Pension + earnings - reduce to below higher tax band

Wonka_2

Good morning

Not sure whether this is best in pensions or here so I’ll start here

I’m in the lucky position that at 55 later this year I can draw my final salary/DB pension from my career long employer (£200k TFLS + £30k pa)

Since leaving last year I’ve secured a job ticking all my boxes for the next few years (shifts, outdoors, area of interest etc) with a £35k salary and in LGPS (but apparently no matched contributions for AVC’s etc) 

Come the end of the year I’m going to be paying 40% on a significant chunk of earned income which makes the job slightly less appealing 

I’ll be having a conversation with my financial advisor but not for a few weeks so trying to get some ideas in my head for discussion. 

Fixed’s are that I don’t want to defer taking company pension and can’t take TFLS whilst deferring the rest. 

I’m assuming best option will be to reduce job income to NMW by maximising pension contributions but even that leaves me in the 40% bracket - especially with interest on savings. 

Other than reducing hours are there any other cost effective suggestions e.g Car Salary Sacrifice (or places to read up on the topic) ? 

Flugelhorn

I did similar - but there was no scope to reduce , just decided I liked doing the job and if that meant effectively taxed 40% on the whole thing that was what I had to do 

Dazed_and_C0nfused

Wonka_2 said:

Good morning

Not sure whether this is best in pensions or here so I’ll start here

I’m in the lucky position that at 55 later this year I can draw my final salary/DB pension from my career long employer (£200k TFLS + £30k pa)

Since leaving last year I’ve secured a job ticking all my boxes for the next few years (shifts, outdoors, area of interest etc) with a £35k salary and in LGPS (but apparently no matched contributions for AVC’s etc) 

Come the end of the year I’m going to be paying 40% on a significant chunk of earned income which makes the job slightly less appealing 

I’ll be having a conversation with my financial advisor but not for a few weeks so trying to get some ideas in my head for discussion. 

Fixed’s are that I don’t want to defer taking company pension and can’t take TFLS whilst deferring the rest. 

I’m assuming best option will be to reduce job income to NMW by maximising pension contributions but even that leaves me in the 40% bracket - especially with interest on savings. 

Other than reducing hours are there any other cost effective suggestions e.g Car Salary Sacrifice (or places to read up on the topic) ? 

If avoiding paying higher rate tax is your main objective then paying into a relief at source pension like a SIPP or personal pension would help.

This does not in any way whatsoever reduce your taxable income.  But it does increase your basic rate band by the amount of the gross contribution.

So say £2k from you becomes £2,500 in the pension fund with basic rate tax relief added (it is always 25% that gets added to your net contributions, there is nothing done differently even if you are a higher rate payer).

This then increases your basic rate band by £2,500 (albeit you have to notify HMRC yourself to get the increased basic rate band).

Don't forget LGPS operate a net pay pension scheme so although your salary might be £35k your taxable income might only be say £32k.

Also LGPS has a very generous way of allowing extra tax free cash if you pay into their linked DC pension.  You will get the same tax benefit on the way in but can sometimes get more than 25% tax free cash on the way out.  There are regular posts about this on the Pensions board.

You refer to a financial advisor.  The general consensus is to avoid them, you should look for an independent financial advisor.

Wonka_2

Dazed_and_C0nfused said:

Wonka_2 said:

Good morning

Not sure whether this is best in pensions or here so I’ll start here

I’m in the lucky position that at 55 later this year I can draw my final salary/DB pension from my career long employer (£200k TFLS + £30k pa)

Since leaving last year I’ve secured a job ticking all my boxes for the next few years (shifts, outdoors, area of interest etc) with a £35k salary and in LGPS (but apparently no matched contributions for AVC’s etc) 

Come the end of the year I’m going to be paying 40% on a significant chunk of earned income which makes the job slightly less appealing 

I’ll be having a conversation with my financial advisor but not for a few weeks so trying to get some ideas in my head for discussion. 

