Contributing to a pension after taking early retirement

atw_uss

Please excuse the naivety of my question ... any pointers/easy explanations gratefully received.

I've pulled the trigger and will be retiring on my 56th birthday this summer I'll be taking my USS pension - not huge but enough, and I can boost it with previous MPAVCs, as well as taking the remaining DC pot as a tax-free lump sum (- all confirmed by USS). My understanding is that I won't trigger the MPAA by doing this.

While I'll be taking stock and having a decent break, I intend to (possibly) do some bits and pieces of work in the future and am considering taking out an additional pension as a top-up. My understanding is that in the recent budget, the limits on this have been raised (but only in the case the MPAA has been triggered). Does this mean that I'll be able to pay pretty much what I want into a new DC pension without any risk of 'recycling' regardless of income, or would this be dependent on earned income? I'm aware there is an upper limit of £60K in such instances, which definitely won't affect me! Thanks for any (kind) thoughts.

Albermarle

The amount you can pay into a pension and gain tax relief, is always constrained by your earned income.

So if you earn say £10K in a tax year, the max you can add is £8K and the provider will add £2K tax relief.

Pension income does not count .

molerat

You can only contribute up to a maximum of your relevant income - i.e. wages.  if you have no relevant income you are limited to £3600 gross so can only pay in £2880.  Pension income is not relevant income.

atw_uss

Ah, that makes sense @molerat and @Albermarle, thank you.

It's good to know I can still pay in a little bit if I want even if not earning.

Albermarle

atw_uss said:

Ah, that makes sense @molerat and @Albermarle, thank you.

It's good to know I can still pay in a little bit if I want even if not earning.

What you could do is pay in the £2880, and then if you earn more than £3600,  you could top it up later in the tax year.

p00hsticks

And of course, check your State Pension forecast and if necessary, consider making voluntary contributions going forward to ensure you get the maximum entitlement.

atw_uss

Yes, that's definitely on the agenda, @p00hsticks - I am currently 5 years short, which should be 4 years by the end of this tax year.

The dilemma is that I missed two years (2009/10 and 2010/11) that I am eligible to 'buy back' now for around £1,400, having made a small contribution each year. That would just mean two years left and 11 years to contribute. Bit of a judgement call whether to buy them now slightly cheaper and have peace of mind, or wait and see if I work them anyway or pay the voluntary contributions as I go.

What I imagine is uncertain is whether it will still be possible to buy back years in the future or whether they might become much more expensive. I've not seen anything to suggest this will happen though.

Scot_39

See

https://www.moneysavingexpert.com/savings/voluntary-national-insurance-contributions/

As a quick guide. 

But as he also says - check will give you benefit.

Some people paid for no benefit in past.

molerat

atw_uss said:

Yes, that's definitely on the agenda, @p00hsticks - I am currently 5 years short, which should be 4 years by the end of this tax year.

The dilemma is that I missed two years (2009/10 and 2010/11) that I am eligible to 'buy back' now for around £1,400, having made a small contribution each year. That would just mean two years left and 11 years to contribute. Bit of a judgement call whether to buy them now slightly cheaper and have peace of mind, or wait and see if I work them anyway or pay the voluntary contributions as I go.

What I imagine is uncertain is whether it will still be possible to buy back years in the future or whether they might become much more expensive. I've not seen anything to suggest this will happen though.

With being in the USS there is a fair possibility that those years will not add to your pension.  If you want to post up a few details from your forecast someone will give you a definite on that.

Current £££.pp amount accrued up to April 2022
Number of pre 2016 NI years full
Number of post 2016 NI years full
Any COPE amount shown

atw_uss

Thanks @molerat. I phoned last week and they said those two years would contribute. I added another year a couple of years ago and it took a while to show but definitely closed the gap. I was doing a small amount of paid USS work during the two incomplete years (completing PhD at the time). Transferred in a number of years from TP. Forecast:

Current = 159.99 (5 more years needed)
Pre (and including) 2015/16 full = 26 years
2016 onwards full = all
No COPE amount shown

Presuming this looks OK but any thoughts appreciated. 

molerat

There must be a COPE amount, the numbers don't work without one.  There should be a "You've been in a contracted-out pension scheme" bit with a click link to the COPE.

Not that it really matters as with only 26 pre 2016 years you can safely add up to 4 more, if available, each adding £4.73 to your pension amount as opposed £5.29 for a post 2016 year.