Spare cash to put into a pension

whizzywoo

My husband and I have some spare weekly/monthly cash available for the next 2 or 3 years.

I am 68 and currently receiving the State Pension and I receive the maximum amount.

My husband will be eligible to claim his State Pension at the end of August 2024 when he turns 66.  He will receive the maximum amount and it cannot be increased any further according to his Pension Forecast.

Neither of us are working.  We both receive Disability Benefits and some Pension Credit.

I cashed in the only private pension I had several years ago to pay off the mortgage when my husband became ill.

My husband has a very small private pension which he claimed a few years ago and he receives a small annuity from it.

We don't pay any income tax because the only taxable income we have is my State Pension and my husband's small annuity (less than £1,000 per annum)

I understand that my husband could invest £2,880 per annum into a private pension of some sort and because of tax relief it would be topped up to £3,600.

Then the money could be left in the Pension Scheme to take an annuity at some time or it could be taken as cash.

What I am not clear about is, if the £3,600 was taken as cash would tax be deducted?  And if tax was deducted would it be possible to claim it back, given that there will be unused Personal Allowances available?

Dazed_and_C0nfused

What I am not clear about is, if the £3,600 was taken as cash would tax be deducted? And if tax was deducted would it be possible to claim it back, given that there will be unused Personal Allowances available?

Firstly you need to make you look at each person independently.

So you could contribute £2,880 and this would become a fund of £3,600 with the tax relief included.

If you took it all in one go £900 would be tax free and £2,700 would be taxable.

If your State Pension is say £9,340 then you would have taxable income of £12,040 and you would ultimately pay no tax (tax of £330 would be deducted by the pension company but you would get it back in due course, either by you claiming it back or, if you weren't in a rush for it, HMRC will automatically refund it, usually in the summer after the end of the tax year in question).

You can do this each year till you reach 75 however the Personal Allowance is expected to be frozen for a few years whilst the State Pension will always increase so eventually you may need to pay a small amount of tax each year.

Slightly different for your husband.  Clearly no tax would be payable now (again £330 would be deducted which he would get back) but once he starts to get his State Pension he would become a taxpayer.

In a full year, using current tax year figures, he would have,

State Pension £9,340

Private pension £1,000

New pension £2,600

Total taxable income £13,040

Personal Allowance £12,570

Income to be taxed £470

Tax payable £94

You refer to the maximum State Pension.  This is getting on for £20k/year but I assume you mean the standard new State Pension of £179.60/week.  

Maybe you could clarify the actual amounts?

And the actual annuity amount he gets.

whizzywoo

@Dazed_and_C0nfused thank you for your advice.  Yes it is the Standard New State Pension.

I currently receive £179.60 per week State Pension.  And in August 2024 my husband will receive the same (or whatever the new increased rates are).

His annuity is £993 per annum and does not increase.

whizzywoo

Another question please.
What sort of private pension would be the most efficient way to do it and how do we go about it?

Albermarle

There is actually no such thing technically as a private pension, although many people use the expression.

You want an investment platform that offers pensions/SIPPs that will not penalise you for being a small investor and with good customer service . The one often mentioned in this case is HL SIPP - Best SIPP Provider 2021 - Hargreaves Lansdown

You can hold the money as cash but it will make very little/zero interest.
Or you can place it in investment funds where it might grow or go down .

whizzywoo

Thank you for the link @Albermarle

I have had a quick read through and it seems reasonably straight forward.  Will read it properly over the next few days and we will think about it.

I understand the risks regarding investments going up or down.  Money in the bank is not earning much interest and I would like to benefit from the tax relief.