Fixed’s are that I don’t want to defer taking company pension and can’t take TFLS whilst deferring the rest. 

I’m assuming best option will be to reduce job income to NMW by maximising pension contributions but even that leaves me in the 40% bracket - especially with interest on savings. 

Other than reducing hours are there any other cost effective suggestions e.g Car Salary Sacrifice (or places to read up on the topic) ? 

If avoiding paying higher rate tax is your main objective then paying into a relief at source pension like a SIPP or personal pension would help.

This does not in any way whatsoever reduce your taxable income.  But it does increase your basic rate band by the amount of the gross contribution.

So say £2k from you becomes £2,500 in the pension fund with basic rate tax relief added (it is always 25% that gets added to your net contributions, there is nothing done differently even if you are a higher rate payer).

This then increases your basic rate band by £2,500 (albeit you have to notify HMRC yourself to get the increased basic rate band).

Don't forget LGPS operate a net pay pension scheme so although your salary might be £35k your taxable income might only be say £32k.

Also LGPS has a very generous way of allowing extra tax free cash if you pay into their linked DC pension.  You will get the same tax benefit on the way in but can sometimes get more than 25% tax free cash on the way out.  There are regular posts about this on the Pensions board.

You refer to a financial advisor.  The general consensus is to avoid them, you should look for an independent financial advisor.

Thanks - currently only 6 months in to the LGPS and struggling with the lack of info vs my previous employer - I know there are options but getting info on them is proving frustrating. 

And for correctness it is an IFA I’m using  

Dazed_and_C0nfused

Wonka_2 said:

Dazed_and_C0nfused said:

Wonka_2 said:

Good morning

Not sure whether this is best in pensions or here so I’ll start here

I’m in the lucky position that at 55 later this year I can draw my final salary/DB pension from my career long employer (£200k TFLS + £30k pa)

Since leaving last year I’ve secured a job ticking all my boxes for the next few years (shifts, outdoors, area of interest etc) with a £35k salary and in LGPS (but apparently no matched contributions for AVC’s etc) 

Come the end of the year I’m going to be paying 40% on a significant chunk of earned income which makes the job slightly less appealing 

I’ll be having a conversation with my financial advisor but not for a few weeks so trying to get some ideas in my head for discussion. 

Fixed’s are that I don’t want to defer taking company pension and can’t take TFLS whilst deferring the rest. 

I’m assuming best option will be to reduce job income to NMW by maximising pension contributions but even that leaves me in the 40% bracket - especially with interest on savings. 

Other than reducing hours are there any other cost effective suggestions e.g Car Salary Sacrifice (or places to read up on the topic) ? 

If avoiding paying higher rate tax is your main objective then paying into a relief at source pension like a SIPP or personal pension would help.

This does not in any way whatsoever reduce your taxable income.  But it does increase your basic rate band by the amount of the gross contribution.

So say £2k from you becomes £2,500 in the pension fund with basic rate tax relief added (it is always 25% that gets added to your net contributions, there is nothing done differently even if you are a higher rate payer).

This then increases your basic rate band by £2,500 (albeit you have to notify HMRC yourself to get the increased basic rate band).

Don't forget LGPS operate a net pay pension scheme so although your salary might be £35k your taxable income might only be say £32k.

Also LGPS has a very generous way of allowing extra tax free cash if you pay into their linked DC pension.  You will get the same tax benefit on the way in but can sometimes get more than 25% tax free cash on the way out.  There are regular posts about this on the Pensions board.

You refer to a financial advisor.  The general consensus is to avoid them, you should look for an independent financial advisor.

Thanks - currently only 6 months in to the LGPS and struggling with the lack of info vs my previous employer - I know there are options but getting info on them is proving frustrating. 

And for correctness it is an IFA I’m using  

Have you found this?   A lot of useful info available.

https://www.lgpsmember.org/