How to buy additional pension with TPS

pantaiema

I am currently 55 and I plan to retire at the age of 65 or even 67if it is still possible.

My pension is with TPS and currently on 51k salary. I wanted to buy additional pension to bring down the tax I am currently paying to basic rate.

How could I do that. Is buying AVC a good idea?
On TPS is AVC the same with buying additional pension. I have seen from TPS website there is a tab to buy additional pension but but they only allow me to buy up to 6.6k is that correct?

Thank u for help and sharing info

OldBeanz

You are correct about the maximum extra pension that you can acquire in the TPS. To work out whether this is good value you would have to go to their calculator and input the relevant amounts. They tend to give value for money especially if using up your higher rate tax and you are unlikely to pay HRT in retirement.
The AVC is an investment so the value can go down as well as up in line with your investments. You will not be penalised if you draw this early which tends to be its main benefit.

jem16

pantaiema wrote: »

On TPS is AVC the same with buying additional pension.

It's not the same thing.

With Additional Pension you are buying a guaranteed amount of pension in just the same way as your main pension. It will be index linked from when you purchase it. However it would also be actuarially reduced if you take it earlier than normal retirement age.

AVCs are invested in Funds with a pension provider like the Prudential. Their value can go up or down according to the market. You can take them at any point from age 55.

The other alternative is to use a PP/SIPP that will allow more flexibility in that you could use the pot to fund an earlier retirement until your main pension kicks in.

Which is better for you depends on when you want to retire and your attitude to risk.

pantaiema

Thanks to both of you. So if AVC is not the same with buying additional pension. Which one you recommend in my case?

Buying additional pension or buying AVC or both? I am considering myself as medium risk taker.

At the moment I am not fancy of doing tax assessment which I have read, is needed if we subscribe to SIPP. So my plan is put it into AVC and or additional pension and then later move it to SIPP. Am I correct that I do not need to do self assessment if I am doing this?

OldBeanz

Obviously no one on here can recommend anything but the advantage of an AVC is it lets you drop your hours or retire early otherwise I would be thinking of added pension given increasing inflation, the uncertainties of Brexit and potentially a Trotskyite Labour government.

OldBeanz

If paying into an AVC or additional pension the tax will be dealt with by your pay system, so no requirement self assessment.

jem16

pantaiema wrote: »

Thanks to both of you. So if AVC is not the same with buying additional pension. Which one you recommend in my case?

Buying additional pension or buying AVC or both? I am considering myself as medium risk taker.

We can’t really help you with that I’m afraid. I laid out the pros and cons of each.

At the moment I am not fancy of doing tax assessment which I have read, is needed if we subscribe to SIPP. So my plan is put it into AVC and or additional pension and then later move it to SIPP. Am I correct that I do not need to do self assessment if I am doing this?

You don’t need to do a tax return just because you’re making contributions to a SIPP. You simply phone up HMRC and tell them how much you plan to contribute and they will adjust your tax code to give you the tax relief.

pantaiema

Thanks again.
Is it possible to do the following:
- purchase Additional pension (APC) £300 a month continuously until my NPA of 67.
- in addition to it, I will also purchase AVC to bring down my Income to basic rate.
- Thereafter I move AVC to SIPP. or I might go directly to SIPP?

How easy it is to get 40% added to the SIPP once we call the HMRC?

jem16

pantaiema wrote: »

Thanks again.
Is it possible to do the following:
- purchase Additional pension (APC) £300 a month continuously until my NPA of 67.
- in addition to it, I will also purchase AVC to bring down my Income to basic rate.
- Thereafter I move AVC to SIPP. or I might go directly to SIPP?

You can do all of that. Have you used the calculator to find out how much the Additional Pension will cost you?

How easy it is to get 40% added to the SIPP once we call the HMRC?

The whole 40% doesn’t get added to the SIPP. Any gross payment you make will be uplifted by the basic rate tax relief. The additional 20% tax relief comes as a tax rebate.

The easiest way to do it is to work out the gross amount you would want to have in the SIPP. You then pay 80% of that into the SIPP and the provider will apply the tax relief. You then tell HMRC what your gross payment is and they will adjust your tax code to give the other 20% relief.

So for example if you wanted £1000 in the SIPP, then pay in £800. Tell HMRC you have made a gross payment of £1000 and you will then get the other £200 back through paying that much less tax. So your £1000 Payment has ended up costing £600.

pantaiema

Hi Jem
Yes, I have used the flexibility calculator on TPS website. If I put £310 a month for 11years it will cost me £40,920.

For this I will get an extra of £2,500 a year on the top of my occupational pension after my NPA which is 67. So it will not break even until 16.368 years. At that time I am already over 83. It seems not worthy at all. Did I miss something here?

jem16

pantaiema wrote: »

Hi Jem
Yes, I have used the flexibility calculator on TPS website. If I put £310 a month for 11years it will cost me £40,920.

That £310pm will only cost you £186pm though with tax relief.

For this I will get an extra of £2,500 a year on the top of my occupational pension after my NPA which is 67. So it will not break even until 16.368 years. At that time I am already over 83. It seems not worthy at all. Did I miss something here?

You haven't taken index-linking into account. It will start from when you start paying so will be more than £2500 when you get it and will continue to increase.