Over 55 - pay into a pension or ISA?

bigjoe

What are people's thoughts on the following:

I'm 55 and so can access my small private pension whenever I want now.

This year I will have £20,000 to invest.

Would it be better to pay this into my pension and get the 25% tax break or pay it into a cash ISA?

At face value, pension seems best, but when it comes to withdrawals, the ISA is tax free while the pension is only the first 25% tax free.

Any help much appreciated.

Dazed_and_C0nfused

bigjoe said:

What are people's thoughts on the following:

I'm 55 and so can access my small private pension whenever I want now.

This year I will have £20,000.

Would it be better to pay this into my pension and get the 25% tax break or pay it into a cash ISA?

At face value, pension seems best, but when it comes to withdrawls, the ISA is tax free while the pension is only the first 25% tax free.

Any help much appreciated.

The pension beats the ISA by 6.25% for most people (basic rate payer now and when taking money out of the pension).

If you add £100 to an ISA you can then take £100 back tax free.

If you add £100 to a relief at source pension the pension company will add £25 in basic rate tax relief, giving you a fund of £125.

When you take the £125 out of the pension £31.25 is a TFLS and £93.75 is taxable income.

£31.25 + £75 (£93.75 less basic rate tax) = £106.25

bigjoe

Dazed_and_C0nfused said:

bigjoe said:

What are people's thoughts on the following:

I'm 55 and so can access my small private pension whenever I want now.

This year I will have £20,000.

Would it be better to pay this into my pension and get the 25% tax break or pay it into a cash ISA?

At face value, pension seems best, but when it comes to withdrawls, the ISA is tax free while the pension is only the first 25% tax free.

Any help much appreciated.

The pension beats the ISA by 6.25% for most people (basic rate payer now and when taking money out of the pension).

If you add £100 to an ISA you can then take £100 back tax free.

If you add £100 to a relief at source pension the pension company will add £25 in basic rate tax relief, giving you a fund of £125.

When you take the £125 out of the pension £31.25 is a TFLS and £93.75 is taxable income.

£31.25 + £75 (£93.75 less basic rate tax) = £106.25

Thank you for this - really helpful.

Marcon

bigjoe said:

What are people's thoughts on the following:

I'm 55 and so can access my small private pension whenever I want now.

This year I will have £20,000 to invest.

Would it be better to pay this into my pension and get the 25% tax break or pay it into a cash ISA?

At face value, pension seems best, but when it comes to withdrawals, the ISA is tax free while the pension is only the first 25% tax free.

Any help much appreciated.

If you're planning to invest £20,000, do you have earnings of at least £25,000* in the tax year in which you plan to invest if you choose the pension option?

*more if you are already making personal contributions to a pension in the tax year. You need to have sufficient earnings to cover both the amount you pay in, and the basic rate tax relief the provider will add on your behalf, assuming you are contributing to a 'relief at source' scheme

bigjoe

Marcon said:

bigjoe said:

What are people's thoughts on the following:

I'm 55 and so can access my small private pension whenever I want now.

This year I will have £20,000 to invest.

Would it be better to pay this into my pension and get the 25% tax break or pay it into a cash ISA?

At face value, pension seems best, but when it comes to withdrawals, the ISA is tax free while the pension is only the first 25% tax free.

Any help much appreciated.

If you're planning to invest £20,000, do you have earnings of at least £25,000* in the tax year in which you plan to invest if you choose the pension option?

*more if you are already making personal contributions to a pension in the tax year. You need to have sufficient earnings to cover both the amount you pay in, and the basic rate tax relief the provider will add on your behalf, assuming you are contributing to a 'relief at source' scheme

Yes, I do. I should add I'm self-employed with NEST pension and have unused annual allowance from past three years.

But is it the case you can pay in up to 100% of income up to an annual allowance of £60,000 before losing the tax benefit? Or can you pay in up to £60,000 even if you earn say £30,000? It's not clear on Penfold which says: "From the 2023/24 tax year onwards, you can contribute up to £60,000 or 100% of your total annual income into your pension to claim the 25% tax bonus. This applies across all of your pensions, not each pot separately." This implies you can pay in up to £60,000 irrespective of income or 100% of your income. 

