TFLS + MPAA + intrerest

CRAIGSVILLE

Hi all,


I am looking to retire at 55 in a few years with a TFLS of approx. £250K , and possibly keep a job going.
Am I right in saying, if I was lucky to still have a job on retiring, I could still put up to £40K back into a pension pot from my job if don’t take any drawdown income from my flexi access pension? MPAA only kicks in once I start drawing money out?


Also, if my gross salary after I put £40K back into my pension was <£5K , would I be classed as a non tax payer for interest on an savings? e.g. Could I put the £200K+ into a 2% savings ( Non ISA ) to get £4K a year interest tax -free, or does the £1k PSA still apply for <£5k salary?


And again, once the £40K is back in the pension pot, can I again take another 25% TFLS from it?


Hope that's not too confusing to answer


Thanks


Craig

Dazed_and_confused

Would your job you would keep going be paying £40k?

And to get from say salary of £45k to taxable salary of £5k suggests salary sacrifice (payments into a relief at source scheme do not reduce your taxable income) which means you would actually be paying nothing into your pension, your employer would be paying it.

And you would surely run into problems around NMW restrictions?

As far as interest is concerned low earners are unable to benefit from the savings nil rate of tax (aka PSA).

Most people have to have taxable income of >£17,500 before that comes into play.

£12,500 Personal Allowance
£5,000 Savings starter rate of tax (0%)
The £5,000 gets reduced pound for pound as your non savings non dividend income (taxable salary, rental income, pensions income, business profits etc) exceeds your Personal Allowance.

k6chris

Dazed_and_confused wrote: »

Most people have to have taxable income of >£17,500 before that comes into play.

£12,500 Personal Allowance
£5,000 Savings starter rate of tax (0%)

Just some clarification on the "starting rate for saving" and the "personal savings allowance", which are different.

"Starting Rate for Saving

If your other income is £16,850 or more: You’re not eligible for the starting rate for savings if your other income is £16,850 or more.

If your other income is less than £16,850: Your starting rate for savings is a maximum of £5,000. Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1.


Personal Savings Allowance

You may also get up to £1,000 of interest tax-free depending on which Income Tax band you’re in. This is your Personal Savings Allowance.


Basic rate £1,000

Higher rate £500

Additional rate £0
"


https://www.gov.uk/apply-tax-free-interest-on-savings

MK62

CRAIGSVILLE wrote: »

Hi all,
I am looking to retire at 55 in a few years with a TFLS of approx. £250K , and possibly keep a job going.
Am I right in saying, if I was lucky to still have a job on retiring, I could still put up to £40K back into a pension pot from my job if don’t take any drawdown income from my flexi access pension?

If no pension TLFS was involved, then yes (subject to a few caveats the last poster mentioned).
As a TFLS is involved, you would need to be careful not to fall foul of the pension recycling rules.

CRAIGSVILLE wrote: »

MPAA only kicks in once I start drawing money out?

Yes.....as soon as you make your first "flexi-access" or UFPLS from any pension, you are then subject to the MPAA.

CRAIGSVILLE wrote: »

Also, if my gross salary after I put £40K back into my pension was <£5K , would I be classed as a non tax payer for interest on an savings? e.g. Could I put the £200K+ into a 2% savings ( Non ISA ) to get £4K a year interest tax -free, or does the £1k PSA still apply for <£5k salary?

In theory, yes - however your salary sacrfice cannot take your remaining salary below the minimum wage.

CRAIGSVILLE wrote: »

And again, once the £40K is back in the pension pot, can I again take another 25% TFLS from it?

As above, you would need to be very careful not to fall foul of the pension recycling rules......

EdSwippet

CRAIGSVILLE wrote: »

I am looking to retire at 55 in a few years with a TFLS of approx. £250K ...

If this is a DC pension, this suggests a value of £1MM. That is pretty much at the pensions lifetime allowance. You'll want to be certain that any future pension contributions don't push you above it.

The outcomes depend heavily on your current and future tax rates, but you might easily find yourself deferring tax at 20% or 40% but then paying it later on withdrawal at 40% or 55%. Not a winning formula, if it occurs.

Albermarle

Looking at the above comments , I think it can be said in summary that pumping more money into the OPs pension looks like a bad idea and a change of strategy maybe needed.

CRAIGSVILLE

Thanks to everyone for their comments &#55357;&#56833;
I'm still a few years away from retirement, just trying to work out the best way not to be paying any kind of tax when it is time to retire, and will it be worthwhile even having a highish paying job when retired.
I currently pay 40% of my salary into my pension via salary sacrifice, which takes me just under the 40% tax rate at the moment.
I would be very happy with £25k tax free p.a once I retire, which I thought the TFLS would go quite far in retirement, and keep the rest invested until I need it later, or if the worst happens , kids + wife would inherit it.
Will go to a financial advisor later to see all my options written down in black + white before making any decisions.


Thanks again &#55357;&#56833;

Albermarle

I'm still a few years away from retirement, just trying to work out the best way not to be paying any kind of tax when it is time to retire.

The normal advice on this forum from the more experienced investors is not to let a desire to pay no/less tax cloud your judgement . In other words better to have a good retirement plan and a good income and pay some tax , rather than have a bad plan with restricted income just so you pay no tax .