Pension & drawdown query

jamesd

sevenhills said:

jamesd said:

There are limits on recycling pension tax free lump sums into new pension contributions but you're allowed up to £7,500 per rolling 12 month period (not calendar or tax year). Since you can save both NI and income tax this could be quite a help in improving your retirement. You'd take up to £7,500 tax free lump sum from the pension and sacrifice the same or more to do this.

I thought that "As long as you received no other tax-free cash in the previous 12 months, it would not be caught under the recycling rules" would mean that you could only do it every other year.

"The recycling rule applies when all of the following conditions are met:

o the individual receives a pension commencement lump sum

o because of the lump sum, the amount of contributions paid into a registered pension scheme in respect of the individual is significantly greater than it otherwise would be. Further guidance about what is a significant increase in contributions is at PTM133830

o the additional contributions are made by the individual or by someone else, such as an employer

o the recycling was pre-planned. Further guidance about determining whether the recycling was pre-planned is at PTM133820

o the amount of the pension commencement lump sum, taken together with any other such lump sums taken in the previous 12 month period, exceeds

£7,500 for events on or after 6 April 2015"

£7,500 per rolling twelve month period is another way of writing "the amount taken today plus all of the other amounts taken within the last twelve months needs to be under £7,500 to be within the easiest to apply limit".

Watsy

ussdave said:

Watsy said:

jamesd said:

Salary sacrifice is great. I'm wondering how old you are Watsy and what savings and rough income you have? That's to work out whether you can profit from making even higher pension contributions and have easy access to the money if needed by being 55 or older.

There are limits on recycling pension tax free lump sums into new pension contributions but you're allowed up to £7,500 per rolling 12 month period (not calendar or tax year). Since you can save both NI and income tax this could be quite a help in improving your retirement. You'd take up to £7,500 tax free lump sum from the pension and sacrifice the same or more to do this.

Best to use salary sacrifice instead of personal contributions, provided that you can do it while staying above minimum wage after the sacrifice. Your employer isn't allowed to go below minimum wage and some people need to use personal contributions to contribute more. Also, salary sacrifice below the income tax personal allowance gets you no tax relief so personal contributions can be netter in that part of the income.

Hi James, almost 51 earning around 25k a year and due to being a beneficiary on a will reasonably recently have around 80K+ in savings sitting in bank accounts and premium bonds. Mortgage is paid off and we have one young lad who's still at school so will need to see what his options are once he hits university age. There's a possibility we might move house in a couple of years but it won't be anything extravagant. 

I'm sure jamesd will have a more comprehensive answer but my inclination based on those figures would be:

1. As cfw1994 suggests, contribute up to your ISA limit into a stocks and shares ISA.
2. Increase your salary sacrifce payments to take you down to the point of not paying tax on your earnings (so that would be around 50% of your earnings, assuming that still leaves you above minimum wage).
3. If this means you don't have enough money for day-to-day expenses, draw on your £80k (£60k after the ISA top-up) pot monthly to give you enough to maintain your current standard of living.
4. Continue this until you "run out" of the £80k pot.  Assuming that takes at least 2 years, make sure another £20k goes into an ISA next year.

5.Optionally: Also put up to about £10k into a cheap SIPP each year, which you can draw upon separately to bridge years if you require that.  Depending on the costs and conditions of your workplace pension this may be a better or worse idea vs just putting in additional lump sums into your pension.

The above assumes you have no significant debts.

Basically - you should maximise the salary sacrifice where possible as this is the most tax-efficient way to save into your pension by a large margin.

edit: Assuming you don't want to retire before an age that you can draw pensions at I would also consider draining the ISAs to allow more salary sacrifice once you have exhausted the main pot.

edit2: Do you have a partner?  What is their pension and earnings situation?  You may want to consider topping up their pension too as they want to at least be at a point where they can take advantage of the person tax free allowance, if possible.

Thanks for the very informative reply, it's very much appreciated and a great guide on what I should be doing. Yes, I have a partner, she's a teacher and has paid in to her pension for years. She was telling me she'll have review when she's 50 in another year or two. 

ussdave

Watsy said:

ussdave said:

Watsy said:

jamesd said:

Salary sacrifice is great. I'm wondering how old you are Watsy and what savings and rough income you have? That's to work out whether you can profit from making even higher pension contributions and have easy access to the money if needed by being 55 or older.

There are limits on recycling pension tax free lump sums into new pension contributions but you're allowed up to £7,500 per rolling 12 month period (not calendar or tax year). Since you can save both NI and income tax this could be quite a help in improving your retirement. You'd take up to £7,500 tax free lump sum from the pension and sacrifice the same or more to do this.

Best to use salary sacrifice instead of personal contributions, provided that you can do it while staying above minimum wage after the sacrifice. Your employer isn't allowed to go below minimum wage and some people need to use personal contributions to contribute more. Also, salary sacrifice below the income tax personal allowance gets you no tax relief so personal contributions can be netter in that part of the income.

Hi James, almost 51 earning around 25k a year and due to being a beneficiary on a will reasonably recently have around 80K+ in savings sitting in bank accounts and premium bonds. Mortgage is paid off and we have one young lad who's still at school so will need to see what his options are once he hits university age. There's a possibility we might move house in a couple of years but it won't be anything extravagant. 

