is raised. I did consider delaying claiming the state pension as I have heard deferring that is worthwhile.

enthusiasticsaver

Wentthedaywell? wrote: »

I'm in a similar position, hoping to retire early (at 60) in the autumn, so will be interested in your replies.

I set up an AVC a couple of years back and am putting the maximum into that each month. I intend to take it all as a tax free lump sum under the older LGPS rules. It's got tax advantages both and out, so an AVC is worth considering for a final savings push.

Will you and your husband get the full state pension? I won't, having been contracted out, so I am going to pay contributions myself until SP. It's certainly well worth while doing so.

Good luck, I look forward to read what replies you get. There are some very knowledgeable people here; I've had better information from this thread than I have from my pensions department.

Yes,doing the AVC is worthwhile and I did this through Prudential as well. I am not planning to draw on this pot initially though. I will get £155 per week state pension and husband will get £165 and yes they are both full state pensions. Neither of our schemes are contracted out. My Barclays one was which I think is why I will get the GMP. Luckily as I only took 2 years out from working when my girls were tiny I have a full working life of contributions.

Triumph13

enthusiasticsaver wrote: »

As I will be a non tax payer prior to me taking the state pension and I don't pay much tax now (only earning around £12.5k) I am not sure how this benefits me? If I put £10k in a SIPP which is something I am considering do I gain anything from this beyond putting it in my usual stocks and shares portfolio(ISA)?

Yes. You gain £2,500.

The reason I suggested a SIPP / PP rather than AVCs is that with an AVC you only get relief from the tax that you would otherwise pay. With a SIPP / PP you can get tax relief on gross contributions up to 100% of your earnings. Even the part that you didn't actually pay any tax on.
You may think that is totally crazy, and I wouldn't disagree with you, but it doesn't stop it being true. We're in a similar position and my wife has been contributing 100% of her salary for the last few years to benefit from this quirk.

enthusiasticsaver

Triumph13 wrote: »

Yes. You gain £2,500.

The reason I suggested a SIPP / PP rather than AVCs is that with an AVC you only get relief from the tax that you would otherwise pay. With a SIPP / PP you can get tax relief on gross contributions up to 100% of your earnings. Even the part that you didn't actually pay any tax on.
You may think that is totally crazy, and I wouldn't disagree with you, but it doesn't stop it being true. We're in a similar position and my wife has been contributing 100% of her salary for the last few years to benefit from this quirk.

That sounds crazy but I have seen a few other people make this suggestion.

Just to be clear. I am at the moment just paying my 6% statutory pension payments into my LGPS. I only earn around £12k so pay very little tax (full NI though). I have a stocks and shares isa through Halifax Share dealing so if I open a personal SIPP with Halifax Share Dealing with an investment in vanguard lifestrategy 60 like my S and S ISA for £10k before April how does the £2500 get added into it? Presumably I could also do the same in May for the following tax year? I am retiring in February 2018 so can only do this for 2 tax years.

Apologies if this is a stupid question but I have only ever done my workplace pension in the past so totally ignorant of private ones.

Linton

The basic rate tax refund into the pension is arranged by the pension company and HMRC. You dont need to do anything.

Yes you can add to your pension each tax year.

AnotherJoe

Linton wrote: »

The basic rate tax refund into the pension is arranged by the pension company and HMRC. You dont need to do anything.

Yes you can add to your pension each tax year.

For my own education, if you earn, gross say £12k, can you put in the full £12k and get the 25% on top? Or can you only put in a bit under £10k which with tax relief added, comes to the £12k?

And then what about the tax relief already being taken for some of the pension contribution as part of OPs current pay?

eg you cannot, if you earn £12k, put in £12k to 3 different SIPPs.

GunJack

plus wont it be less also because of the contributons into lgps/avc??

Triumph13

The amount to contribute is (Gross Salary - Existing Pension Contribution*) x 0.8. So with £12k gross income and 6% pension contributions that would be (12,000 - 720) x 0.8 = £9,024.


You hand your £9k to the PP or SIPP provider and they get HMRC to hand over a £2.2k 'tax rebate' which they add to your pension. Why HMRC do this when you only actually paid £56 in tax in the first place is a mystery, but they do indeed do it.


* Also deduct any AVCs if you are still paying them

enthusiasticsaver

Thanks Triumph that is brilliant. It does in fact sound most strange considering the small amount of tax I pay but claiming it for the 2 tax years I have left seems to make economic sense. I only wish I knew about it a few years ago.

AnotherJoe

Can the OP go back up to 4 years and do the same for the amounts they didn't contribute then?