Paying lump sum into pension from savings

VincentHanna

Hi folks,

I'm planning on contributing extra (10,500) into my pension from savings. My salary is 42,612 per year. My pension contributions for 24/25 will be 7812, with my employers contribution being 2130. 

My pension contribution allowance is 42,612 (100%) and I have contributed 7812 meaning I still have 34,800 allowance left. 

As mentioned I am planning to top up my pension by 10,500 from savings. Can I do this and can this affect my taxable income (ie, 10,500 less income tax) and still receive tax relief of 20% from my top up amount given the fact that this additional amount has came from savings and not my salary and is still within the pension contribution allowance?

Thanks

NoMore

Money is fungible, so yes you can do this, your within both the AA and the tax relief allowance. It won't affect your income. 

Dazed_and_C0nfused

VincentHanna said:

Hi folks,

I'm planning on contributing extra (10,500) into my pension from savings. My salary is 42,612 per year. My pension contributions for 24/25 will be 7812, with my employers contribution being 2130. 

My pension contribution allowance is 42,612 (100%) and I have contributed 7812 meaning I still have 34,800 allowance left. 

As mentioned I am planning to top up my pension by 10,500 from savings. Can I do this and can this affect my taxable income (ie, 10,500 less income tax) and still receive tax relief of 20% from my top up amount given the fact that this additional amount has came from savings and not my salary and is still within the pension contribution allowance?

Thanks

Unless you have some other income you've not mentioned or are Scottish resident for tax purposes making a relief at source contribution to a pension will not save you any income tax.  And would never reduce your taxable income.

But you will receive basic rate tax relief, which gets added by the pension company.

So if you hand over £10,500 you will have 25% added to that, making a gross contribution of £13,125.

If you only want £10,500 in your pension then you only pay £8,400 and the basic rate relief makes it up to £10,500.

Veteransaver

You'll only get the relief at source on the lump sum contribution and as you are not in the high rate band there'll be no additional relief to claim at all.
It's worth checking whether you can salary sacrifice more into the pension through your employer though (effectively drip feed the £10500 over a number of months) as you'd save the additional National insurance.
It sounds like some of your pension contributions via your employer may be salary sacrifice, some firms do have limits though to how much you can sacrifice (eg my firm only allows 10%

QrizB

Here's the OPs previous thread on the subject, which has more info on their situation.

https://forums.moneysavingexpert.com/discussion/6590773/paying-a-lump-sum-into-my-pension

VincentHanna

So from what I can gather you can ONLY get pension tax relief from relevant UK earnings. Essentially only from my salary and only within the annual allowance? My salary is £42612 so this is my total annual allowance. If I was to put in a lump sum from savings, even if it was within the annual allowance, it would not be eligible for tax relief as it's classed as not relevant earnings? 

Thanks for the advice. Still trying to get my head around the rules and only starting to get a flavour of pension finance. 

Dazed_and_C0nfused

VincentHanna said:

So from what I can gather you can ONLY get pension tax relief from relevant UK earnings. Essentially only from my salary and only within the annual allowance? My salary is £42612 so this is my total annual allowance. If I was to put in a lump sum from savings, even if it was within the annual allowance, it would not be eligible for tax relief as it's classed as not relevant earnings? 

Thanks for the advice. Still trying to get my head around the rules and only starting to get a flavour of pension finance. 

What in any previous response has led you to think that 🤔

Which part of this don't you understand?

But you will receive basic rate tax relief, which gets added by the pension company.

So if you hand over £10,500 you will have 25% added to that, making a gross contribution of £13,125.

If you only want £10,500 in your pension then you only pay £8,400 and the basic rate relief makes it up to £10,500.

QrizB

VincentHanna said:

So from what I can gather you can ONLY get pension tax relief from relevant UK earnings. Essentially only from my salary and only within the annual allowance?

As @NoMore said in the first reply to this thread, money is fungible.

https://en.m.wiktionary.org/wiki/fungible

There's no difference between a pound that's paid into your bank account by your employer and one that's transferred there from your savings account.

What is important is that your contributions only receive tax relief up to a gross value equal to your relevant earnings.

NoMore

VincentHanna said:

So from what I can gather you can ONLY get pension tax relief from relevant UK earnings. Essentially only from my salary and only within the annual allowance? My salary is £42612 so this is my total annual allowance. If I was to put in a lump sum from savings, even if it was within the annual allowance, it would not be eligible for tax relief as it's classed as not relevant earnings? 

Thanks for the advice. Still trying to get my head around the rules and only starting to get a flavour of pension finance. 

That’s the complete opposite of what I said and nobody else said anything like that in the thread either. 

To explain fungible, let’s say you have your savings in a bank account you also pay your salary into the same bank account When you want to pay to a pension do you think you can tell the bank to only pay from your salary that’s in the same account? 

vacheron

Also take note of what @Veteransaver mentioned, 

if you have a company scheme (especially a salary sacrifice one), it could be far more beneficial to sacrifice, say, £2K per month for 5 months and subsidise your reduced income with your £10K of savings instead.