Savings or pension

Albermarle

DB = Defined benefit pension , often referred to as a final salary pension .

AlanP_2

You can also pay up to your earned income level or £3600 into a pension alongside NHS one until you are 75.

So pay in your Gross Salary less NHS pension contributions in this tax year and HMRC will add 25% tax relief to it.

If next year you earn £0 then pay £2880 net in and HMRC will gross up to £3600 for you.

If you are living off savings or low paying p/t role then you could withdraw that lot tax free over a couple of years and bre 25% up.

Even if it was all taxable you make 6.25% due to 25% tax free lump sum as in:

£3600 @ 25% = £900 which leaves £2700 taxable so £2160 after tax - end result £2880 paid in by you and £3060 withdrawn.

Depending on your wife's situation she could do the same and maximise her tax free allowance.

Might even be worth living off savings for 12-24 months even if you get p/t job and paying wages in to a pension.

Bobziz

Thrugelmir said:

Albermarle said:

 allowing my pension to accumulate by annual uplift and reduction in penalty seems the best option

Although these DB pensions are reduced if you take them early , you of course get the pension for more years , so in theory at least you do not really lose out overall.

Each scheme calculates the 'penalty ' differently though , about 4 to 5% a year is usual I think . Clearly 4% is better than 5%

Then there's the loss of CPI inflationary increases on top which over 30 years or so could compound into a sizable amount. 

For my scheme it comes down to whether I can beat the ONS prediction on life expectancy. If I match it (84 years) then there's no difference in the total pension paid. If I beat it by 6 years then deferment wins by just under 6% or in my case about £40k.

Thrugelmir

Bobziz said:

Thrugelmir said:

Albermarle said:

 allowing my pension to accumulate by annual uplift and reduction in penalty seems the best option

Although these DB pensions are reduced if you take them early , you of course get the pension for more years , so in theory at least you do not really lose out overall.

Each scheme calculates the 'penalty ' differently though , about 4 to 5% a year is usual I think . Clearly 4% is better than 5%

Then there's the loss of CPI inflationary increases on top which over 30 years or so could compound into a sizable amount. 

For my scheme it comes down to whether I can beat the ONS prediction on life expectancy. If I match it (84 years) then there's no difference in the total pension paid. If I beat it by 6 years then deferment wins by just under 6% or in my case about £40k.

What was your assumed rate of inflation? Doesn't sound enough of a difference. I use a 2% rate when modelling. Compounding has a material impact over 30 years. 

Though £40k has to put into context of the size of the actual pension you are going to receive. 

Bobziz

Thrugelmir said:

Bobziz said:

Thrugelmir said:

Albermarle said:

 allowing my pension to accumulate by annual uplift and reduction in penalty seems the best option

Although these DB pensions are reduced if you take them early , you of course get the pension for more years , so in theory at least you do not really lose out overall.

Each scheme calculates the 'penalty ' differently though , about 4 to 5% a year is usual I think . Clearly 4% is better than 5%

Then there's the loss of CPI inflationary increases on top which over 30 years or so could compound into a sizable amount. 

For my scheme it comes down to whether I can beat the ONS prediction on life expectancy. If I match it (84 years) then there's no difference in the total pension paid. If I beat it by 6 years then deferment wins by just under 6% or in my case about £40k.

What was your assumed rate of inflation? Doesn't sound enough of a difference. I use a 2% rate when modelling. Compounding has a material impact over 30 years. 

Though £40k has to put into context of the size of the actual pension you are going to receive. 

True. I used 1.5%. 2% adds another £12k. For me the potential loss of £52k to enable me to retire 7 years early will hopefully be worth every penny. What doing the sums does do though is focus my attention on ensuring that if I do retire early that I try to make the very most of those early years. I've witnessed people spending their early retirement years sitting around being grumpy about the world rather than making the most of life.

Bobinyorkshire

Thank you again for all your helpful comments.

I am a bit confused about the private pension though. 

