Working whilst claiming DB pension - how to calculate increase to DC pension

markt01

Hi,

I am working fulltime high tax bracket,  I have a DB pension that will soon commence. I intend to keep working and will look at uplifting my DC pension

My question is what should I increase that to? 

For example

if i earned £90K and the DB pension was £12K.  Do I just increase my monthly pension by £1k a month?

the 2nd question is Does the £12K DB pension get taxed at source or would you need to complete SA tax to reclaim the tax back

Thanks in appreciation

Cobbler_tone

It is a case of adding the taxable incomes together to see the tax treatment. If your main employment is at 40%, the £12k will be too.
Is there no benefit of deferring the DB to your advantage? i.e. are there no reductions?

Down to net affordability but I would personally be maxing my DC contributions to avoid PAYE tax when in the bracket of being able to access pensions.

tacpot12

The DB pension gets taxed as source. If you claim the DB pension while still working it is treated as a second income. 

I'm not sure I understand your first question: If you intend to keep working, your DC pension MIGHT increase either because you have deferred claiming it AND/OR because you have continued to contribute to it. You  need to check the scheme rules for your DC scheme. There is usually information available about what happens when you defer your pension after your normal retirement date, and what happens to your pension amount if you continue working. If it isn't clear, you will need to ask the scheme trusteee. Make sure you really understand the answer(s) before taking any decisions. 

markt01

Thanks 

No there is not an opportunity to defer the DB pension nor is it enough to support retirement, however it does come with a nice lump sum.

I don't need the money and am looking to max out the DC contributions to the figure of the DC contributions to avoid the tax and benefit later

So in the above example the 12K will be at 40% so do I increase my DC contributions by the full 12K and then claim the tax back paid on the 12k at source

thanks

Mark

Cobbler_tone

markt01 said:

Thanks 

No there is not an opportunity to defer the DB pension nor is it enough to support retirement, however it does come with a nice lump sum.

I don't need the money and am looking to max out the DC contributions to the figure of the DC contributions to avoid the tax and benefit later

So in the above example the 12K will be at 40% so do I increase my DC contributions by the full 12K and then claim the tax back paid on the 12k at source

thanks

Mark

Do you pay your pension via salary sacrifice Mark?
If so I would assume you total up your income (salary and DB) sacrifice to whatever level you want to and get taxed on the rest accordingly. The £12k is just an addition to your income and you are getting your tax relief from contributing to the DC scheme at whatever level.

QrizB

markt01 said:

I am working fulltime high tax bracket,  I have a DB pension that will soon commence. I intend to keep working and will look at uplifting my DC pension
My question is what should I increase that to? 

I imagine fhe answer for most people will be "as much as you can afford".

I know you've framed the question as though you want to keep your take-home the same, but (as you're old enough to have a DB in payment) you can't be far away from retirement? As a higher-rate taxpayer, every £8 you pay into your DC pension will be grossed up to £10 and you'll get an extra £10 of basic-rate tax band, taking £10 out of the higher-rate band and reducing your tax bill.

If you're close enough to retirement, it might even be worth shuffling some of your cash savings into your DC pension (either directly, or by contributing more salary then spending savings on day-to-day living) for the tax breaks.

One reason for not doing this would be if, between your DB and DC pensions, you're getting close to the £268k tax-free cash limit.

Dazed_and_C0nfused

markt01 said:

Thanks 

No there is not an opportunity to defer the DB pension nor is it enough to support retirement, however it does come with a nice lump sum.

I don't need the money and am looking to max out the DC contributions to the figure of the DC contributions to avoid the tax and benefit later

So in the above example the 12K will be at 40% so do I increase my DC contributions by the full 12K and then claim the tax back paid on the 12k at source

thanks

Mark

You are never going to avoid paying some tax on the DB pension.  The best you can do is move it from being liable to tax at 40% to being taxed at 20%.

If your employer offers a pension using the salary sacrifice (or net pay) method of contributing then you could avoid paying 40% on £12k of your earnings.  But you would then still have to pay 49% on the DB pension.