I don't really need my pension yet.

clive0510

ok thanks for that. but is that correct- I can do 20k before april 5th and 20k after?

molerat

clive0510 said:

ok thanks for that. but is that correct- I can do 20k before april 5th and 20k after?

Yes, £20K in any separate financial year

LHW99

Dazed_and_C0nfused said:

LHW99 said:

With the reductions in personal savings allowance and capital gains tax allowance, and the fact you can only put £20k pa in an ISA, it may well be worth runnung down the inheritance money, at least until you get to the point where you have it all / most in tax sheltered accounts. As said, this year you would probably also be able to put more than the non-earner's allowance (£2880) into the pension, where it is tax sheltered until withdrawal, and doesn't get counted in your estate at death.

Are you Jeremy Hunt testing the water for 22 November 🤔

Secret2ndAccount

clive0510 said:

All I really want to know is am I best off investing my inheritance and drawing my pension now. or the other way round. ie is it better to leave the pension where it is, and live off my inheritance?

Here's what you should do:
1.  This is a special year because you have earned some salary. So, just for this year (up to Apr 6 2024) you can pay more money into your pension using your inherited cash. This you should do because it will benefit you in the future. Just an example - we have no idea what your numbers are:
Suppose you have earned 20,000 this year before retiring, and you paid 2k into a pension. Your employer paid in 1.5k. You multiply your earnings by 0.8. That gives 16,000. That is what you should aim to put into your pension in total, before April. You put in 16k, the taxman gives you 4k, taking the total to 20k - the amount you earned, and therefore the maximum you can pay in. You have (personally) already paid in 2k, so you want to add another14k. You could ask if you can write a cheque to your work pension scheme, or you could pay it into your personal pension. Either way works.
2. This is the last year you can make significant payments into your pension. From next year, you are a non-earner, and are allowed to put in 2880 each year, which gets topped up to 3600. Still worth doing as it's free money.
3. Meanwhile you should live off your inheritance. Allow the pensions to grow - it's all tax free as long as it's inside the pension. So you can gradually move your inherited money into ISA's and pensions, whilst spending from the inheritance.
4. What many are suggesting, and I agree from 2024 onwards, is to take money out of the pension each year, even though you don't need it. Each year, you are entitled to 12,570 tax free earnings (salary or pensions). Once you hit State Pension Age, the State Pension will use up most of the 12,570, so anything you withdraw from your other pensions will mostly be taxed at 15%. If you draw out 16k of pension in 2024, 2025 etc, then 4k will be tax free, and 12k will be less than your 12570 allowance. So we are just suggesting getting the money out tax free while you can.
So you pay in 16k this year; it gets topped up to 20k. You take out 16k next year, pay no tax, and there's still 4k left in the pension. It's free money!

Hope this is clear
If you have earned more than 50k this year, please let us know as it changes the numbers a bit

handful

Secret2ndAccount said:

clive0510 said:

All I really want to know is am I best off investing my inheritance and drawing my pension now. or the other way round. ie is it better to leave the pension where it is, and live off my inheritance?

Here's what you should do:
1.  This is a special year because you have earned some salary. So, just for this year (up to Apr 6 2024) you can pay more money into your pension using your inherited cash. This you should do because it will benefit you in the future. Just an example - we have no idea what your numbers are:
Suppose you have earned 20,000 this year before retiring, and you paid 2k into a pension. Your employer paid in 1.5k. You multiply your earnings by 0.8. That gives 16,000. That is what you should aim to put into your pension in total, before April. You put in 16k, the taxman gives you 4k, taking the total to 20k - the amount you earned, and therefore the maximum you can pay in. You have (personally) already paid in 2k, so you want to add another14k. You could ask if you can write a cheque to your work pension scheme, or you could pay it into your personal pension. Either way works.
2. This is the last year you can make significant payments into your pension. From next year, you are a non-earner, and are allowed to put in 2880 each year, which gets topped up to 3600. Still worth doing as it's free money.
3. Meanwhile you should live off your inheritance. Allow the pensions to grow - it's all tax free as long as it's inside the pension. So you can gradually move your inherited money into ISA's and pensions, whilst spending from the inheritance.
4. What many are suggesting, and I agree from 2024 onwards, is to take money out of the pension each year, even though you don't need it. Each year, you are entitled to 12,570 tax free earnings (salary or pensions). Once you hit State Pension Age, the State Pension will use up most of the 12,570, so anything you withdraw from your other pensions will mostly be taxed at 15%. If you draw out 16k of pension in 2024, 2025 etc, then 4k will be tax free, and 12k will be less than your 12570 allowance. So we are just suggesting getting the money out tax free while you can.
So you pay in 16k this year; it gets topped up to 20k. You take out 16k next year, pay no tax, and there's still 4k left in the pension. It's free money!

Hope this is clear
If you have earned more than 50k this year, please let us know as it changes the numbers a bit

I was in a similar situation to the OP this year except I'm not planning to retire just yet, maybe reduce hours from April. Just to highlight again the benefit of this sound advice I thought it might be useful to the OP to say what I did.

, I put 20k of inheritance into both my and my OHs ISA. I maxed my SIPP contribution out for this year (I'm a HR tax payer so was able to get £60k in (or will be by the end of the year with continued monthly contributions) I have just received just under £10k in pension tax relief so in effect "free money". My OH only earns £12k so her contribution was considerably smaller, as was the tax relief payment.

Once I'd filled all my tax free options I then bought £50k of premium bonds (winnings are tax free). I then bought some NS&I 6.2% guaranteed bonds in my OH name and 6.05% Ford Money fixed savings also in her name. I will probably channel more of the investments into Pension and ISAs after April 24 but will review again nearer the time.Having a considerably amount of cash outside the pension would allow me to retire and live off that until SP kicks in but if I did choose to retire soon but I would be careful to balance things by paying as much into my SIPP whilst still drawing £12500+25% from the pensions as soon as there was scope to get into ISAs.