Will hit higher tax rate for the first time this year

SkyyeBlue

Hi folks,

My planned slow slide into retirement (I'm about to turn 61 and work part time) has somewhat changed this year. I have accepted a full time team leaders job and the pay, together with the pension I currently have, will take my income to £54660 this year. I have never been a higher rate tax payer and have always worked in the public sector so everything has always been worked out for me.

I opted out of the pension in my current employment, looking back this was probably not the best move, but I was working limited hours and the pay was my 'spending money' on top of the pension I have already. Seven years ago, I honestly probably didn't think I'd still be enjoying my job so much that I'd still be working, let alone getting promoted.

Should I pay something into a pension fund this year? I think I know the answer to this hence the post.

Can I opt into my employer's pension scheme when I opted out of it 7 years ago? I can ask that question at work next week, but you all know so much you may be able to answer this too; I am police staff so it'll be LGPS I believe.

If I can't, what would be the simplest pension vehicle for me? I am pretty (totally) risk averse and I do plan to retire in about 4 years, so this is purely to gain the tax advantages rather than accrue masses of extra money.

Ideally I'd like something where I could use whatever is in this new pension to top up my current pension between retirement and my SP, so I am literally looking at paying in for  a maximum of 4 years, and taking all the money over an 18 month period. I also have a very small LGPS pension which is deferred, so I'm planning to take that when I retire from my current role also.
Actually can I add to my existing deferred LGPS pension?

So many questions! Sorry!

Any thoughts, help, insight will be very gratefully received.

Dazed_and_C0nfused

I opted out of the pension in my current employment, looking back this was probably not the best move, but I was working limited hours and the pay was my 'spending money' on top of the pension I have already. Seven years ago

😢.  Sadly that is likely to be a lot of pension you've missed out on.  And probably paid more tax than you needed to for the privilege 😳.

The simplest, and almost certainly the best, option would be to join your employers scheme asap.  Assuming that that is possible it could in itself immediately stop you from being a higher rate as it will be a "net pay" scheme meaning your salary of £54,660 will probably be ~£50k of taxable income.

If you can join LGPS then each year you earn £54,660 you will accrue a pension of £1,115. 

If you can do better with your contributions of £4,646 (probably more like a real cost of £3k after the tax saving) please let us know 😄

SkyyeBlue

Thank you

I'll make some inquiries on Monday. My actual salary will be 28700, the rest is pension, so I might have to look at paying some extra into the pension as it would only be 11% (I think) of the 28700, which may not bring me below the higher rate threshold. I think I can opt back in (crossing everything as it would definitely make life simpler)

Hopefully someone will be able to give me the figures at work to make some decisions 

Grumpy_chap

What is the status of the pension you already draw?
Has it activated the MPAA?

SkyyeBlue

I have a police pension, so defined benefit I believe, not heard of MPAA.

My pension is 25,941 and my new pay (from May) will be 28,700 pa.

My 12,570 allowance is on my pension, so I pay tax on all my salary.

If I opt in to the LGPS pension it looks like my contribution would be 6.5%, I'm not sure if that would be enough to not pay higher rate, or if I'd have to do AVC perhaps, it looks like that may be an option on our scheme.

Grumpy_chap

SkyyeBlue said:

I have a police pension, so defined benefit I believe, not heard of MPAA.

My pension is 25,941 and my new pay (from May) will be 28,700 pa.

MPAA is only triggered if you have drawn DC pension, so nothing to consider here as you are drawing DB pension.

Your pension contributions need to be £4,371 unless you have anything else that already reduced your ANI (job expenses, gift aid).
Don't forget to add in to your ANI for anything such as interest income.

Albermarle

If you can join LGPS then each year you earn £54,660 you will accrue a pension of £1,115.

So like the Police pension and other public sector pensions, it is a very generous scheme compared to the typical private sector pension, so you should opt into it asap, regardless of your tax position ( although that is the icing on the cake)