Whilst I understand the option to pay in and get tax relief with the opportunity to get 25% of the total tax free at 55, I thought the remainder had to be by way of annual payment with no access to the total sum.

Can you withdraw as much pension as you like, under the personal allowance threshold, if you are not earning?

I think I might have misunderstood - otherwise it would make sense for me to pay into a pension and get my government enhancement with a view to withdrawing it while I am not taking my NHS pension ie not earning.

Also, if the tax relief is only against a salary can you use it against previous years salaries?

Bobziz

AFAIK you can withdraw as much as you like. The first 25% is tax free. Anything above your PA is taxed.  If you have no earned income then you can withdraw just over £16k per year tax free.

You can use the previous 3? years salaries, but you have to have sufficient income in the current year to cover the combined contribution.

Others more knowledgeable will confirm....

DairyQueen

You can use up to the previous 3 tax years unused allowance.

To qualify for carry forward, you must have:

• Contributed less than your annual allowance in at least one of the previous three tax years
• Been a member of a pension scheme in each year you are carrying forward
• Used up your full annual allowance in the current tax year (i.e. have qualifying earnings of £40k+ and contributed the max £40k in the current year).

Your contribution (including carry forward) cannot be more than you have earned in the current tax year. 

Carry forward is therefore of most benefit to higher earners. Very high earners are subject to a taper that reduces their allowance.

https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/carry-forward

Once you take one penny of taxable income from a DC/SIPP the MPAA (Money Purchase Annual Allowance) is triggered and all future years contributions will be limited to £4kp.a. regardless of earnings. Non-earners can still contribute £3,600p.a. gross.

AlanP_2

Bobinyorkshire said:

Thank you again for all your helpful comments.

I am a bit confused about the private pension though. 

Whilst I understand the option to pay in and get tax relief with the opportunity to get 25% of the total tax free at 55, I thought the remainder had to be by way of annual payment with no access to the total sum.

Can you withdraw as much pension as you like, under the personal allowance threshold, if you are not earning?

I think I might have misunderstood - otherwise it would make sense for me to pay into a pension and get my government enhancement with a view to withdrawing it while I am not taking my NHS pension ie not earning.

Also, if the tax relief is only against a salary can you use it against previous years salaries?

You can withdraw as much as you like, anything over PA assessed at marginal tax rate so how much you would actually pay depend on overall taxable income situation.

My plan is to withdraw up to the limit of taxable salary this year (until end August, which will be very low as ramming AVC) + SIPP withdrawal up to top of BR tax level (+ appropriate 25% TFLS). 

Should mean I withdraw ~ £60k from SIPP in September and pay appropriate BR tax followed by ~£65k the following April for Tax Year 22/23.

We'll live off this and put some in to Savings and ISAs whilst my wife (who will carry on working) will pay as much as she can in to her AVC alongside her DB scheme and get 40% relief on a lot of it.


We are fortunate to then be able to take 2 * DB pensions plus 2 * AVCs which can be taken as the TFLS when my wife retires in April 23. If she decides to carry on working we'll do the same again.

Net result will be to offset the BR tax I've paid and thus we get ~£125k out of the SIPP essentially tax free.

The only way we can make this work is because we have fully shared finances and plan as a couple

redsi2

Good Morning Forumites, I wonder if there is anyone out there who can help me?

I am a 50 year old firefighter. I withdrew from the firefighters pension scheme in 2015 as I could not afford the contributions from my salary (4 kids are expensive!), and I would have had to work until I was 77 to get a full defined benefits pension.

I have a SIPP with 100k+ in it, and I can now afford to pay in a bit more. Rather than just topping up my payments and getting my tax relief, does anyone know if the 'opt in' thing means I can get my employer to add to my pension as it is, rather than rejoining their own expensive scheme? I know it sounds like I want to have my cake and eat it, but at 50 I can't see me running up ladders for much longer, so I am trying to get as much in my pot as possible before my knees give out!

Any help would be most appreciated.