Redundancy, inheritance and no mortgage. How to invest?

RoundTheBend

I didn't know that, thanks. This is why asking questions on internet forums is so useful compared to just searching the internet.

I guess as I was made redundant in March it means that for the current tax year I have no earnings. At least I could add the 2880 you mention. Not much but it all adds up in the end.

atush

Well as you were a member of a work pension in the previous 3 years you may be still able to use carry forward.

Easiest way to boost retirement savings, as every 80 you put in becomes 100.

RoundTheBend

I'm always slightly confused when talking about pensions.I know I really should understand them more but I've always just paid whatever I needed to get the full company coverage out of them and pretty much ignored everything else. Although I did pay AVC's for a while until I was told they weren't worth doing so dropped back down to the 12%(mine+company top up).

I have 2 work pensions (both presumably locked now I don't work for them), the gov pension and a small personal pension back from when I was 19 with very little in it.
The missing 6 years NI to get full state pension is something I can ignore for now (I expect to work for at least 6 years before I retire).

The problem now is working out what the carry forward would be and who to pay it to (gov or private pension). I would probably need to get an IFA or accountant to help for that.

Audaxer

RoundTheBend wrote: »

I'm currently leaning towards putting 80% of the money into the vanguardinvestor.co.uk LifeStrategy funds for now (maybe split it 50:50 between a high and low risk fund). the thinking is that once it is in there I can then concentrate on other things in life for the moment and come back to this later when I have had time to work out/learn what I want to do with it (maybe even leaving it as it is). The remaining 20% will be just kept in cash while I sort out what I'm going to do work wise (I'm currently planning on taking some time out for a few months).
The cost of the fund looks cheap but I haven't yet been able to find what charges there are for retrieving the funds if I decide to move some money to elsewhere in 6 or 12 months time.

If you need to get money out of a Vanguard Lifestrategy fund, you would need to just sell some units - you may have to pay a dealing charge, possibly up to £12.50 depending what investment platform your VLS fund is with. You can have a VLS fund through various investment platforms, not just Vanguard.

stoozie1

Atush, sorry to interrupt, but I thought you could only use carry forward once you had contributed 40k in a given year, rather than in nil earnings years using previous year's earnings?

bigadaj

atush wrote: »

This isnt true. Taxed income put into a pension gets the tax back. So you could put more into a pension, up to your full earned income less any current pension contributions in the tax year concerned. Once you have used up the carry forward allowance, you could continue to put in 2880 per year, which the govt adds tax relief to make it 3600.

But you can't claim tax back on pension contributions from a previous tax year, which is the case here.

atush

bigadaj wrote: »

But you can't claim tax back on pension contributions from a previous tax year, which is the case here.

carry Forward

bowlhead99

atush wrote: »

carry Forward

Basically I assume what you are saying is that once the person starts working again - he has not worked since getting made redundant in 2016/17 and serving out his garden leave period ended in March this year - he will be able to make large pension contributions.

The contributions he can make each tax year will be restricted to the LOWER of A and B

A - on the one hand, his annual contributions allowance ;

B - on the other hand, the greater of £3600 gross and his earnings for the tax year (including the pension contributions paid by his employer (assuming DC))

For A, the annual contributions allowance (assuming he doesn't face a reduced annual contribution allowance for, e.g., having already drawn income from a pension or from earning over £150k in the year and the various small print around those rules) is £40k granted to him for the current year plus whatever carried forward from the previous three years where he didn't use up the full £40k.

For B, if for example he earns £50k this year (including employer pension contributions), the figure is £50k. If he only earns £2k this year the figure is £3600.

So, if he and his employer only contributed £10k a year for last three years between them against an annual allowance of £40k, he has a spare 3x£30k =£90k of carried forward allowance plus £40k for the current year which is £130k total. So, the figure A would be £130k. That's good news if he earns £131k this tax year because then the figure B would be £131k and the lower of A and B would be £130k so he can put all of that huge amount into his pension and get tax relief on it. He would pay no tax on his earnings at all. In fact he would get a bit more tax relief than the income tax he'd even paid..

Or with lower-but-still-comfortable salary, like a salary of £50k a year for the next two or three years, he could easily put all that into a pension and get tax relief on the lot, because the carry forward on top of the standard £40k each year is easily enough to support him paying the while £50k of his earnings.

However, if he only earns £10k or £20k or £30k this tax year, the lower of A and B is £10k or £20k or £30k and that's all he can put into a pension and get relief. Or if he only earns £1k or £2k or £3k, the B is £3600 and that's all he can get into a pension.. In those situations he wouldn't be getting near using his £40k current year contribution allowance so there wouldn't have the opportunity of using a penny of the carried forward allowance. Some of the carried forward allowance would expire unused because it can't be carried forward indefinitely - you can only carry it forward from the prior three tax years at a point in time.

You (Atush) are talking about carrying forward an unused annual allowance from prior years when he was not using up his £40k annual allowances. That means he can probably put loads of income into pension this year if he's actually earning, because even if he earns and contributes over the £40k he can keep going with the contributions, due to all the spare carry forward from prior years. But that's only useful to him if has earnings to support using it.

I'm not sure why you said:

"Once you have used up the carry forward allowance, you could continue to put in 2880 per year, which the govt adds tax relief to make it 3600"?

The using up of the carry forward is not really connected to the £3600 minimum. It is a different leg of the test (my A vs B, above). As you get a new £40k allowance each year, the only way to use up any carry forward is to be contributing over £40k which requires you to be earning over £40k. If you are earning over £40k in a tax year, the £2880 net/£3600 gross is not going to come into it. The £2880/3600 only comes into it if you are earning less than £3600 gross, and if you are earning under £3600 gross you are not going to be able to use up any carry forward allowance, because you don't have the earnings to support it.