Using personal loan to top up pension

Mike564

Hello everyone. I have seen similar questions to this but I thought I'd ask for some feedback.
I plan to retire at 55 in May and live off flexi drawdown - carefully remaining below the £11k odd tax threshold (my spouse also has a regular pension income)
I intend to borrow £10k from the bank, over 5 years the total repayment is £10,718.40.
Paying this £10k into my pension I reckon this works out at £12,500 including tax relief. I calculate a clear profit of £1,781.60
Does this make sense to any other people out there?
Thanks in advance

HappyHarry

Mike564 wrote: »

Hello everyone. I have seen similar questions to this but I thought I'd ask for some feedback.
I plan to retire at 55 in May and live off flexi drawdown - carefully remaining below the £11k odd tax threshold (my spouse also has a regular pension income)
I intend to borrow £10k from the bank, over 5 years the total repayment is £10,718.40.
Paying this £10k into my pension I reckon this works out at £12,500 including tax relief. I calculate a clear profit of £1,781.60
Does this make sense to any other people out there?
Thanks in advance

No.

Your monthly loan repayments would be £178.64. It would be far better to forget the loan, and simply pay £178.64 per month into your pension, which would then be grossed up to £223.30.

Then, you would pay a total of £10,718.40 into your pension, which, when grossed up, is £13,398.

In your words, a clear profit of £2,670.60

AnotherJoe

Following up on what HH said, presumably you have £10k in cash accessible to you, which is most likely only getting you around 1.5% interest, so you'd be better off to use that £10k of your own money for this scheme than borrowing it ata rate of 3 or 4% ?

Alexland

Depends how much you really need to spend of your income in the first few years of retirement.

Could you afford to do both the £10k loan (and contribution this tax year supported by you income) and also the £2,880 per year recycling trick? Is your partner in a position to do the £2,880 trick too? Could you repay the loan early without penalty to save interest?

One issue might be that loan companies often ask if you are expecting any changes in your circumstances...

Alex

crv1963

Not a good idea, the only way it would work is if you put it into your pension, get the uplift then draw part of your TFLS to immediately repay the loan.

Easier to do as the others have said, speculate to accumulate but borrowing to speculate is a poor road if the expected gains do not appear you still have the fixed loan to repay.

AnotherJoe

crv1963 wrote: »

Not a good idea, the only way it would work is if you put it into your pension, get the uplift then draw part of your TFLS to immediately repay the loan.

Easier to do as the others have said, speculate to accumulate but borrowing to speculate is a poor road if the expected gains do not appear you still have the fixed loan to repay.

It's not speculation. This would obviously be all cash and the returns are guaranteed. The limit is the personal allowance limiting how much can be withdrawn before tax is due.

crv1963

AnotherJoe wrote: »

It's not speculation. This would obviously be all cash and the returns are guaranteed. The limit is the personal allowance limiting how much can be withdrawn before tax is due.

If all in cash then okay but unless the OP is going to use TFLS to repay the loan then I can't see the point of taking approx 11k pa tax free income and then paying 2k pa loan repayment thereby reducing annual income to around 9k.

Plus inflation will reduce the spending power over time so presumably some of the OP pension funds are in S&S, so a large drop may mean less income can be taken at a future point in time.

Alexland

Remember the personal allowance next tax year is £12500 and the OP has the 25% however they choose to take it.

Alex

AnotherJoe

crv1963 wrote: »

If all in cash then okay but unless the OP is going to use TFLS to repay the loan then I can't see the point of taking approx 11k pa tax free income and then paying 2k pa loan repayment thereby reducing annual income to around 9k.

Plus inflation will reduce the spending power over time so presumably some of the OP pension funds are in S&S, so a large drop may mean less income can be taken at a future point in time.

I dont think the £10k would be. Its a five year loan.
The issue to me is, is a loan necessary for this? If it is, eg if OP doesn't have £10k spare cash, then I'd say they are in no financial position to retire. If they do have it, then using £10k cash thats probably getting 1.5% interest at best, rather than a loan at say 4%, would seem to be a no brainer.

Mike564

Thanks for the reply. I wasn’t sure paying into the account was an option once the flexi drawdown was taken?
Mike

Mike564

Thanks for replying. I’ll be getting a lump sum from another pension. Part of this cannot be invested in a separate pension scheme as far as I know?
Mike