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DB pensioner - start a new DC pension or a S&S ISA

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DB pensioner - start a new DC pension or a S&S ISA

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As I near retirement I have been reading more on here and have benefitted greatly from the sound advice from various contributors. I like the fact that we can discuss our finances with complete strangers but at the same time know that the advice given is with the OP’s best interests at heart. Thanks in advance to anyone taking the time to read this and if the answers benefit anyone else then that’s even better.

My wife 58 took early retirement at 55 from the NHS and is in receipt of a pension currently paying £8826.60pa. She also received a lump sum of approx. £25000 which we decided at the time to use as a means to give a monthly top up to her pension over 144 months at £177 per month until state pension kicks in. This lump sum has just been in a range of 1yr, 2yr and 3yr savings bonds and the 3yr is maturing this month. We intend to try and continue ring fencing this money to give her that guaranteed top up to her pension income. My thoughts are that we have another 3 savings bonds maturing this year and I was thinking of starting another small pension for her to benefit from a government boosted tax donation. I’ve read on here that she can contribute up to £2880 per year for the government to add 20% tax relief but would she qualify because at this time she doesn’t pay any income tax. Alternatively as she would be in receipt of the state pension at 67 is it worthwhile contributing to a DC pension over 10 years or would it be better investing in a new S&S ISA. I would also note that if interest rates on savings were not so poor we would probably have just started new savings bonds but this forum has opened my eyes to other options.

As an aside from what I read on here last year, over the past 12 months I increased my pension contributions through salary sacrifice to come below the Scottish higher tax rate of £43,662 so that my wife could transfer me 10% of her personal tax allowance. I have also followed links on here to check my wife’s and my own state pension forecast and she has 3 years class 3 NI contributions to pay to enable her to receive the full state pension. We intend to pay this off in full in the next few weeks.


Replies

  • edited 8 April at 8:25AM
    Dazed_and_C0nfusedDazed_and_C0nfused Forumite
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    edited 8 April at 8:25AM
    I’ve read on here that she can contribute up to £2880 per year for the government to add 20% tax relief but would she qualify because at this time she doesn’t pay any income tax. 

    The fact that she doesn't pay any income tax is irrelevant.  As a non earner (as opposed to a non taxpayer) she can contribute £3,600 gross each tax year.  £2,880 that she pays plus £720 the pension company will add as basic rate tax relief.

    Depending on when she takes the pension as income she could get the whole lot back without paying any tax, by a combination of the 25% TFLS and using her unused Personal Allowance (if she takes taxable pension income above her reduced Personal Allowance of £11,310 she would pay 20% tax on it).

  • DvnfermlingDvnfermling Forumite
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    10 Posts
    I’ve read on here that she can contribute up to £2880 per year for the government to add 20% tax relief but would she qualify because at this time she doesn’t pay any income tax. 

    The fact that she doesn't pay any income tax is irrelevant.  As a non earner (as opposed to a non taxpayer) she can contribute £3,600 gross each tax year.  £2,880 that she pays plus £720 the pension company will add as basic rate tax relief.

    Depending on when she takes the pension as income she could get the whole lot back without paying any tax, by a combination of the 25% TFLS and using her unused Personal Allowance (if she takes taxable pension income above her reduced Personal Allowance of £11,310 she would pay 20% tax on it).

    Thanks for this I had focused on the potential for tax relief on the way in and had never even considered the fact that using the right strategy it could be tax free on the way out.
  • DvnfermlingDvnfermling Forumite
    24 posts
    10 Posts
    I’ve read on here that she can contribute up to £2880 per year for the government to add 20% tax relief but would she qualify because at this time she doesn’t pay any income tax. 

    The fact that she doesn't pay any income tax is irrelevant.  As a non earner (as opposed to a non taxpayer) she can contribute £3,600 gross each tax year.  £2,880 that she pays plus £720 the pension company will add as basic rate tax relief.

    Depending on when she takes the pension as income she could get the whole lot back without paying any tax, by a combination of the 25% TFLS and using her unused Personal Allowance (if she takes taxable pension income above her reduced Personal Allowance of £11,310 she would pay 20% tax on it).

    As this would be a new pension and she has been a non earner for the past 3 years could the contributions of £2880 be backdated 3 years?
  • ewasteewaste Forumite
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    As this would be a new pension and she has been a non earner for the past 3 years could the contributions of £2880 be backdated 3 years?
    No, although I can't just say "No" as the comment would be too short 🙂
  • DvnfermlingDvnfermling Forumite
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    ewaste said:
    As this would be a new pension and she has been a non earner for the past 3 years could the contributions of £2880 be backdated 3 years?
    No, although I can't just say "No" as the comment would be too short 🙂
    Thanks ewaste, it's always worth asking if it's something I know very little about   :smiley:
  • Dazed_and_C0nfusedDazed_and_C0nfused Forumite
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    You cannot ever backdate pension contributions.

    There is something called carry forward, which in certain circumstances allows additional contributions to be made in the current tax year however those rules are of no relevance in this case due to her low income.  In most cases you need to be earning > £40k to be able to use carry forward.
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