Is it worth starting a personal pension even though I've retired?

FinaciallyFrazzled

Hi
I've taken early retired using a Defined Benefit scheme and I'm currently 7 years away from qualifying for my state pension. I wondered if it was still worth setting up a personal pension as I understand that I could contribute £2880 pounds to the scheme and get 20% tax relief?

It's not a lot of money but I would struggle to get 20% return on any other investment. I was thinking that I could take 25% tax free in say 10 years and leave the rest to my loved ones but now the rules have changed and Personal Pensions  will be part of my estate from 2027. Is this still worth doing?

 

eskbanker

It's impossible to say from that if it's worth doing, as so much will depend on your wider financial circumstances.

If it's money you want to pass on to others then your estate's liability to IHT needs to be factored in.

If it's money you wish to access while alive then your income tax status is a factor, i.e. the extent to which withdrawals would be taxed (beyond the 25%) - if that income was to be taxed at 20% then the net return is diluted considerably, although still leaves you ahead.

Marcon

FinaciallyFrazzled said:

Hi
I've taken early retired using a Defined Benefit scheme and I'm currently 7 years away from qualifying for my state pension. I wondered if it was still worth setting up a personal pension as I understand that I could contribute £2880 pounds to the scheme and get 20% tax relief?

It's not a lot of money but I would struggle to get 20% return on any other investment. I was thinking that I could take 25% tax free in say 10 years and leave the rest to my loved ones but now the rules have changed and Personal Pensions  will be part of my estate from 2027. Is this still worth doing?

 

Yes if you want the tax relief on your £2,880 each year. If you have a spouse, there is no suggestion that IHT will be levied on anything they inherit - but you could always withdraw the funds and spend them if you don't have a spouse/civil partner and your estate will be over the IHT threshold.

Albermarle

 I was thinking that I could take 25% tax free in say 10 years and leave the rest to my loved ones but now the rules have changed and Personal Pensions  will be part of my estate from 2027. 

The rules have not yet been finalised, so we do not know for sure how the announcement made in the budget will exactly work in practice.
However one point seems clear, in that unused pension pots will not be part of your estate, but will ( as far as we know) be included in any calculations for IHT liability. 
So they still should not be mentioned in a will for example.
Separately there is the issue of income tax for the beneficiary of the unused pension pot. Currently if you die under 75 the beneficiary can withdraw it all free of tax , but not if you die over 75. It was thought that this rule would also get changed, but so far nothing said.