TheSpectator

bigjoe said:

Marcon said:

bigjoe said:

What are people's thoughts on the following:

I'm 55 and so can access my small private pension whenever I want now.

This year I will have £20,000 to invest.

Would it be better to pay this into my pension and get the 25% tax break or pay it into a cash ISA?

At face value, pension seems best, but when it comes to withdrawals, the ISA is tax free while the pension is only the first 25% tax free.

Any help much appreciated.

If you're planning to invest £20,000, do you have earnings of at least £25,000* in the tax year in which you plan to invest if you choose the pension option?

*more if you are already making personal contributions to a pension in the tax year. You need to have sufficient earnings to cover both the amount you pay in, and the basic rate tax relief the provider will add on your behalf, assuming you are contributing to a 'relief at source' scheme

Yes, I do. I should add I'm self-employed with NEST pension and have unused annual allowance from past three years.

But is it the case you can pay in up to 100% of income up to an annual allowance of £60,000 before losing the tax benefit? Or can you pay in up to £60,000 even if you earn say £30,000? It's not clear on Penfold which says: "From the 2023/24 tax year onwards, you can contribute up to £60,000 or 100% of your total annual income into your pension to claim the 25% tax bonus. This applies across all of your pensions, not each pot separately." This implies you can pay in up to £60,000 irrespective of income or 100% of your income. 

If you only earn, say, £30,000 then that is the maximum gross payment you can get tax relief on.

bigjoe

TheSpectator said:

bigjoe said:

Marcon said:

bigjoe said:

What are people's thoughts on the following:

I'm 55 and so can access my small private pension whenever I want now.

This year I will have £20,000 to invest.

Would it be better to pay this into my pension and get the 25% tax break or pay it into a cash ISA?

At face value, pension seems best, but when it comes to withdrawals, the ISA is tax free while the pension is only the first 25% tax free.

Any help much appreciated.

If you're planning to invest £20,000, do you have earnings of at least £25,000* in the tax year in which you plan to invest if you choose the pension option?

*more if you are already making personal contributions to a pension in the tax year. You need to have sufficient earnings to cover both the amount you pay in, and the basic rate tax relief the provider will add on your behalf, assuming you are contributing to a 'relief at source' scheme

Yes, I do. I should add I'm self-employed with NEST pension and have unused annual allowance from past three years.

But is it the case you can pay in up to 100% of income up to an annual allowance of £60,000 before losing the tax benefit? Or can you pay in up to £60,000 even if you earn say £30,000? It's not clear on Penfold which says: "From the 2023/24 tax year onwards, you can contribute up to £60,000 or 100% of your total annual income into your pension to claim the 25% tax bonus. This applies across all of your pensions, not each pot separately." This implies you can pay in up to £60,000 irrespective of income or 100% of your income. 

If you only earn, say, £30,000 then that is the maximum gross payment you can get tax relief on.

Thank you. I thought that might be the case.

Sarahspangles

bigjoe said:

Marcon said:

bigjoe said:

What are people's thoughts on the following:

I'm 55 and so can access my small private pension whenever I want now.

This year I will have £20,000 to invest.

Would it be better to pay this into my pension and get the 25% tax break or pay it into a cash ISA?

At face value, pension seems best, but when it comes to withdrawals, the ISA is tax free while the pension is only the first 25% tax free.

Any help much appreciated.

If you're planning to invest £20,000, do you have earnings of at least £25,000* in the tax year in which you plan to invest if you choose the pension option?

*more if you are already making personal contributions to a pension in the tax year. You need to have sufficient earnings to cover both the amount you pay in, and the basic rate tax relief the provider will add on your behalf, assuming you are contributing to a 'relief at source' scheme

Yes, I do. I should add I'm self-employed with NEST pension and have unused annual allowance from past three years.

But is it the case you can pay in up to 100% of income up to an annual allowance of £60,000 before losing the tax benefit? Or can you pay in up to £60,000 even if you earn say £30,000? It's not clear on Penfold which says: "From the 2023/24 tax year onwards, you can contribute up to £60,000 or 100% of your total annual income into your pension to claim the 25% tax bonus. This applies across all of your pensions, not each pot separately." This implies you can pay in up to £60,000 irrespective of income or 100% of your income. 

