I don't really need my pension yet.

clive0510

Yesterday I retired early from full time employment and I have a few questions. 
First of all, I'm going to live for the time being off the money I got from the sale of my mums house, in the summer. so at the moment I don't need my p/p. 
so should I do that and just leave the p/p where it is to grow a bit more?
Also should i continue to pay into my p/p? or I could even put a lump sum into it? 
one more thing. I have made sufficient ni contributions for when my state pension comes out in 7 yrs time. so do I stop paying ni contributions now? or will my employer sort that out. 
Also is there anything else that I need to consider? any advice appreciated.

Qyburn

You might want to consider taking enough out of the personal pension to fully use this year's tax free personal allowance. Taking the money tax free this year, whereas taking it in later years you'd pay tax. 

That's what I'm doing, I don't need the money this year so I'm taking it at the end of this tax year for use next year.

Sea_Shell

Qyburn said:

You might want to consider taking enough out of the personal pension to fully use this year's tax free personal allowance. Taking the money tax free this year, whereas taking it in later years you'd pay tax. 

That's what I'm doing, I don't need the money this year so I'm taking it at the end of this tax year for use next year.

Plus 1 to this.

However it's also worth considering your potential IHT situation, AIUI money remaining within a pension wouldn't be included in your estate.

If it moves from pension to savings, it could attract IHT.

clive0510

Qyburn said:

You might want to consider taking enough out of the personal pension to fully use this year's tax free personal allowance. Taking the money tax free this year, whereas taking it in later years you'd pay tax. 

That's what I'm doing, I don't need the money this year so I'm taking it at the end of this tax year for use next year.

Hello. thanks for reply. I could take the 25% as you suggest. but I don't need it. so what would I do with it? maybe I could take it and put it in a income bond, and have the income paid into my current account?

GrumpyDil

Couple of points.

The suggestion above is to take out a sum to use up this year's annual allowance but are still working part time as you refer to retiring from full time employment? Either way the suggestion is to make sure you use up your entire annual allowance if anything is available to be used. 

Also,if there is a chance you might want to contribute more into your pension, assuming it is a DC pension taking anything taxable would trigger the MPAA which would limit future contributions to 10000 per year.

Just something to be aware of. 

af1963

You'll have earned about half a year's salary this year - if that is *less* than the annual tax free allowance, it might be worth considering what others have suggested - to take enough taxable pension so that you use up the taxfree allowance. If you've already earned more than that, you don;t have that option this tax year ( but you can consider it for next tax year)

Your question on NI contributions:  these are taken by your employer, and will stop automatically.  As long as you're *certain* that you already have enough NI for a full pension, no need to do anything else.

If you have spare cash, you're allowed to pay in to your personal pension this tax year, up to your total "relevant earnings" from employment. Deduct the gross amount that you have already paid in as personal contributions to any pension, to find out how much more you can contribute, then if you pay in 80% of that amount, it will receive tax relief to make it up to the full amount. You can get tax relief even on the part of your salary that was tax free.

(Employer contribs, or salary sacrifice payments, don't count towards this salary limit , but the total including *all* contributions needs to stay under the annual limit of £60K although there's a bit of flexibility to let you carry unused allowance from previous years.) 

Next year, if no earnings, you're allowed to contribute a standard amount of £2880 which can be grossed up to £3600.

clive0510

GrumpyDil said:

Couple of points.

The suggestion above is to take out a sum to use up this year's annual allowance but are still working part time as you refer to retiring from full time employment? Either way the suggestion is to make sure you use up your entire annual allowance if anything is available to be used. 

Also,if there is a chance you might want to contribute more into your pension, assuming it is a DC pension taking anything taxable would trigger the MPAA which would limit future contributions to 10000 per year.

Just something to be aware of. 

GrumpyDil said:

Couple of points.

The suggestion above is to take out a sum to use up this year's annual allowance but are still working part time as you refer to retiring from full time employment? Either way the suggestion is to make sure you use up your entire annual allowance if anything is available to be used. 

Also,if there is a chance you might want to contribute more into your pension, assuming it is a DC pension taking anything taxable would trigger the MPAA which would limit future contributions to 10000 per year.

Just something to be aware of. 

its a personal pension set up by me through a financial advisor. so I assume thats a dc pension. 
as for taking the 25% as I said I don't need it. so I dont know what I would do with it. 
the other thing I would like to know, am I doing the correct thing living off my inheritance, and leaving my p/p where it is?

Roger175

Also, don't forget this tax year will be your last opportunity to top up your pension, as you will have relevant earnings this year. Since you appear to have access to funds from your Mum's house sale, you could work out what you have earnt this year, less any pension contributions you've made to date and bung the whole amount into your pension. This would receive a significant boost from the tax relief.

Qyburn

clive0510 said:

as for taking the 25% as I said I don't need it. so I dont know what I would do with it. 

I don't think anyone was suggesting that. My idea was that if you've earned say £6,570 this year, leaving £6,000 of your allowance unused, then you could take out £8,000 of which £2,000 is inherently tax-free and £6,000 taxable which won't end up being taxed. Saving the £1,200 tax that would be paid if you took it in a later year.

The down side as mentioned is that it limits what you can pay into the pension. So an alternative using those example figures would be to make a lump sum contribution of £5,256 which would then be topped up by tax relief so that the pension receives £6,570. 
Edit .. you'd have to allow for any pension contributions you've ready made this year, so actually may be less.

Mutton_Geoff

The suggestions in this thread are all about tax avoidance, not encouraging you to drawdown and spend money you don't need.

I retired early this year and used savings to contribute the equivalent of my 40% taxed earnings in my final year at work so I'd get free money from the tax man.

You could look at putting the money back into an ISA in the same investments you chose for your SIPP. You can then draw that out later without paying any tax. A perfectly legitimate way to avoid/minimise tax on your pension.

xylophone

Also, don't forget this tax year will be your last opportunity to top up your pension, as you will have relevant earnings this year.

This is not the case.

Even a person with no relevant earnings may contribute up to £2880 (net ) per annum to a personal pension and (up to age 75) receive tax relief of up to £720.

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100