Paying into Pension still once retired

Mick70

Hi
can anyone help with this query , please 
my wife hopes to retire end March next year (age 58.5).
I hope to retire in 2 year time (3 max - I Will be age 57 if I can get out in 2 year .
hopefully our pensions will be follows -

my wife pot is about £330k ,some of this unfortunately is cash , rest is DC and S&S ISA.
my pension will be mixture of a DB / DC / and S&S ISA  (no cash)
we are going to use the 4% rule on drawdowns , increase with inflation each year, then probably half it when SP kicks in (both qualify full SP).

So in my wife’s it would give a drawdown of about £13.2k and increase that with inflation each year . She is unlikely to pay any income tax on her pension.  I will be paying 20% on mine (hopefully avoid 40%).

fir my wife can I still pay into her pension when she has retired ?  If so, as she won’t be paying any income tax am I limited to £3.6k or can I still pay in up to £10k? 

Thank you for any help
Mick

dunstonh

we are going to use the 4% rule on drawdowns , increase with inflation each year, then probably half it when SP kicks in (both qualify full SP).

Do you realise that there is no 4% rule for the UK?
The closest guide is 3% if you are in your 50s and 3.5% in your 60s.

fir my wife can I still pay into her pension when she has retired ?

Between the day you are born and age 74 inclusive, you can contribute £3600 to a pension.

 If so, as she won’t be paying any income tax am I limited to £3.6k or can I still pay in up to £10k? 

Only if your wife returns to work and earns £10k, can you contribute £10k.

Marcon

Mick70 said:

Hi
can anyone help with this query , please 
my wife hopes to retire end March next year (age 58.5).
I hope to retire in 2 year time (3 max - I Will be age 57 if I can get out in 2 year .
hopefully our pensions will be follows -

my wife pot is about £330k ,some of this unfortunately is cash , rest is DC and S&S ISA.
my pension will be mixture of a DB / DC / and S&S ISA  (no cash)
we are going to use the 4% rule on drawdowns , increase with inflation each year, then probably half it when SP kicks in (both qualify full SP).

So in my wife’s it would give a drawdown of about £13.2k and increase that with inflation each year . She is unlikely to pay any income tax on her pension.  I will be paying 20% on mine (hopefully avoid 40%).

fir my wife can I still pay into her pension when she has retired ?  If so, as she won’t be paying any income tax am I limited to £3.6k or can I still pay in up to £10k? 

Thank you for any help
Mick

If your wife has no relevant earnings, then a maximum of £3,600 gross can be paid into her pension pot (contribuition paid in is £2,880 and the provider will add basic rate relief to this, bringing it up to the £3,600). It is her lack of earnings that dictates the limit - she could be a taxpayer (eg if her pension + savings interest, say, came to more than her personal allowance), but the £3,600 limit would still apply.

eskbanker

Mick70 said:

my wife hopes to retire end March next year (age 58.5).
I hope to retire in 2 year time (3 max - I Will be age 57 if I can get out in 2 year .
hopefully our pensions will be follows -

my wife pot is about £330k ,some of this unfortunately is cash , rest is DC and S&S ISA.
my pension will be mixture of a DB / DC / and S&S ISA  (no cash)

When making financial plans, it's probably best to recognise the distinction between actual pensions (what you label as DB or DC) and ISAs or unwrapped cash, as they're treated very differently for tax and other purposes.

If she is planning to access funds in a year's time then it's not unfortunate at all to have a cash holding, as sequence of returns risk is very much something both of you need to consider when planning drawdown, so a buffer in cash (or close to it) form is generally seen as prudent rather than unfortunate....

Mick70

dunstonh said:

we are going to use the 4% rule on drawdowns , increase with inflation each year, then probably half it when SP kicks in (both qualify full SP).

Do you realise that there is no 4% rule for the UK?
The closest guide is 3% if you are in your 50s and 3.5% in your 60s.

fir my wife can I still pay into her pension when she has retired ?

Between the day you are born and age 74 inclusive, you can contribute £3600 to a pension.

Without going off track , half of our pension portfolio will be my DB pension so takes away some risk . Hence why we will use the 4% rule and when SP kicks in will review and likely half that amount then. 

