Partially retired civil servant paying higher tax rate

Sootyandspark

Firstly, I’m not at all sure if this is possible / allowed, hence the question. I’m a partially retired civil servant with a combined income + pension of ~£80k therefore on a higher tax rate. Not knowing whether tax contributions are ‘relief at source’ but if they are - can I make additional pension contributions to bring my income down to a threshold where I am on a basic tax rate. I’d rather be making additional payments into a pension pot for when I fully retire in 15/20 years time. 

I don’t know where to start looking into this so decided to post here. I have read about AVCs via Legal & General but don’t think the employer contributes towards this. 

Can anyone shed any light on the possibility of additional pension contributions (along with employer contributions). Should I be speaking to My CSP (dreading the hour long wait for a call to be answered) or do I need to speak to a financial adviser. 

Thanks 😊

QrizB

How is your £80k pa split between salary and pension? Your options are slightly different for £60k salary / £20k pension than they are if vice-versa.

How much income do you need to live your desired lifestyle?

Dazed_and_C0nfused

Sootyandspark said:

Firstly, I’m not at all sure if this is possible / allowed, hence the question. I’m a partially retired civil servant with a combined income + pension of ~£80k therefore on a higher tax rate. Not knowing whether tax contributions are ‘relief at source’ but if they are - can I make additional pension contributions to bring my income down to a threshold where I am on a basic tax rate. I’d rather be making additional payments into a pension pot for when I fully retire in 15/20 years time. 

I don’t know where to start looking into this so decided to post here. I have read about AVCs via Legal & General but don’t think the employer contributes towards this. 

Can anyone shed any light on the possibility of additional pension contributions (along with employer contributions). Should I be speaking to My CSP (dreading the hour long wait for a call to be answered) or do I need to speak to a financial adviser. 

Thanks 😊

Other than limiting your higher rate tax liability what do you actually want to achieve, extra defined benefit pension (Alpha?) or a pension pot you can use pretty much as you wish?

Sootyandspark

QrizB said:

How is your £80k pa split between salary and pension? Your options are slightly different for £60k salary / £20k pension than they are if vice-versa.

How much income do you need to live your desired lifestyle?

£63k salary / £19k pension - latter is taxed at 40% 

No debts and could live off around £3k pm 

Sootyandspark

Dazed_and_C0nfused said:

Other than limiting your higher rate tax liability what do you actually want to achieve, extra defined benefit pension (Alpha?) or a pension pot you can use pretty much as you wish?

A healthier pension pot when I decide to finally fully retire - maybe 10 years’ time (although I could continue working for another 15). 

I didn’t think the latter is something that was a possibility but if it is, can you give me some idea as to what this could be done. 

Triumph13

The obvious solution to avoid higher rate tax would be to put £32k pa  gross into a pension.  That avoids higher rate tax completely and leaves you £3.3k per month to live on.  The real questions though are what to do with those pension contributions and for that it would be really helpful to know things like your age, whether you will qualify for a full state pension and how much additional pension you are accruing from your remaining work.

Dazed_and_C0nfused

Sootyandspark said:

Dazed_and_C0nfused said:

Other than limiting your higher rate tax liability what do you actually want to achieve, extra defined benefit pension (Alpha?) or a pension pot you can use pretty much as you wish?

A healthier pension pot when I decide to finally fully retire - maybe 10 years’ time (although I could continue working for another 15). 

I didn’t think the latter is something that was a possibility but if it is, can you give me some idea as to what this could be done. 

You didn't mention a pension pot in your original post but now refer to a healthier one 🤔

Your existing pension will be a defined benefit one, think of it as deferred salary, it isn't like a bank account where you can use it as you please.  

There is nothing you have posted which suggests building up a defined contribution pension (pot of money, not deferred salary) isn't possible.

But is that what you actually want to achieve or would you prefer to have more deferred salary type pension?  

Or a maybe you would prefer a mix of both?

Emmia

I also think the question is whether you want to keep pumping the money into Alpha (although it is a great scheme) which is more like an insurance policy, rather than something with a "pot" of money - more akin to a savings account.

If you live to 100 then you won't run out of money on Alpha as it's a DB scheme, (but you could drain a DC pot).  But, if you die shortly after full retirement you may arguably not get great "value" from your Alpha contributions (they'll essentially be funding your former colleague who lives to 100).

hugheskevi

£63k salary / £19k pension - latter is taxed at 40% 

Taking into account standard alpha contributions, that is a taxable income of £77,369.50. The standard higher rate threshold is £50,270 so you have £27,099.50 of income subject to higher rate tax (plus perhaps bonuses and any other taxable income you have.

I have read about AVCs via Legal & General but don’t think the employer contributes towards this. 

You will not receive an employer contribution to any additional pension contributions you might choose to make.

Not knowing whether tax contributions are ‘relief at source’ 

Contributions to alpha are net pay, not relief at source.

Can anyone shed any light on the possibility of additional pension contributions (along with employer contributions). Should I be speaking to My CSP (dreading the hour long wait for a call to be answered) or do I need to speak to a financial adviser. 

MyCSP cannot help with generic questions, and any specific questions you have are almost certainly answered in the online material, for example, this section of the scheme website about contributing more.

Speaking to a financial advisor might be sensible, but you would benefit from gathering information and doing some thinking prior to that.

A healthier pension pot when I decide to finally fully retire - maybe 10 years’ time (although I could continue working for another 15). 

Depending on which scheme memberships you have, you may well have a strong incentive to take all of pre-2015 scheme pensions at age 60. Have you planned for this?

Some more details would be useful, including:

• Current age
• Which schemes you have pension in, and how much (from Annual Benefit Statement in pension portal)
• What % of your pension you took at partial retirement
• Are you subject to abatement? If not, how much headroom do you have?
• Current working pattern (% FTE) - are you happy with this, or are you considering reducing it?
• Other financial assets (ISAs, savings, second property, etc)
• Whether you would have sufficient resources to retire now if you wish, and whether you plan to work because you like it or because you think it is financially necessary 
• Why do you plan to retire in 10-15 years time - what is informing the calculation of that?
• Do you have a spouse or dependents? 
• If you have a spouse, what is their pension and financial position?
• Do you want to build up money to leave to others when you die?
• Preference for lump sum vs annual pension from your Civil Service pension
• Have you accured a full State Pension? If not, how many years more do you need? (see check my State Pension webpages)

The answers to the above will determine whether the pension options you have available, listed below, are attractive and if so which ones might be best:

• Buying Voluntary Class 3 contributions in the future
• Added Pension / EPA / Buy-out actuarial reduction for early commencement - all essentially the same thing, pay money to get more annual Civil Service pension
• AVC or personal pension - pay money to build up a pot of money that can be accessed flexibly
• When commencing rest of Civil Service pension - lump sum choice and whether to allocate some pension to enhance survivor benefit

GunJack

Plus, won't any additional contributions (of any type) be subject to pension input amount rather than "just" excess salary as the OP is in a DB scheme?

hugheskevi

GunJack said:

Plus, won't any additional contributions (of any type) be subject to pension input amount rather than "just" excess salary as the OP is in a DB scheme?

Yes, but with a salary of £63,000 that would be an alpha pension input of £23,385. Although any final salary link or if the rate of inflation is higher than the year before could increase this, it should still be fine to put £27K into a pension and stay below the £60K annual limit, even before looking at carry-forward available.