Naive (or plain stupid) Question

sgx2000

I am 4 years from retirement.
I have savings of approx £40,000 (sat in a bank earning next to nothing)

Is there any benefit to putting this into my workplace pension (Aviva) ???

My thought process is
If I put the 40k into a pension fund... I am going to have to pay tax on it to take it back out...
And the investment gains in the pension will not even pay the tax I will incur to take the money back out at retirement...

Am I wildly wrong?

zagfles

Yes. You get tax relief on money you put into a pension subject to limits (earned income, annual allowance). This will usually more than make up for tax on the way out. How much do you earn? How does the workplace pension take contributions?

jimi_man

It depends on a lot of things, mostly your tax situation.  At the very basic level, you'd only pay 15% tax on the way out (25% of the pension is tax free, so 25% of 20% tax is 5%, leaving 15%).

However if you won't be a taxpayer in retirement then you can potentially take it all out tax free, if you withdraw it carefully within the personal tax thresholds.

If you're a higher rate taxpayer now then you'll get 40% uplift on the way in.

Further complications are that you need to be earning a set amount to be able to add £40k into your pension.

Also what other savings you have, what pension provision you have, state pension etc.

So, not really enough information to say.

NoMore

As others have indicated its not stupid or wildly wrong, in fact it could be a great idea, however you do need to provide a bit more information for people to give you the best advice. 

sgx2000

Thanks for the reply..
I earn £37K
Workplace pension is with Aviva - a managed fund
Company pays in £3200 per year
As far as I am aware I can put in a lump but the company will not match this in any way...

I can just add the 40k online but how does the tax relief on this happen?

Sorry if this is just a stupid question..

michaels

You cancontribute as much as you earn up to 40k. Depending on your contribution method you can claim tax releif on all your contributions, even bits in your personal allowance on which you pay no tax. Reducing your income may also give you access to certain benefits. 

jimi_man

You can only pay up to your earnings into a pension, in any tax year - so a maximum of £37k minus whatever is paid into your pension. So £3200 (plus any contributions by you?) will reduce that down even further.

You can however use previous years allowances - hopefully someone more knowledgeable will be along to explain that in more detail!

In terms of the tax relief, the pension company will add 25% to the amount you pay in.

sgx2000

michaels said:

You cancontribute as much as you earn up to 40k. Depending on your contribution method you can claim tax releif on all your contributions, even bits in your personal allowance on which you pay no tax. Reducing your income may also give you access to certain benefits. 

Hi
Would the tax relief have to be applied for by me,,, or would Aviva automatically ask for it?

Again please be patient I am just on the start of my journey to retirement 

xylophone

Workplace pension is with Aviva - a managed fund
Company pays in £3200 per year

Do you mean that you make no personal contribution (this is a salary sacrifice arrangement whereby the company pays the whole as a company contribution)?

saucer

sgx2000 said:

michaels said:

You cancontribute as much as you earn up to 40k. Depending on your contribution method you can claim tax releif on all your contributions, even bits in your personal allowance on which you pay no tax. Reducing your income may also give you access to certain benefits. 

Hi
Would the tax relief have to be applied for by me,,, or would Aviva automatically ask for it?

Again please be patient I am just on the start of my journey to retirement 

You pay it in net and AVIVA will gross it up. You put £80 in, it becomes £100. You’ll kick yourself you didn’t do it before

Brie

Have you checked your state pension forecast and if you have any missing years?  Might be good to look and see if you can buy any extra there.

Well done on starting 4 years out.  I started seriously looking at things at a mere 12 months.