No, it doesn’t mean that. You have the lower of the two limits, they are not linked:

• Annual Allowance of £60k, with some carry forward potentially also available
• Relevant UK earnings, with no carry forward available

Dazed_and_C0nfused

bigjoe said:

Marcon said:

bigjoe said:

What are people's thoughts on the following:

I'm 55 and so can access my small private pension whenever I want now.

This year I will have £20,000 to invest.

Would it be better to pay this into my pension and get the 25% tax break or pay it into a cash ISA?

At face value, pension seems best, but when it comes to withdrawals, the ISA is tax free while the pension is only the first 25% tax free.

Any help much appreciated.

If you're planning to invest £20,000, do you have earnings of at least £25,000* in the tax year in which you plan to invest if you choose the pension option?

*more if you are already making personal contributions to a pension in the tax year. You need to have sufficient earnings to cover both the amount you pay in, and the basic rate tax relief the provider will add on your behalf, assuming you are contributing to a 'relief at source' scheme

Yes, I do. I should add I'm self-employed with NEST pension and have unused annual allowance from past three years.

But is it the case you can pay in up to 100% of income up to an annual allowance of £60,000 before losing the tax benefit? Or can you pay in up to £60,000 even if you earn say £30,000? It's not clear on Penfold which says: "From the 2023/24 tax year onwards, you can contribute up to £60,000 or 100% of your total annual income into your pension to claim the 25% tax bonus. This applies across all of your pensions, not each pot separately." This implies you can pay in up to £60,000 irrespective of income or 100% of your income. 

And I don't think that is the best wording ever.

The gross contribution is inclusive of any basic rate relief added by the pension company.

So if your profit is £30,000 you can only pay £24,000 and the basic rate relief takes you upto a gross contribution of £30,000.

You cannot pay £30,000 and get the 25% added to that.

Pipthecat

I'm 55 and so can access my small private pension whenever I want now.

The main advantage of the ISA is the flexibility.  You could invest it today, change your mind tomorrow, and withdraw the lot without worrying about any pension allowances or taxation issues.  If you don't need it again in a hurry, the pension is the way to go.

bigjoe

Dazed_and_C0nfused said:

bigjoe said:

Marcon said:

bigjoe said:

What are people's thoughts on the following:

I'm 55 and so can access my small private pension whenever I want now.

This year I will have £20,000 to invest.

Would it be better to pay this into my pension and get the 25% tax break or pay it into a cash ISA?

At face value, pension seems best, but when it comes to withdrawals, the ISA is tax free while the pension is only the first 25% tax free.

Any help much appreciated.

If you're planning to invest £20,000, do you have earnings of at least £25,000* in the tax year in which you plan to invest if you choose the pension option?

*more if you are already making personal contributions to a pension in the tax year. You need to have sufficient earnings to cover both the amount you pay in, and the basic rate tax relief the provider will add on your behalf, assuming you are contributing to a 'relief at source' scheme

Yes, I do. I should add I'm self-employed with NEST pension and have unused annual allowance from past three years.

But is it the case you can pay in up to 100% of income up to an annual allowance of £60,000 before losing the tax benefit? Or can you pay in up to £60,000 even if you earn say £30,000? It's not clear on Penfold which says: "From the 2023/24 tax year onwards, you can contribute up to £60,000 or 100% of your total annual income into your pension to claim the 25% tax bonus. This applies across all of your pensions, not each pot separately." This implies you can pay in up to £60,000 irrespective of income or 100% of your income. 

And I don't think that is the best wording ever.

The gross contribution is inclusive of any basic rate relief added by the pension company.

So if your profit is £30,000 you can only pay £24,000 and the basic rate relief takes you upto a gross contribution of £30,000.

You cannot pay £30,000 and get the 25% added to that.

Thank you. So you ae saying you cannot pay 100% of your total annual income and get tax relief on the whole amount?

The Government website says this:

You can get tax relief on private pension contributions worth up to 100% of your annual earnings.

That suggests you can too. But again could be clearer!