Having to take early retirement.

Albermarle

Xenon123 said:

Albermarle said:

OP - If you do switch savings into a pension , then you need to do it before this tax year ends , so you can get the maximum tax relief whilst you are still working . You can not claim the relief retrospectively. It is very easy to open a new pension online. 

I can put the savings we have now (about £12k) into my existing workplace DC pension before April.  If I increase my pension payments monthly from April 22 onwards and I retire before the end of the 22/23 tax year, will those increased payments go towards the 25% lump sum I can claim?  Sorry if this sounds like a silly question, my head is spinning now! :-:smile:

It is not so difficult 

Any contributions you add to your pension will get 25% added to them . ( assuming you do not add more than you get paid but it seems that is not the case) 
When you take the pension - 25% is tax free and the rest is taxable ( but whether you actually pay tax depends on your other income /if it is over the personal allowance) 
Probably it would be better to wait to take income from the pension from 23/24 so you can fully use your personal tax allowance , but nothing to actually stop you taking it straight after you retire .

itsmeagain

Xenon123 said:

itsmeagain said:

Xenon123. There's a point that has been made by others that I'm not sure has got through with respect to your proud paying off of mortgage & rate you are putting away savings.

(1) It's too late for you, but for anyone else reading this, paying off your mortgage was a financial mistake. To save say 1.5% mortgage interest, you have paid it off using taxed & NI'd income that could have gone into pension and made 10%. This pension pot could have been used later to pay off your mortgage and still have money left over.

Our mortgage had effectively run its course.  It was a relatively small amount needed to clear it.  The gains in using the funds we had by putting it to a pension instead would not really have made a huge difference in the overall scheme of things.

I did say "it's too late for you". It works best when you have an interest only mortgage and don't pay off any capital until the end. It's a similar principle to an endowment mortgage without being ripped off by the fees that made so many fail. After 25 years of global 100% share investment, your pot would have been double the capital loan, for the same monthly cost as a repayment mortgage.
To be honest, I didn't use a pension to fund mine, and if I had, I'd have been well over the LTA (including my DB). After reading 'motley fool', I actually used FTSE share ISA's that gave circa 12.5% year on year. I have always made money out of mortgages and have even re-mortgaged to fund ISA's. 

itsmeagain

Xenon123 said:

itsmeagain said:

Albermarle said:

For Point 1 ) It may have been a mistake in pure rational financial terms , but many people just like to get the mortgage paid off for 'peace of mind' especially if their job security or health is not great .

For Point 2 ) - I agree . Even if the employer is not operating a salary sacrifice scheme , then pension contributions are still probably the best way forward. Especially if when taking the pension, you can utilise the personal tax allowance

OP - If you do switch savings into a pension , then you need to do it before this tax year ends , so you can get the maximum tax relief whilst you are still working . You can not claim the relief retrospectively. It is very easy to open a new pension online. 

Thanks.
So, OP... Lets say that you earn £40kPA and you manage to squeeze £10 into your work pension. Deplete your savings by putting the other 30K (or what you can afford) into your DC (if they accept external payment) or open something like a Vanguard LS60 SIPP (in the next 2 months)!
You can then start taking it back out next year under the 25% tax free & £12.7k PA with no NI to pay either.
You won't get it all out tax free before age 67, but you can 'top up' your State pension by circa 4kPA from your SIPP without tax, and if you don't reach an age to spend it all, then it will go to family tax free.
No one here knows who you are, so why not share your period 10 payslip data here and we'll be more precise on the figures/opportunity.

OK.  Thanks guys.  My employer does offer salary sacrifice.  I currently pay 6% in and the company pays 15% which is the maximum they will pay.  How much of a lump sum can I put in before the end of this tax year and how much extra would I be allowed to put in next year before beginning drawdown?
I grasp exactly what you are saying and can see the sense in it.  The problem is, topping up my state pension at 67 is not my priority. Nice as it is, I think we will be comfortable enough on the approx £37k a year we will have guaranteed at that age. Before considering diverting savings to my pension, I would already have breached the tax free monthly allowance before accounting for the increased contributions, so I would only benefit from the full tax free amount if I left it to after 67.  Of course, my wife would benefit from it then and that would be great, but we are looking to enjoy our retirement as much as possible over the next 10 years if I am about that long.
I suppose though that even if I did want to access the extra amount over the next 10 years I could still take it and pay the tax and be no worse off given it wasn't taxed in the first place, and possibly have enjoyed some growth as well.
I don't know why I am even debating this, it makes perfect sense to add to my pension rather than save it.
I suppose I just wanted to have unfettered access to it if it was ever needed quickly..

To clarify, I'm not suggesting that top-up your state pension years. I'm suggesting that if you reach 67, you will be able to top-up the state pension with any DC/SIPP pension that you have left if you live that long. If you don't, you'll probably be happy that the wife gets it tax free (having never paid any tax on it).

You are correct that even if you exceed the 12.7kPA drawdown, you effectively only pay 15% tax on the additional you take out, having saved 32% when you paid it in (or take the 25% tax free).

You need to ask your pension dept about the max you can put in for the next 2 months & the following year. Whether its a lump sum or you change to paying a high percentage doesn't really matter. You will be limited to a net income of circa £1k month (there's some sort of min wage rule). There is also a £40kPA + carry forward limit that you are unlikely to exceed.

Whilst you may still be able to add to your DC (or new SIPP) in this tax year (up to 80% of your taxable income externally) to make up for missed opportunity for last 10 months, you will not receive salary sacrifice. This means that you will have lost the Ni benefit but still get the tax benefit (still worth doing).

Next year, you just need to pay the max that they will permit into your DC using salary sacrifice (instead of saving).

itsmeagain

Albermarle said:

Xenon123 said:

Albermarle said:

OP - If you do switch savings into a pension , then you need to do it before this tax year ends , so you can get the maximum tax relief whilst you are still working . You can not claim the relief retrospectively. It is very easy to open a new pension online. 

I can put the savings we have now (about £12k) into my existing workplace DC pension before April.  If I increase my pension payments monthly from April 22 onwards and I retire before the end of the 22/23 tax year, will those increased payments go towards the 25% lump sum I can claim?  Sorry if this sounds like a silly question, my head is spinning now! :-:smile:

It is not so difficult 

Any contributions you add to your pension will get 25% added to them . ( assuming you do not add more than you get paid but it seems that is not the case) 
When you take the pension - 25% is tax free and the rest is taxable ( but whether you actually pay tax depends on your other income /if it is over the personal allowance) 
Probably it would be better to wait to take income from the pension from 23/24 so you can fully use your personal tax allowance , but nothing to actually stop you taking it straight after you retire .

So, Albermarle is correct, but to answer the first part, you can add your £12k savings to your DC or SIPP but you won't get the Ni back (because it's too late to sacrifice your salary). The pension paid direct via payroll will get both tax & NI benefit.