I had asked about the £3600 as was under impression the £3600 limit had been increased to £10k for retirees , my mistake of that isn’t the case 

Dazed_and_C0nfused

Mick70 said:

dunstonh said:

we are going to use the 4% rule on drawdowns , increase with inflation each year, then probably half it when SP kicks in (both qualify full SP).

Do you realise that there is no 4% rule for the UK?
The closest guide is 3% if you are in your 50s and 3.5% in your 60s.

fir my wife can I still pay into her pension when she has retired ?

Between the day you are born and age 74 inclusive, you can contribute £3600 to a pension.

Without going off track , half of our pension portfolio will be my DB pension so takes away some risk . Hence why we will use the 4% rule and when SP kicks in will review and likely half that amount then. 

I had asked about the £3600 as was under impression the £3600 limit had been increased to £10k for retirees , my mistake of that isn’t the case 

There is no limit for "retirees".

You are confusing the maximum someone younger than 75 with low or no earnings can contribute (£3,600 gross) and MPAA (£10,000 gross which includes employer contributions).

Aretnap

Dazed_and_C0nfused said:

Mick70 said:

dunstonh said:

we are going to use the 4% rule on drawdowns , increase with inflation each year, then probably half it when SP kicks in (both qualify full SP).

Do you realise that there is no 4% rule for the UK?
The closest guide is 3% if you are in your 50s and 3.5% in your 60s.

fir my wife can I still pay into her pension when she has retired ?

Between the day you are born and age 74 inclusive, you can contribute £3600 to a pension.

Without going off track , half of our pension portfolio will be my DB pension so takes away some risk . Hence why we will use the 4% rule and when SP kicks in will review and likely half that amount then. 

I had asked about the £3600 as was under impression the £3600 limit had been increased to £10k for retirees , my mistake of that isn’t the case 

There is no limit for "retirees".

You are confusing the maximum someone younger than 75 with low or no earnings can contribute (£3,600 gross) and MPAA (£10,000 gross which includes employer contributions).

To clarify that point a bit further: 

For most working people the most that they can contribute is their annual salary, plus any employer contributions, with a hard limit of £60,000 per year.

Once you have taken money out of a DC scheme, beyond the tax-free 25%, the hard limit reduces to £10,000. But you still need to be earning £10,000 through employment to pay in that much (or have an employer to make employer contributions for you).

If you have little or no income from employment, for whatever reason, then you can still pay in up to £3600 gross, and this amount hasn't changed for years and years. 

(For the purposes of calculating how much you can pay into a pension, what matters is your "relevant income", which basically means income from employment ie salary, and excludes things like pensions, interest, dividends, rental income etc etc. "Taxable income" is different, and isn't important.)

moedeeb

The main point you need to understand is that the £10K total contribution is based on a legal definition of earned income. In order to add anything over the £3600 gross your wife needs to earn the money in the tax year in question.  Savings interest and any pension income do not count towards earned income.

Once your wife has taken a single penny of the taxable element of her pensions then the MPAA of 10k will apply.

Sarahspangles

Eskbanker makes a good point about there being a distinction between pension savings in a pension wrapper and outside one. As she will be liable for income tax when she draws from her DC pot, doing that in a tax efficient way is important.

If she retires at the end of the tax year, the following year she can withdraw up to her full personal allowance (PA) tax free. We know the PA is frozen at £12,570 in 2026/27 so that’s £12,570 taxable on which she pays no tax plus 25% tax free £4,190 = £16,760. I think she has 8-and-a-bit tax years before State Pension starts to use her PA in which she can extract c £140k tax free. She’ll pay tax at 20% when she takes the rest of her pot and that would include anything she contributes in years she has no income. The £2,880 that is made up to £3,600 with tax relief is £3,060 after tax. The gain of £180 isn’t particularly significant.

I take the view that with any of my pension on which I will pay 20% tax it doesn’t matter when I draw it, I’m paying that tax at some point (I’m ignoring IHT in this) My priority shifts to not being taxed on the interest/gains from any savings and investments I hold, which means optimising my use of ISA wrappers. This does mean that I will have to mentally earmark some of my pension withdrawals as being for future years. That could be challenging for someone who sees money moving out of a pension wrapper as income available to spend, rather than simply a change in where that money is stashed.