Top up pension or play safe with fixed rate bond

dunstonh

 maxed out ISA allowance, Is it a no brainer to put as much as I can into a pension pot whether it be nest or not for a return likely to be much higher than 4.5%  In the current climate with government upheavals are pensions in danger of taking a turn for the worse ?

Pension beats ISA by 6.25% if you are a basic rate payer when contributing and a basic rate payer when you draw the pension.

SVaz

You can have ‘safe’ investments within a pension pot - it’s down to what you choose.
You could buy Gilts, which, depending on when they mature, could get you 4-5% per year.
You could buy Short term money market funds that get the inter-bank rate,  not so good now that rates are dropping but still almost 4% currently.
It depends if you will need the pension money in the next few years or not.
You could play safe with half the £30k and invest the rest in something like a passive global equity fund for the long term. 

davefrombristol

QrizB said:

Lost for good, alas.

Google search on unused pension allowance from previous years --
"If you use up all of your annual allowance in one year, it's possible to contribute more to your pension with unused allowances from previous years and still receive tax relief. You can carry forward unused annual allowances from the three previous tax years, starting with the earliest which would be 2022/23.6 Apr 2025"

How come I cannot go back 3 years and start using some of the unused allowance from 2022-2023 ?

dunstonh

How come I cannot go back 3 years and start using some of the unused allowance from 2022-2023 ?

The pension allowance is £60,000.   You have to fully use the current year allowance before you can use carry forward.

You say you are on £30k.   So, by default, you cannot use up the £60k pension allowance for this year.

Triumph13

dunstonh said:

How come I cannot go back 3 years and start using some of the unused allowance from 2022-2023 ?

The pension allowance is £60,000.   You have to fully use the current year allowance before you can use carry forward.

You say you are on £30k.   So, by default, you cannot use up the £60k pension allowance for this year.

There are two separate rules and you have to meet both of them:

1. Earned income in the tax year you make the contribution (no carry forward allowed); and
2. Annual allowance of £60k (plus unused allowance carried forward)

For you #1 is the limiting factor.

Getting back to your original question, what do you plan to do with the money eventually?  If you are going to buy an annuity, then that will be much easier if you put it in a pension first.

QrizB

davefrombristol said:

How come I cannot go back 3 years and start using some of the unused allowance from 2022-2023 ?

As explained above, you can go back and use the 2022-23 allowance. You just need to increase your income to exceed £60k pa first.

LHW99

davefrombristol said:

QrizB said:

Lost for good, alas.

Google search on unused pension allowance from previous years --
"If you use up all of your annual allowance in one year, it's possible to contribute more to your pension with unused allowances from previous years and still receive tax relief. You can carry forward unused annual allowances from the three previous tax years, starting with the earliest which would be 2022/23.6 Apr 2025"

How come I cannot go back 3 years and start using some of the unused allowance from 2022-2023 ?

Because you have to use up the current year's allowance first?

davefrombristol

I rang nest this morning, asked about how much I could top up my pension for this years allowance.  The call handler said £60,000 anything over and inform HMRC, I quizzed him on whether he was absolutely sure it was £60,000 or the lower amount of how much wages I earn this financial year e.g. gross less contributions & deductions.  He seemed adamant it was £60,000 ?    I can't increase my income to exceed £60,000 I'm on about half that at £30,000

NoMore

Legally you can put as much as you want into a Pension, however there are limits which if you go above make the contributions not worth doing. Also, some pension providers are not set up to take contributions like this resulting in admin and headache with HMRC.

Putting more than you earn in via relief at source is not usually worth it, because you don't get the tax relief on the excess and you have opened it up to being taxed on the way out, so possibly you end up being taxed twice on this money and end up with less then if you had just saved it outside of the pension in the first place. This is why people are advising you not to put in more than you earn.

You could also put in more than the AA, however then you will be subject to the AA charge so again losing money that you wouldn't if you didn't put more than you should in anyway.

There are limits, but breaking the limits result in penalties. People say you can't put more in when they actually mean you shouldn't because it's not worth it and is not tax efficient, and pension providers aren't set up for it.

Take everybody's advice and take advantage of tax relief but no more.

SVaz

Just goes to show you can’t blindly believe what poorly trained call centre monkeys tell you.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/the-annual-allowance