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Trigger getting pulled today - Anyone see any Major mistakes with my action plan???

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  • Pat38493
    Pat38493 Posts: 3,334 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    I take it you rejected the option of using drawdown?
  • sgx2000
    sgx2000 Posts: 524 Forumite
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    edited 15 November 2023 at 3:08PM
    Pat38493 said:
    I take it you rejected the option of using drawdown?
    Yes.

    The current Drawdown rate, at lets say, the normally quoted 4%, would only give me £3100

    At 7% inflation the value of my £6,496 annuity will drop to £3100 in 10 years,
    IF inflation stays at 7%

    The first 10 year I would be getting a higher rate than a 4% drawdown and the last 10 years lower.
    This doesn't seem unreasonable to me.  But it is a gamble

    Much more importantly 
    I do question how many people in their late 70's or 80's are going to have the mental accuity to make the best investment decisions re, funds etc in a drawdown
    And yes it is nice to potentially leave something behind if you die early with a drawdown

    But for me,  I think would prefer some level of surety 


  • sandsy
    sandsy Posts: 1,753 Forumite
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    Is your salary of £39,750 your current salary or your salary from January?

    Most providers don't accept non-relievable pension contributions which means your gross contribution is limited to your gross earnings in the tax year in which it is made. I don't know if Aviva accept them. I hope your £35,000 gross contribution didn't exceed the earnings you'll have by 5 April.
  • sgx2000
    sgx2000 Posts: 524 Forumite
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    sandsy said:
    Is your salary of £39,750 your current salary or your salary from January?

    Most providers don't accept non-relievable pension contributions which means your gross contribution is limited to your gross earnings in the tax year in which it is made. I don't know if Aviva accept them. I hope your £35,000 gross contribution didn't exceed the earnings you'll have by 5 April.
    Oh B**ls!

    I knew there was a reason I posted this before starting the process....
    Thank you very much Sandsy... 

    I just had not even thought of this.....
    This has totally thrown all my calculations out

    Yes my current pay is £39750
    BUT This will reduce from 1st January by 1 day per week (so approx 20%)

    New CRUDE Calculations
    £39750 / 12 = £3312 per month
    £3312 x 9 months to Jan 1st = £29812
    £3312 - 20% = £2649 per month after Jan  1st    (yes I know too crude but just ball park figures....)
    Jan to Apr   £2649 x 3 = £7948

    £29812 + £7948 = £37760  Income for 2023-2024

    Co pays into pension 9%
    £298 per month
    £298 x 9 = £2682
    £298 - 20% = £238 per month from 1st Jan
    £238 x 3 = £3397  pension contribution for 2023-2024

    £37760 - £3397 = £34363 = Maximum New Total LUMP SUM inc. tax relief I can add to pension pot

    So... To give a little headroom
    If I add £26,000 to my pension HMRC will top it up to £32,500

    Just re-did my pension quote with L&G Now £6379 
    (down from £6,496)
    But still Happy

    Thank you Sandsy......

    Anyone else see any other errors I am making???

  • sgx2000 said:
    sandsy said:
    Is your salary of £39,750 your current salary or your salary from January?

    Most providers don't accept non-relievable pension contributions which means your gross contribution is limited to your gross earnings in the tax year in which it is made. I don't know if Aviva accept them. I hope your £35,000 gross contribution didn't exceed the earnings you'll have by 5 April.
    Oh B**ls!

    I knew there was a reason I posted this before starting the process....
    Thank you very much Sandsy... 

    I just had not even thought of this.....
    This has totally thrown all my calculations out

    Yes my current pay is £39750
    BUT This will reduce from 1st January by 1 day per week (so approx 20%)

    New CRUDE Calculations
    £39750 / 12 = £3312 per month
    £3312 x 9 months to Jan 1st = £29812
    £3312 - 20% = £2649 per month after Jan  1st    (yes I know too crude but just ball park figures....)
    Jan to Apr   £2649 x 3 = £7948

    £29812 + £7948 = £37760  Income for 2023-2024

    Co pays into pension 9%
    £298 per month
    £298 x 9 = £2682
    £298 - 20% = £238 per month from 1st Jan
    £238 x 3 = £3397  pension contribution for 2023-2024

    £37760 - £3397 = £34363 = Maximum New Total LUMP SUM inc. tax relief I can add to pension pot

    So... To give a little headroom
    If I add £26,000 to my pension HMRC will top it up to £32,500

    Just re-did my pension quote with L&G Now £6379 
    (down from £6,496)
    But still Happy

    Thank you Sandsy......

