Some simple (I hope) questions

shinytop

I realise now I should know a lot more about this stuff than I do and am playing a bit of catch up. I’ve concluded from looking at other threads and the replies to my first one that I’m in a reasonably fortunate position due to my and wife’s decent DB pensions. My main aim now is to retire as early as I can but need a few pointers, mainly around how to pay as little tax as I can without going to jail. So, a few more questions, hopefully simple.
(1) My wife is retired, taking an NHS pension (about £10k) and working PT. She’ll stop working within a year. Is it worth setting up a SIPP for her? In understand we could pay in £2880 p.a. Could somebody explain how this works?
(2) I’m currently paying in a lot of my salary to my company DC scheme but not the maximum. I can’t live on any less than I’m taking home now so to pay more I’d have to use taxed (at the higher rate) income – savings or annual bonus. Would this be worth it – e.g. if I put £10k bonus that had already been taxed at 40% in, how would that work?
(3) If I keep paying into my DC scheme it’s likely I’ll breach the LTA; not by much, depending on performance, maybe £0-100k. I assume the best solution is just to keep an eye on the projections and just divert money somewhere else – ISAs, equities, fast cars, holidays or whatever
(4) Wife does not have full SP due to NHS scheme and contracting out. I don’t yet have a projection for her (working on it) but is it normally worth topping this up?

That’s it for now. I will see an IFA but want to be a bit more informed before I do.

dunstonh

Is it worth setting up a SIPP for her? In understand we could pay in £2880 p.a. Could somebody explain how this works?

If a pension (rather than SIPP at this stage) is suitable and meets the objectives then yes. If not, then no. Why is she limited to £2880? The non-earner limit is £3600 gross but for earners, they can go to 100% of gross income. i.e. if she is earning £5k a year then she can pay in £5k.

(2) I’m currently paying in a lot of my salary to my company DC scheme but not the maximum. I can’t live on any less than I’m taking home now so to pay more I’d have to use taxed (at the higher rate) income – savings or annual bonus. Would this be worth it – e.g. if I put £10k bonus that had already been taxed at 40% in, how would that work?

What do you mean by maximum? £40k annual allowance plus the last three years unused allowance under carry forward? or do you mean maximum of employer matching?

If you cant afford to take home less, how are you going to take home more to pay for the pension contribution? Or are you suggesting reducing the amount you pay into the workplace pension to pay into an individual pension instead? That would just be moving deck chairs around. Although it could be worse if the employer scheme is salary sacrifice as it would increase the NI you pay.

(3) If I keep paying into my DC scheme it’s likely I’ll breach the LTA; not by much, depending on performance, maybe £0-100k. I assume the best solution is just to keep an eye on the projections and just divert money somewhere else – ISAs, equities, fast cars, holidays or whatever

If you are close on first test of LTA, how are you going to be on second test? often people just focus on first test and forget about the second one.

(4) Wife does not have full SP due to NHS scheme and contracting out. I don’t yet have a projection for her (working on it) but is it normally worth topping this up?

Get the figures first before looking at hypotheticals.

OldMusicGuy

Re 2, if you pay tax at 40% then you claim back tax from any pension contributions at 40%. I used to make lump sum contributions into my SIPP from my bonus which were not matched by the company or put through payroll. If you do that, the SIPP provider credits you with 20% when you make then lump sum contribution and you can then claim back the additional 20% through your tax return.

Dox

kevfm wrote: »

(4) Wife does not have full SP due to NHS scheme and contracting out. I don’t yet have a projection for her (working on it) but is it normally worth topping this up?

Takes less than a minute, immediate answer: https://www.gov.uk/check-state-pension

atush

OldMusicGuy wrote: »

Re 2, if you pay tax at 40% then you claim back tax from any pension contributions at 40%. I used to make lump sum contributions into my SIPP from my bonus which were not matched by the company or put through payroll. If you do that, the SIPP provider credits you with 20% when you make then lump sum contribution and you can then claim back the additional 20% through your tax return.

You dont even have to use a return. Just call HMRC and they will either send you a cheque or adjust your tax code to take less tax out.

Basically, if you have HRT income that youc an py into a pension, 100 into the pension is only going to cost you 60.

coyrls

dunstonh wrote: »

If you are close on first test of LTA, how are you going to be on second test? often people just focus on first test and forget about the second one.

I'm not sure I understand. If you stay under the LTA on the first test, you've got up to 20 years of withdrawals to keep under the second LTA test at 75.

shinytop

Thanks for all the replies.

If a pension (rather than SIPP at this stage) is suitable and meets the objectives then yes. If not, then no. Why is she limited to £2880? The non-earner limit is £3600 gross but for earners, they can go to 100% of gross income. i.e. if she is earning £5k a year then she can pay in £5k.

I thought because she was taking a pension it was limited. I think what you're saying is that she because she is still earning she can pay 100% in any tax year of what she earns or 3600 gross if not earning?

What do you mean by maximum? £40k annual allowance plus the last three years unused allowance under carry forward? or do you mean maximum of employer matching?

If you cant afford to take home less, how are you going to take home more to pay for the pension contribution? Or are you suggesting reducing the amount you pay into the workplace pension to pay into an individual pension instead? That would just be moving deck chairs around. Although it could be worse if the employer scheme is salary sacrifice as it would increase the NI you pay.

The former but taking into account unused allowance I won't get near the allowance anyway. I'm paying a % of my regular salary, the extra potential amount would come from an annual bonus which will be taxed at higher rate.

Re 2, if you pay tax at 40% then you claim back tax from any pension contributions at 40%. I used to make lump sum contributions into my SIPP from my bonus which were not matched by the company or put through payroll. If you do that, the SIPP provider credits you with 20% when you make then lump sum contribution and you can then claim back the additional 20% through your tax return.

This and other replies answers my question

If you are close on first test of LTA, how are you going to be on second test? often people just focus on first test and forget about the second one.

I had to google that but my plan is to spend enough so that when I'm 75 it won't be a problem

Takes less than a minute, immediate answer:

just need to get her GG signon then I'll look

LHW99

I thought because she was taking a pension it was limited.

Assuming your wife's NHS pension is DB, then she is only limited to her earnings (or the non-earner limit).
If it was a DC and she was taking taxable income then she would be limited to £4000 whatever she earned.

dunstonh

coyrls wrote: »

I'm not sure I understand. If you stay under the LTA on the first test, you've got up to 20 years of withdrawals to keep under the second LTA test at 75.

And 20 years of growth. It is certainly manageable but you wouldnt believe the number of people that forget or don't even realise there is a second test.