Can you make an easy 10k by making voluntary pension contributions and withdrawing 25% at 55?

stuffforsell09

I'm sure this has been asked many times before but can't find an answer on here.
As an example, If I was 50 years old and in employment, earning £25k per annum. Would it be possible to make voluntary pension contributions into your work pension (for every £1000 invested it will be increased by £250 to £1250). Then at 55 withdraw up to 25% of my pension pot tax free?
I'm thinking that over five years I would contribute an extra £40k into my pension from savings and salary (which is automatically increased to £50k due to tax relief) and then at 55 withdraw 50k from my pension tax free (from a pension pot of £200k), I would of earnt 10k for free! 
Are my calculations correct?

Dazed_and_C0nfused

then at 55 withdraw 50k from my pension tax free, 

How could you withdraw £50k tax free???

Brynsam

Dazed_and_C0nfused said:

then at 55 withdraw 50k from my pension tax free, 

How could you withdraw £50k tax free???

If the total pot is £200K or more.

Dazed_and_C0nfused

Brynsam said:

Dazed_and_C0nfused said:

then at 55 withdraw 50k from my pension tax free, 

How could you withdraw £50k tax free???

If the total pot is £200K or more.

True but the way the op has phrased that suggests, to me at least, that the total pot ilin question will be £50k.

I'm thinking that over five years I would contribute an extra £40k into my pension from savings and salary (which is automatically increased to £50k due to tax relief) and then at 55 withdraw 50k from my pension tax free, I would of earnt 10k for free! 

stuffforsell09

Dazed_and_C0nfused said:

then at 55 withdraw 50k from my pension tax free, 

How could you withdraw £50k tax free???

From a pension pot worth more than £200k. I have updated the original post with this info. Thanks

Albermarle

stuffforsell09 said:

I'm sure this has been asked many times before but can't find an answer on here.
As an example, If I was 50 years old and in employment, earning £25k per annum. Would it be possible to make voluntary pension contributions into your work pension (for every £1000 invested it will be increased by £250 to £1250). Then at 55 withdraw up to 25% of my pension pot tax free?
I'm thinking that over five years I would contribute an extra £40k into my pension from savings and salary (which is automatically increased to £50k due to tax relief) and then at 55 withdraw 50k from my pension tax free, I would of earnt 10k for free! 
Are my calculations correct?

For a basic rate taxpayer in employment and in retirement , the tax benefit of a pension is 6.25% .eg
Pay in £80 - tax relief of £20 added = £100 
Take £25 tax free and pay tax on the £75 = £85 
If you can claim higher rate tax relief on the way in , or pay no tax on the way out ( due to having a low income ) the benefit is much larger.

stuffforsell09

Albermarle said:

stuffforsell09 said:

I'm sure this has been asked many times before but can't find an answer on here.
As an example, If I was 50 years old and in employment, earning £25k per annum. Would it be possible to make voluntary pension contributions into your work pension (for every £1000 invested it will be increased by £250 to £1250). Then at 55 withdraw up to 25% of my pension pot tax free?
I'm thinking that over five years I would contribute an extra £40k into my pension from savings and salary (which is automatically increased to £50k due to tax relief) and then at 55 withdraw 50k from my pension tax free, I would of earnt 10k for free! 
Are my calculations correct?

For a basic rate taxpayer in employment and in retirement , the tax benefit of a pension is 6.25% .eg
Pay in £80 - tax relief of £20 added = £100 
Take £25 tax free and pay tax on the £75 = £85 
If you can claim higher rate tax relief on the way in , or pay no tax on the way out ( due to having a low income ) the benefit is much larger.

Thanks for response. But not sure that this is correct or relevant to my question. Please note that the government allows Tax payers to take 25% of their pension pot Tax free after 55.

foofi22

The OP is suggesting withdrawing £50k from their pension pot following several years of contributions which total £40k - thereby "making" a £10k net gain by virtue of the tax relief.  The withdrawal would be entirely within the 25% tax free lump sum. 

This is obviously ignoring, if it is a sensible in the OP circumstances, what the OP is or isn't invested in within the pension - and implications on future contributions?

liquoriceleglucy

sadly if you want sadly if you want to call gov. Uk  as per their web site direction. And phone number it states ... please go to web site ( been there it directed my question to phone line). The automated recording says.... Due to Covid the wait will be long. They can only respond to 3 enquires ie press 1 if you are retiring in the next 6 months. 

Press2. If you’re I’ve 65 and are drawing your pension and have a query. And press 3. If you are currently getting divorced and need to understand issues with you/ exptnrs pension.  All other enquiries .... cant help you!  How is it Covid has brought every service to a standstill!  Come on!!!! So hood luck with asking Gov.Uk. Your query....

Albermarle

stuffforsell09 said:

Albermarle said:

stuffforsell09 said:

I'm sure this has been asked many times before but can't find an answer on here.
As an example, If I was 50 years old and in employment, earning £25k per annum. Would it be possible to make voluntary pension contributions into your work pension (for every £1000 invested it will be increased by £250 to £1250). Then at 55 withdraw up to 25% of my pension pot tax free?
I'm thinking that over five years I would contribute an extra £40k into my pension from savings and salary (which is automatically increased to £50k due to tax relief) and then at 55 withdraw 50k from my pension tax free, I would of earnt 10k for free! 
Are my calculations correct?

For a basic rate taxpayer in employment and in retirement , the tax benefit of a pension is 6.25% .eg
Pay in £80 - tax relief of £20 added = £100 
Take £25 tax free and pay tax on the £75 = £85 
If you can claim higher rate tax relief on the way in , or pay no tax on the way out ( due to having a low income ) the benefit is much larger.

Thanks for response. But not sure that this is correct or relevant to my question. Please note that the government allows Tax payers to take 25% of their pension pot Tax free after 55.

What I said is 100% correct. To use your figures instead :
You already have a pension pot of £150K - you add £40K more and £10K tax relief is added- so £200K in total .
From this you can take £50K from this tax free . So far so good .
What you are missing is that if you had not made  the extra contribution , you could have taken £37.5K tax free from the £150 K, when you reached 55.
.So you have gained £12.5K tax free by adding the £40K . The benefit of not having to pay taxes on £12.5K is £2.5 K .
So by adding £40K you have gained £2.5K 'free money' , which miraculously is a gain of 6.25% 

jimi_man

stuffforsell09 said:

Albermarle said:

stuffforsell09 said:

I'm sure this has been asked many times before but can't find an answer on here.
As an example, If I was 50 years old and in employment, earning £25k per annum. Would it be possible to make voluntary pension contributions into your work pension (for every £1000 invested it will be increased by £250 to £1250). Then at 55 withdraw up to 25% of my pension pot tax free?
I'm thinking that over five years I would contribute an extra £40k into my pension from savings and salary (which is automatically increased to £50k due to tax relief) and then at 55 withdraw 50k from my pension tax free, I would of earnt 10k for free! 
Are my calculations correct?

For a basic rate taxpayer in employment and in retirement , the tax benefit of a pension is 6.25% .eg
Pay in £80 - tax relief of £20 added = £100 
Take £25 tax free and pay tax on the £75 = £85 
If you can claim higher rate tax relief on the way in , or pay no tax on the way out ( due to having a low income ) the benefit is much larger.

Thanks for response. But not sure that this is correct or relevant to my question. Please note that the government allows Tax payers to take 25% of their pension pot Tax free after 55.

Not quite sure what you're asking? Yes you are correct - you do get £10K free which is 6.25% of £160K (what you would have paid in).