    Anyone else see any other errors I am making???

    I dont think you need to deduct the employer’s 9% from your allowable contributions?
  • sgx2000
    sgx2000 Posts: 524 Forumite
    Fourth Anniversary 100 Posts Name Dropper
    Bloody ell.....

    Thanks Firedreamer

    Looks like I am going to have to check with HR tomorrow to make sure my pension contributions are salary sacrifice.

    Then check exactly what my pay will be after 1st January

    Then do all the calcs again

    Really glad i posted.....
    Better to see issues now when i can correct them

    I will post further when i have more details

    Many thaks to everyone who replied
  • sgx2000
    sgx2000 Posts: 524 Forumite
    Fourth Anniversary 100 Posts Name Dropper
    sandsy said:
    Is your salary of £39,750 your current salary or your salary from January?

    Most providers don't accept non-relievable pension contributions which means your gross contribution is limited to your gross earnings in the tax year in which it is made. I don't know if Aviva accept them. I hope your £35,000 gross contribution didn't exceed the earnings you'll have by 5 April.
    Hi Sandsy

    Could you explain  "non-relievable pension contributions" please.....
    I'm struggling with understanding it...

    Many thanks
  • MK62
    MK62 Posts: 1,741 Forumite
    Seventh Anniversary 1,000 Posts Name Dropper
    sgx2000 said:
    Thanks RNV

    I will check this with HR tomorrow

    But either way it seams safe to add £28,000 to the pension to get the additional tax relief of £7,000 before I start the annuity ball rolling
    Have you checked that this doesn't conflict with the pension recycling rules........on the face of it seems to (though it might need a deeper dive to fully check this)
    You'll be taking TFC, it will be more than £7500, your contribution will be more than 30% of what might otherwise have been expected, your additional contribution is more than 30% of the TFC, and it does appear to be preplanned (the last one is the vague condition).

  • sgx2000
    sgx2000 Posts: 524 Forumite
    Fourth Anniversary 100 Posts Name Dropper
    edited 16 November 2023 at 9:42AM
    MK62 said:
    sgx2000 said:
    Thanks RNV

    I will check this with HR tomorrow

    But either way it seams safe to add £28,000 to the pension to get the additional tax relief of £7,000 before I start the annuity ball rolling
    Have you checked that this doesn't conflict with the pension recycling rules........on the face of it seems to (though it might need a deeper dive to fully check this)
    You'll be taking TFC, it will be more than £7500, your contribution will be more than 30% of what might otherwise have been expected, your additional contribution is more than 30% of the TFC, and it does appear to be preplanned (the last one is the vague condition).

    I don't quite get this.
    Please excuse if I am being stupid, but how is this recycling???
    I thought recycling was crystallizing a pension with TFC then using that cash to open another pension?
    Totally confused......

    I am adding £28,000 from my personal savings to my pension. 
    Then HMRC adds 25% to make £35,000 into my pension pot.
    Then a week later I will move the 98% of the pension pot to L&G and start an annuity
    (leaving probably £1000 in my original pension - to be added to over the next 2 years)

    Or,  is it leaving the old pension pot open, that could be seen as recycling somehow???

    If this is the case it may be worth closing the Aviva Pension by using the whole pot.
    The asking my employer to put future pension payments into a SIPP?

    WOW I thought pensions where confusing...
    Tax rules seem even more so....

    If this is recycling how much could I put into my pension pot and not  have issues???


  • MK62
    MK62 Posts: 1,741 Forumite
    Seventh Anniversary 1,000 Posts Name Dropper
    edited 16 November 2023 at 10:15AM
    HMRC can look at the tax year the TFC was paid, and 2 tax years either side of the TFC to decide on contribution patterns......the order of contribution then TFC or TFC then contribution doesn't matter.

    One important consideration is that all the conditions need to satisfied before HMRC can consider recycling to have taken place......if any one isn't satisfied, then it's not recycling. There is also little evidence around (at least not that I've seen anyway) of exactly how HMRC interprets and applies these rules

    As to how much you can contribute without potential recycling issues......as I understand it, taking under £7500 TFC would be OK.......as would contributions below certain levels (which you'd need to calculate based on your contribution history and RPI etc)
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