Pension advice tax relief

spluff

I posted this in wrong forum so I post it here.

Hope u can get help.

I am under 75 and do not work - I have heard I can make an annual net contribution of up to £2880 to a personal pension and receive tax relief of up to £720.

So can I just put £2880 into my Aviva Pension each year and they would automatically add £720 each year to my pension?

Can I just leave that £3600 into my Pension to build up my pot? Is this the best way to do utilise this?

Is there any disadvantages or advantages for doing this?

tacpot12

Yes, any UK resident can make a contribution of £2880 to a personal pension and HMRC will top this up to £3600 with £720 of tax relief.

Your Aviva pension needs to be a personal pension, rather than a Final Salary pension provided by your ex-employer.

You can leave the money in your pension to grow, or you can draw it out on the first day of the next tax year, or at any time later. You don't have to invest it, but can if you wish; it can be held as cash. You could draw out the whole of the £3600, and pay £2,880 back into the pension (this is known as Pension Recycling) and pocket the tax relief. There are some rules that prevent pension recycling in some circumstances, so it would be a good idea to check whether you will be prevented from making payments back into your pension by the rules. One way to check is to using the flowchart here:

https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/recycling-of-tax-free-cash/

spluff

Ok thanks for the explanation. It’s not a final salary pension.

So this £720 top up will happen automatically? How long does it take?

I have 2 pensions can I do it with both and get the top £720 top up on both?

DairyQueen

spluff wrote: »

So this £720 top up will happen automatically? How long does it take?

Yes and, typically, within 6/8 weeks

spluff wrote: »

I have 2 pensions can I do it with both and get the top £720 top up on both?

No. You can contribute a maximum of £2880 in total across as many pension schemes as you wish. You are, however, limited to that £2880 net maximum in total each tax year.

xylophone

I have 2 pensions can I do it with both and get the top £720 top up on both?

You are limited to a maximum net contribution of £2880 per tax year - I suppose you could put half in one and half in the other if you wished.

spluff

Ok brill and this is all legit?

Is there any disadvantage for doing this? I want going to move some money into my pension but seems a no brainier if I get an extra £720...,

My wife is a higher tax payer and contributes via her work. Is there anything she can do like this?

Dazed_and_confused

Ok brill and this is all legit?

Most people posting on here seem to be doing it so I should hope so!

My wife is a higher tax payer and contributes via her work. Is there anything she can do like this?

Depends on how much she is earning from the job but as a minimum she could do the same as you.

But her tax relief would be different. She will get the basic rate tax relief added to the pension fund but the gross contribution (£3,600) increases the amount of basic rate tax she can pay. Which in turn reduces the higher rate tax payable.

Depending on where she is resident for tax purposes this could save her an additional 20% or 21% off her personal tax liability. This assumes she is paying higher rate tax on at least £3,600 of her income.

If she is only just paying higher rate tax it will have less impact. She does not get a fixed extra 20/21% just because she might be paying higher rate tax on say £1.

Overall she could pay out £2,880 on day one, end up with £3,600 in her pension fund and get a tax reduction of £720/£756 so her £3,600 pension pot will have only really cost £2124/£2160.

spluff

Thanks I will pass information on to other half...

Is there any disadvantages in putting in the 2880 to get the 720 if I just leave it in my pension?

Dazed_and_confused

Assuming you mean leave it uninvested them your fund will be losing value due to inflation.

And you should ensure the company you choose doesn't have excessive charges.

Hargreaves Lansdown are regularly mentioned as one company with no charges for this type of situation (low fund value in cash). Other options are no doubt available.

spluff

I dont know what you mean by uninvested?

I would put the money in and I assume it would be just added to the pot and invested with the rest of the monies? risk level 4

This is Aviva it used to be my work pension but no longer contributing into it (its not final salary)

also looking at the unit price it seems to be on an up at the moment - would it be better to hold off until later in the year with all this Brexit stuff as the price may drop

thanks

DairyQueen

Dazed_and_confused wrote: »

Assuming you mean leave it uninvested them your fund will be losing value due to inflation.

And you should ensure the company you choose doesn't have excessive charges.

Hargreaves Lansdown are regularly mentioned as one company with no charges for this type of situation (low fund value in cash). Other options are no doubt available.

I assume you mean leave it in cash? If the contribution is added to a SIPP then those that I deal with (HL and AJ Bell) don't charge for holding cash. Indeed, they pay between 0.15% and 0.25% interest. Measly, but better than nothing.

I don't know how, for example, cash is managed by non-SIPP DC providers.

Cash drag is definitely an issue for cash held in SIPPs. Unwrapped cash doesn't match inflation at the moment and wrapped will inevitably suffer the ravages of inflation. However, the tax relief will offset the cash drag for several years at today's inflation rates.