Should I pay a lump sum into my pension

mgfvvc

In a month or so I will be receiving a substantial lump sum. As my pension pot is not great, I am wondering whether adding it it to a pension is a sensible way to invest it or whether to invest it elsewhere. If it goes into a pension I will get basic rate relief on it, but I might need to split it across 2 tax years for full relief.


What alternatives to putting it in a pension should I consider?

MallyGirl

You cannot put more in to a pension (employee +employer + tax relief if relevant) than you earn. Do you earn enough?

Albermarle

You cannot put more in to a pension (employee +employer + tax relief if relevant) than you earn. Do you earn enough?

That's not exactly correct .
You can not claim more tax relief on your contributions than you earn . So if you earned £25 K pa , you could add that much as a lump sum ( minus any regular contributions you normally make ).


Could you say how old you are , and your current pension situation ?

mgfvvc

Albermarle wrote: »

Could you say how old you are , and your current pension situation ?

I'm 55 and my pension situation is that I have full state pension contributions, a small defined benefit pension, which should be worth around £5,000 a year and a few other small pension pots, probably around £50,000 in total. I don't expect to be able to retire this side of 70, so I should be making another 15 years contributions.

Dazed_and_confused

I have full state pension contributions

What exactly do you mean by that?

The 35 years rules don't apply to you so have you checked your State Pension forecast on gov.uk? And looked past the (likely) headline of £168.60 to see what you have built up to date?

xylophone

Are you currently contributing to a pension? If so, what kind of pension?

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/annual-allowance/

mgfvvc

Dazed_and_confused wrote: »

What exactly do you mean by that?

The 35 years rules don't apply to you so have you checked your State Pension forecast on gov.uk? And looked past the (likely) headline of £168.60 to see what you have built up to date?

I have 36 years of full contributions and it says I can't improve my forecast. There's no indication in the MSE state pension guide of anything that would mean the 35 year rule doesn't apply.

Marcon

Albermarle wrote: »

That's not exactly correct .
You can not claim more tax relief on your contributions than you earn . So if you earned £25 K pa , you could add that much as a lump sum ( minus any regular contributions you normally make ).

Caveat: some providers insist that they will only accept an individual's tax-relievable contributions.

Dazed_and_confused

I have 36 years of full contributions and it says I can't improve my forecast. There's no indication in the MSE state pension guide of anything that would mean the 35 year rule doesn't apply.

It isn't the clearest guide but it does say this,

You need 35 FULL years to qualify for a £168.60 pension...
This means you won't get £168.60 despite having what you thought were 35 years of NI contributions. What counts is 35 years of full contributions – not ones where you paid a lower NI rate.

To this end, the Government will deduct a sum from your new state pension. It says that although you'll get less than the full £168.60, retirees will still be paid what they would have got under the old state pension.

The sum is what the Government has coined your 'contracted out pension equivalent' (COPE) amount. If you ask for a state pension statement from the Government it will include this amount.

However, while many people will get a private pension boost which offsets this deduction, it could be less than the state pension they gave up – much depends on the pension scheme and investment performance. To make matters worse, many workers won't even have realised they were contracted out, so will learn of their lower pension as a shock.

Royal London have a better guide called Topping up your State Pension.

mgfvvc

Dazed_and_confused wrote: »

It isn't the clearest guide but it does say this,

You need 35 FULL years to qualify for a £168.60 pension

and you were saying the 35 year rule doesn't apply to me, so you've totally lost me.

Dazed_and_confused

The 35 year rule only applies to those starting their State Pension journey from April 2016.

Everyone already in the system has a starting out calculated at April 2016.

If it was more than the maximum at that time you couldn't accrue any more. But get inflation increases.

If it was less than the maximum then you could accrue additional amounts upto the maximum.

This means that some people already in the system might reach the maximum with say 30 years and others might need 40+ years. There is someone who posts on here regularly who has got 40+ years of NI contributions but hasn't reached the maximum. And I think can't reach it before they reach State Pension age