I'm sure jamesd will have a more comprehensive answer but my inclination based on those figures would be:

1. As cfw1994 suggests, contribute up to your ISA limit into a stocks and shares ISA.
2. Increase your salary sacrifce payments to take you down to the point of not paying tax on your earnings (so that would be around 50% of your earnings, assuming that still leaves you above minimum wage).
3. If this means you don't have enough money for day-to-day expenses, draw on your £80k (£60k after the ISA top-up) pot monthly to give you enough to maintain your current standard of living.
4. Continue this until you "run out" of the £80k pot.  Assuming that takes at least 2 years, make sure another £20k goes into an ISA next year.

5.Optionally: Also put up to about £10k into a cheap SIPP each year, which you can draw upon separately to bridge years if you require that.  Depending on the costs and conditions of your workplace pension this may be a better or worse idea vs just putting in additional lump sums into your pension.

The above assumes you have no significant debts.

Basically - you should maximise the salary sacrifice where possible as this is the most tax-efficient way to save into your pension by a large margin.

edit: Assuming you don't want to retire before an age that you can draw pensions at I would also consider draining the ISAs to allow more salary sacrifice once you have exhausted the main pot.

edit2: Do you have a partner?  What is their pension and earnings situation?  You may want to consider topping up their pension too as they want to at least be at a point where they can take advantage of the person tax free allowance, if possible.

Thanks for the very informative reply, it's very much appreciated and a great guide on what I should be doing. Yes, I have a partner, she's a teacher and has paid in to her pension for years. She was telling me she'll have review when she's 50 in another year or two. 

Is she in the TPS?  If so, and if she is earning a reasonable figure, she likely has a great pension entitlement.  I'm not that familiar with the TPS but if that is what she has I'd definitely concentrate more on your pension with this money, though it may be worth her setting up a separate SIPP to draw upon between when she wants to retire and when she wants to draw the TPS (to avoid early retirement factors as much as possible).  

Watsy

ussdave said:

Watsy said:

ussdave said:

Watsy said:

jamesd said:

Salary sacrifice is great. I'm wondering how old you are Watsy and what savings and rough income you have? That's to work out whether you can profit from making even higher pension contributions and have easy access to the money if needed by being 55 or older.

There are limits on recycling pension tax free lump sums into new pension contributions but you're allowed up to £7,500 per rolling 12 month period (not calendar or tax year). Since you can save both NI and income tax this could be quite a help in improving your retirement. You'd take up to £7,500 tax free lump sum from the pension and sacrifice the same or more to do this.

Best to use salary sacrifice instead of personal contributions, provided that you can do it while staying above minimum wage after the sacrifice. Your employer isn't allowed to go below minimum wage and some people need to use personal contributions to contribute more. Also, salary sacrifice below the income tax personal allowance gets you no tax relief so personal contributions can be netter in that part of the income.

Hi James, almost 51 earning around 25k a year and due to being a beneficiary on a will reasonably recently have around 80K+ in savings sitting in bank accounts and premium bonds. Mortgage is paid off and we have one young lad who's still at school so will need to see what his options are once he hits university age. There's a possibility we might move house in a couple of years but it won't be anything extravagant. 

I'm sure jamesd will have a more comprehensive answer but my inclination based on those figures would be:

1. As cfw1994 suggests, contribute up to your ISA limit into a stocks and shares ISA.
2. Increase your salary sacrifce payments to take you down to the point of not paying tax on your earnings (so that would be around 50% of your earnings, assuming that still leaves you above minimum wage).
3. If this means you don't have enough money for day-to-day expenses, draw on your £80k (£60k after the ISA top-up) pot monthly to give you enough to maintain your current standard of living.
4. Continue this until you "run out" of the £80k pot.  Assuming that takes at least 2 years, make sure another £20k goes into an ISA next year.

5.Optionally: Also put up to about £10k into a cheap SIPP each year, which you can draw upon separately to bridge years if you require that.  Depending on the costs and conditions of your workplace pension this may be a better or worse idea vs just putting in additional lump sums into your pension.

The above assumes you have no significant debts.

Basically - you should maximise the salary sacrifice where possible as this is the most tax-efficient way to save into your pension by a large margin.

edit: Assuming you don't want to retire before an age that you can draw pensions at I would also consider draining the ISAs to allow more salary sacrifice once you have exhausted the main pot.

edit2: Do you have a partner?  What is their pension and earnings situation?  You may want to consider topping up their pension too as they want to at least be at a point where they can take advantage of the person tax free allowance, if possible.

Thanks for the very informative reply, it's very much appreciated and a great guide on what I should be doing. Yes, I have a partner, she's a teacher and has paid in to her pension for years. She was telling me she'll have review when she's 50 in another year or two. 

Is she in the TPS?  If so, and if she is earning a reasonable figure, she likely has a great pension entitlement.  I'm not that familiar with the TPS but if that is what she has I'd definitely concentrate more on your pension with this money, though it may be worth her setting up a separate SIPP to draw upon between when she wants to retire and when she wants to draw the TPS (to avoid early retirement factors as much as possible).  

As far as I know, thats the one. She's not in at the minute to ask her but the other day she mentioned just being in one that the teachers are in so I just assumed it was sort of universal pension that teachers sign up for. I think she should be well covered for her retirement from what she has said, it's just myself that needs to get sorted. I'll have a word with the wages department next week and see about increasing my contributions and also take a look at the options folks have advised me on here.