12k to invest into funds

Mr.Saver

Lama_glama wrote: »

You know the worst thing is I have paid 40% tax in previous years but if I understood correctly in order to get 40% tax relief you got to make a "tax return" which I never made, so I only ended up with a 20% tax relief even when I paid 40% taxes. I thought it was something which was being done automatically. My mistake.

If you were paying 40% tax, you can make a phone call to HMRC to claim the pension tax relief for last year. See: https://forums.moneysavingexpert.com/discussion/5965768/call-hmrc-for-claiming-pension-tax-relief

Lama_glama

Hi Alex, thanks a lot for your help.

Unfortunately I do not think that someone in my company reassessed the market recently!

Every month I get on my pension pot 20% more than what I am being deducted from my monthly pay. To make an example if on my payslip it is written: pension contribution: £80, on the pension fund I see that £100 has been paid (+ £100 from my company).

I guess it means that even if I am on the 40% bracket I am only getting 20% tax relief!

I will check where I am at for this year. If I am on the 40% bracket this year what should I do? (The car benefit increases my earnings). Should I call the HMRC? Or should I make a tax return on the HMRC website?

Thank you again for your help.

Lama_glama

Thank you so much Mr.Saver! I was replying to the Alexland post and I had not read your reply yet.

So a call should do. I will definitely try that! I got to wake up early tomorrow, but I will definitely have a good reading at your post tomorrow and try to claim pension relief. I think I always ended up on the 40% tax bracket in the previous years because of the car benefit adding up to my salary. I am not sure how many years I can go retroactively but I will give it a try.


Thank you again Mr.Saver and Alexland.

Alexland

If it is a small company do you have any influence to get them to reassess their choice of scheme? If not does the scheme allow you to transfer out lump sums into your own lower cost pension every year or two?

Alex

Lama_glama

Thanks for the idea Alex. I will have to check on that.

I have called the HMRC for the tax relief but unfortunately by the time I was able to speak to someone it was almost 8:00PM (they finish working at that time). I finished working very late today unfortunately.

If I understood correctly what the lady was saying is they go back up to four years for the pension tax relief, which is a good news for me. I will call again tomorrow and I will let you know how it turns out.

On the meanwhile do you think I should let my manager know something about it tomorrow morning (as a form of courtesy) or should I just go ahead and do it? It should not change a lot to him as he will probably just going to receive a new tax code. What would you do?

Also if I am going into the 40% bracket this year I could ask my manager if I can do a single bigger contribution to my pension next month (just for the part which is going to be taxed at 40%), as I should be just on time before the end of the fiscal year. For example if I am going into the 40% bracket by £2000 and I make £3500 next month I am thinking (as suggested by Alexland to avoid the 40% bracket) I could ask to make a £2000 single extra contribution to my pension for this year? So if I understood correctly I could potentially pay a good portion of my next payroll into my pension.

Thanks again for the help. I will keep you posted.

Alexland

Suggest you call them back when they will have time to talk you through their process.

If you think your total earnings for this tax year might put you into higher rate tax then it may be sensible to make a one off pension contribution to either your workplace pension or a personal pension. It sounds like you are going to need to claim the higher rate tax back anyway.

The advantage of adding more to the workplace pension is simplicity however if you get no more employer matching or salary sacrifice then it is expensive compared to a personal pension.

Alex

Lama_glama

Hi Alexland, I was told my employer can match up to 5% (which is already the case). If this is the case do you have a personal pension provider which would you recommend? And if I put money in a personal pension there what is the process, I mean I guess I should call the HMRC and let them know. Alsoshould I let my employer know? Thanks a lot.

Alexland

There are lots of good pension providers out there but given where we are in the tax year you might want one that is efficient and would enable you to signup online and make a prompt contribution. Given you don't have much time to even consider the choices then someone like Fidelity might make sense as their SIPP is not too expensive (0.35%), has no fund trading costs and no exit fees if you later want to change provider. For modest amounts consider investing in a mixed asset fund such as the Vanguard LifeStrategy (0.22%) series. Once it gets big enough in a few years consider switching to ETFs as although threre are trade fees Fidelity will cap the platform fees at £45.

https://www.fidelity.co.uk/services/sipp/
https://www.vanguardinvestor.co.uk/investing-explained/what-are-lifestrategy-funds

Your employer doesn't need to be told about your personal pension contributions. The pension provider will make HMRC aware of your contributions and claim the 20% back on your behalf. If you went down this route then you would need to include the total value of both pension contributions in your HMRC claim.

Alex

Lama_glama

Thank you very much. I solved the pension refund with call to the HMRC today. They are going to refund me for the last year and the year before when I went into the 40% tax bracket. Three years ago I was still in the 20% bracket. This year I have to check, but they say I can call them in the next fiscal year without any problem and ask for a refund.

The call was quite quick. They told me which years I ended up in the 40% tax bracket and asked me the gross amount of my pension contributions during those 2 years. They say I will receive a letter in a couple of weeks time and then I can go to their website and ask them to put the refund money into my bank account.

So that`s one problem sorted. Now I have to check if I will end up paying 40% this year and what to do with my current pension fund. Alexland as you suggested my idea is surely to at least switch to a different type of fund. I got Aegon Scottish Equitable Cautious Lifestyle at the moment and I am willing to risk something more as probably in the long run (I am 33 years old) it will pay off.

Also I would like to start investing some of the money I got into my bank account and cash ISA. I will try to study the papers Aegon gave me when I joined to see if I can move some of the money there into another pension fund with lesser managing fees and which I can trust. Alternatively I see that I got the option from the Aegon website inside my pension scheme to switch the type of fund I got to another fund (I will have to check the funds they got, their fees, and where to move the money which now is in the Cautious Lifestyle fund). This could take a while I will try to study the papers this weekend.

If I do not close the Aegon fund but I move let`s say 10k from this fund to the Vanguard LifeStrategy fund (which I would have to open) do I have to tell something to my manager? Or it does not really matter at the end of the day?
Also if I swap fund internally inside Aegon from their website do I have to tell something to my manager? Or even in this case it does not matter?

I mean if I change fund inside Aegon hopefully my and my employer`s contributions will still reach me I think as the plan number should always be the same I think.
I still got a lot to learn but one thing at the time hopefully I will sort everything out!


Thanks a lot for the help.

Alexland

Nice - asking about investing £12k into a S&S ISA has triggered an unexpected tax refund!

Switching funds within your workplace pension shouldn't involve you needing to inform your employer however the choices are usually limited. You can usually select how both the current money and future contributions are invested. The employer would still make the contributions to the workplace pension account in the normal way.

For a broader choice of funds you would need to open a DIY pension on a platform such as the Fidelity SIPP. You could then either make direct contributions (and the SIPP platform would claim the basic 20% from HMRC) or it might be possible to partially transfer a lump-sum from your workplace pension depending on the scheme rules. To find out if this is possible you would have to phone your workplace pension provider and ask for partial transfer discharge forms. They would check if your scheme allows this and if you would be giving up any potentially valuable benefits. Once the money is in the new pension you would select a fund such the popular Vanguard LifeStrategy series.

Alex