Top up pension or play safe with fixed rate bond

SVaz

Defined contribution 

both: 

• your total contributions must be less or equal to the amount you earn and 

• all payments in, including any from you and your employer, must be less than your annual allowance – which is £60,000 for most people. 

Example: If you earn £25,000, you can usually pay up to £25,000 into your pension without paying tax (£20,000 of your money and £5,000 in tax relief). If you did this, your employer could contribute another £35,000.   

If you earn less than £3,600 a year, you can get tax relief on up to £3,600 of pension savings each tax year until you’re 75 (£2,880 of your money and £720 in tax relief). 

I would make a complaint about the completely incorrect information you received from Nest. 

dunstonh

davefrombristol said:

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

Nest do not employ advisers.  They cannot provide you with advice or anything personalised to you.  They gave you the generic answer of the annual pension allowance, but none of the qualifiers that could see that reduced.

Secret2ndAccount

davefrombristol said:

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

I suppose we can't blame you for trying to get an answer from officialdom rather than internet strangers, but please believe me, we are correct. Read more threads on this forum. This question comes up every week. Every week we give the same answer. Every week, the OP thinks they can use carry forward. 9 weeks out 10, they can't. 

The text below is not freshly written. I've copied and pasted from an answer I gave in 2023:

There are two limits on your pension contributions:

1. The Annual Allowance. This is an upper bound on all contributions (you + an employer/company + the taxman) into your pension in one tax year. The base number is 60k per year, but it can be higher or lower depending on your personal circumstances.
2. The tax relief limit.  You cannot receive tax relief on more than your relevant earnings. Salary + Self Employment Profit, but not Rent or Pensions. If you have no, or low income, you are allowed to put in 2880 which gets 720 tax relief added, making a total of 3600.
It is legally permitted to pay in more than this, but you won't get any tax relief. So in 99% of cases it would be a bad idea. Some pension providers are not set up to deal with such excess contributions.

Legally you can put 10,000 or 10 million into a pension, but there is no benefit if you don't get tax relief, and hefty penalties if you exceed the annual allowance

Secret2ndAccount

NoMore said:

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.

Exactly correct! And similar to what I wrote above.

Albermarle

Now the contribution issue is cleared up, a couple of other comments.

Nest annoyingly charge 1.8% for contributions so that percentage would be lost immediately. 25% of what I put in could come back as tax free once I hit pension age though ( Sep 2026 ) 

Just be aware that immediately taking all the tax free cash as soon as it becomes available, is not always the best course of action. It will sit quite happily in your pot to be taken at a later date. ( hopefully growing)

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%

Normally money in a pension is invested in funds containing shares, bonds, gilts etc , so the return is essentially unpredictable. The longer it is invested, the more likely you will get a decent return, but over the short term ( anything up to 5 years) anything can happen.
So over a one year period a 4.5% guaranteed fixed interest rate would be a much safer bet.
However on the other side, when you retire you will presumably not take all your pension pot in one go and hopefully it will last for many years. In which case investments are likely to win out over cash savings ( + if the investments are in a pension you will have the advantage of a tax gain)

german_keeper

SVaz said:

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

I agree that NEST call centre staff are probably poorly trained. I also suspect they are highly likely to be poorly paid and working in a very stressful environment. But I think to refer to them as "monkeys" is incredibly disrespectful.