Large carry forward contribution vs regular 60% relief vs ???

PensionPuzzle

Dear all

I'd be grateful for any advice/suggestions regarding the below:

Age: 30
Existing: NHS pension value ~120k of LTA at NPA (likely to be reduced by early retirement)

I am taking some (?indefinite) time out of my regular salaried NHS post to do freelance work. My expected income is ~130k/year

I'm wondering what the optimal strategy of pension contributions (SIPP) would be going forward. My current options appear to be:

1. Make a significant (100k+) lump sum contribution now utilizing carry forward allowance
2. Make regular annual contributions to keep my realized income <100k (thus maximising 60% tax relief as long as possible before I reach the LTA)

It is possible I may return to the NHS scheme at some point, but I would not envisage this in the immediate future

Is one of the above options clearly superior to the other (in terms of tax relief)? Are there other options to consider? Should I seek professional advice?

Thanks in advance

Dazed_and_confused

What is "realised" income?

PensionPuzzle

Fixed, apologies

Dazed_and_confused

What is "realized" income?

PensionPuzzle

The amount of income liable for tax in any given year (apologies if incorrect terminology)

Dazed_and_confused

Contributions to a SIPP do not have any impact on the amount of taxable income.

They do reduce adjusted net income, which is used in establishing the Personal Allowance and any High Income Child Benefit Charge.

They also increase the amount of basic rate tax payable, which in turn can reduce the amount of higher rate tax payable.

For example if you contribute £8,000 to a SIPP the pension company, courtesy of HMRC, will add 25% to give you £10,000 in the pension fund. Your basic rate tax band will then be increased from £37,500 to £47,500.

Figures will differ if you are Scottish resident for tax purposes.

PensionPuzzle

OK thanks

So would there be any significant long term tax difference between:

1. Large reduction in adjusted net income this year - pension grows more rapidly, hits LTA sooner therefore no reduction in future adjusted net income once LTA hit
2. Smaller regular reduction in adjusted net income - pension grows more slowly - more years in which adjusted net income can be reduced

Or are they essentially the same? Thanks

Dazed_and_confused

It's too hypothetical for me and I'm not as clued up on the LTA so I'll let others comment now.