Paying into pension 1 year before retirement.

RogerPensionGuy

Sg28 said:

This is hypothetical im only 40.

Assume im 56 and retiring at 57. I have a SIPP and happen to have £60k in savings. Could I put the £60k into my pension get the tax relief only to draw on it the following year? 

Could I even do this, 1 day before my 57th birthday? 

This seniaro is a great example of potentially sensible financial planning. 

The last few years of paid employment a person could do absolutely maximum pension input saving tax, NI and hopefully via a smart scheme getting another 7 to 12% additional free input.

The above may need a little augmentation of short-term finances, but it may well prove very worthwhile if it allows a big old slice of tax-free cash when desired and also can allow pension to mature, compound and reduce the risk of big market falls if its a DC scheme. 

Pensions are normally called long term plans, but there is a period like about whereby its nice short and helpful. 

Pipthecat

Steve_666_ said:

Nest charges are significantly higher than say Vanguard, so a SIPP with a low cost provider would be better, and you will have a much better/larger choice in investments.

You can open the SIPP and transfer the Nest into it

Marcon

Horsewidower said:

basill said:

You could draw it as soon as the tax relief is added but it will count as taxable income after 25% tax free sum

Thank you so much for posting, that is very useful. So if I put in £10,000, when I withdraw it next year I will save the tax on 25% ie the tax on £2500...which is worth it I guess. Seems to good to be true. On another tack, I don't know how to pay cash into a Nest pension, anyone know if its allowed and if so how to do it? Can't find anything on the Nest site.

https://www.nestpensions.org.uk/schemeweb/memberhelpcentre/contributions/make-additional-contributions.html

NannaH

You have to *earn* enough to cover any lump sum you want to add to a pension, you can’t just wang in any amount you please and you have to allow for the tax relief - you could only add £48000 of you own money to make up the £60k. 

Pension income doesn’t count, neither do dividends if you have a ltd. Company.

People also get confused by the ‘using previous years’  allowance - first you have to use the £60k,  if you don’t earn more than that then you can’t use a previous year.

Horsewidower

NannaH said:

You have to *earn* enough to cover any lump sum you want to add to a pension, you can’t just wang in any amount you please and you have to allow for the tax relief - you could only add £48000 of you own money to make up the £60k. 

Pension income doesn’t count, neither do dividends if you have a ltd. Company.

People also get confused by the ‘using previous years’  allowance - first you have to use the £60k,  if you don’t earn more than that then you can’t use a previous year.

Thanks for this. Oops, my bad. I'm not earning money, so to get this straight, can I pay in £10,000 from my savings and still get the tax advantage?

NoMore

Horsewidower said:

NannaH said:

You have to *earn* enough to cover any lump sum you want to add to a pension, you can’t just wang in any amount you please and you have to allow for the tax relief - you could only add £48000 of you own money to make up the £60k. 

Pension income doesn’t count, neither do dividends if you have a ltd. Company.

People also get confused by the ‘using previous years’  allowance - first you have to use the £60k,  if you don’t earn more than that then you can’t use a previous year.

Thanks for this. Oops, my bad. I'm not earning money, so to get this straight, can I pay in £10,000 from my savings and still get the tax advantage?

No your limited to £2880 (£3600 after the tax relief is added by the pension)

Albermarle

Sg28 said:

This is hypothetical im only 40.

Assume im 56 and retiring at 57. I have a SIPP and happen to have £60k in savings. Could I put the £60k into my pension get the tax relief only to draw on it the following year? 

Could I even do this, 1 day before my 57th birthday? 

For clarity, when you retire, and when you can take money out of a pension are totally unrelated.
You can take a pension once you have reached the current minimum age, whilst you are still working. Or you can retire and not take the pension until many years later if you want/ have other sources of income to live off.

Many of the regular posters on here( including me)  significantly increased their contributions in the last few years of working, often by depleting savings.
You can only do this to any significant extent whilst you are still working, and have enough taxable income to cover the extra contributions. 

Dazed_and_C0nfused

Horsewidower said:

NannaH said:

You have to *earn* enough to cover any lump sum you want to add to a pension, you can’t just wang in any amount you please and you have to allow for the tax relief - you could only add £48000 of you own money to make up the £60k. 

Pension income doesn’t count, neither do dividends if you have a ltd. Company.

People also get confused by the ‘using previous years’  allowance - first you have to use the £60k,  if you don’t earn more than that then you can’t use a previous year.

Thanks for this. Oops, my bad. I'm not earning money, so to get this straight, can I pay in £10,000 from my savings and still get the tax advantage?

No, if you have no earnings which are relevant for pension contribution purposes then you are limited to adding £2,880 and £720 in basic rate tax relief will then be added by the pension company to make a gross contribution of £3,600.

sofm

I've wondered about this before - you can pay more into a SIPP than your allowance, but the relief is removed via the annual allowance tax charge at your marginal rate?  If that is cost neutral, then is there not a benefit for at least avoiding CGT on divis?  My maths cannot figure out if the charge also covers the potential 25% TFLS.

Brenster

I was curious about this, another hyperthetical question, if you were forunate enough to have say £100k savings, and earned a salary of say £35,000.  Is there anything to stop you putting the £35k into your pension to benefit from the government top up, and also the 25% tax free lump sum you can take on retirement ?  This scenario seems the much more sensible option if you are working, coming close to retirment, and have no immediate requirement to use your savings....
Thanks