Paying deferred State Pension into private DC pension - tax status?

happyjhon

I deferred taking my state pension when I was eligible 7 years ago (in 2018) and I'm considering claiming it now. I'm still working occasionally and drawing a (USS) defined benefit pension and pay tax at basic rate. I also have a small (c. £20K) defined contribution pension (with Aegon) from a previous employer.

According to the "Should I defer taking my state pension?" page on the main MSE website I may get "up to 5.8% a year more", which with the new state pension amount I calculate could be £12,667/year.

The gov.uk tax-on-your-private-pension website says:

Limits to your tax-free contributions

You usually pay tax if savings in your pension pots go above:

• 100% of your earnings in a year

That seems ambiguous to my autistic brain(!) - surely they mean only contributions below one's earnings are tax free, not that you don't get any tax relief if the value of your pension pot is greater than one's annual earnings?!

Assuming that, does it mean that if I put all of my state pension (just under £13K at the new rate?) into the Aegon pension it would be tax free because it's less than 100% of my annual earnings (USS pension plus occasional self-employed income)?

When I went onto the gov website to claim my pension it asked me if I wanted to claim from today, or from a year ago. From a Q&A elsewhere on this forum I gather that if I claim from a year ago I'll get a lump sum for the last year, and I gather this isn't tax-free (unlike the lump sum from my DB USS pension) and would likely push me over the tax free contributions limit, so I should claim from today instead.

Am I understanding this right? Are there any other gotchas' I've missed?

TIA,

molerat

You can only contribute up to your relevant earnings into a pension and receive tax relief so in your case that would be 80% of your SE profits or £2880 whichever is higher.  Any more than that you would not receive the tax relief and many providers would not accept it on a non RAS basis.  You would also pay tax on 75% of any withdrawal.  Pension income is not relevant earnings for pension contribution purposes.

You can claim your deferred pension starting up to 12 months ago and any lump sum would be taxable when it was due, so 3/4 ish taxed last year and 1/4 this.

Marcon

molerat said:

You can only contribute up to your relevant income into a pension and receive tax relief so in your case that would be 80% of your SE profits or £2880 whichever is higher.  

It's relevant earnings.

Good explanation here: https://www.litrg.org.uk/pensions/paying-pensions/tax-relief-pension-contributions