£2880 pay from drawdown

NoMore

Lets compare to taking it from savings and taking it from drawdown.

Savings is £2880 into Pension becomes £3600 after tax relief with a £36 rebate for the extra 1% tax. On withdrawal that becomes £3033 (+£36) so £2880 has become £3069.

For drawdown £3418.40 from the pension to end up with £2880. Putting that back into the pension gives him £3600 plus he can claim the extra 1% tax from HMRC (£36).  The £3600 on further withdrawal will return him £3033 (+36 from earlier) so £2880 contribution has become £3069.

So it's the same thing. 

I don't know why you think you're paying £1171 tax to get £900. You seem to be ignoring you get tax relief on the contribution and then only saying the gain is the tax free cash. 

NoMore

I will concede that taking it from Drawdown will decrease his overall pension position, while adding from savings does not. 

SVaz

I was assuming he was drawing down only £2880,  paying the tax and then making it back up to £2880 from elsewhere.
To me it’s a loss not a gain but het, not my money. 

Easyjet77

Thanks both for input.
   I now understand the position as explained by NoMore re methods of funding the £2800. With the increased admin using drawdown ac to fund payment (with little or no extra benefits)I will continue to use savings to make payment. 
 IE pay £2800 from savings into pension, choose funds and sit back and watch growth (or loss!) . Regards to you both.

Pat38493

Another wrinkle here is that by adding the £2800 back into the pension, you effectively increased your 20% tax band by £3600 according to another thread from a few days ago, so if you are paying higher rate tax (or close to it) this can add a further advantage.

Triumph13

SVaz said:

I was assuming he was drawing down only £2880,  paying the tax and then making it back up to £2880 from elsewhere.
To me it’s a loss not a gain but het, not my money. 

You might find it easier to understand if you begin by withdrawing a full £3,600 from the pension.  That gives £3,033 after tax.  You put £2,880 of that back into the pension, HMRC makes it back up top £3,600 and your pension is then back exactly where it was.  You still have £153 of 'free' cash though, and you can reclaim another £36 from HMRC.

For those of us who aren't Scottish, they would have got £3,060 post tax from their £3,600 withdrawal leaving them with £180 of 'free' money, but nothing extra to reclaim.

Cobbler_tone

I have read lots (only on here, as you would expect) about the £2,880 into a pension. I honestly don't know one person who does it and I know a lot of people who are very comfortable in retirement. Maybe that is why they don't bother doing it? I know some people chase every pound and flick around money for a tenth of a percentage on a saving product. There comes a point when you factor in the admin and hassle factor in comparison to the respective reward.
I did have a (light hearted) pop at my dad who had £30k in a zero interest current account, purely designated for a new car. He is nearly 90 and won't be getting a car. I asked if they hassle him in the branch and he said he doesn't go in because they always mention it. He just goes to the cash point weekly to draw his state pension and his private pension will go straight into another account. Not a direct debit in sight and must pay his bills with a card over the phone these days. Old school.
My older brother (who isn't the most switched on with money and should know better) had £80k in a current account post retirement but at least asked me where to stash it. 

I probably sit somewhere in the middle and a lot more financially savvy but not obsessive.

molerat

Both myself and MrsM do it every year.  Probably takes around half an hour of work for the £180 "tax free interest" on that £2880 which is in the pension for around 2.5 months so that is 6.25% uplift and an AER of around 30%.  Plus the cash is also earning some interest whilst held increasing those rates slightly.  Also as a Scottish 21% tax payer the pension contribution currently lifts me out of 21% even though my taxable income has increased.

MetaPhysical

QQ related to this.

Say you're new to this and person in question has not made any pension contributions and has had no income for the past three years.  Can you also pay the £2880 in the past three years as well?  SO in other words you can make 4 x 2880 contributions (this year's and the past three year's worth)?

molerat

MetaPhysical said:

QQ related to this.

Say you're new to this and person in question has not made any pension contributions and has had no income for the past three years.  Can you also pay the £2880 in the past three years as well?  SO in other words you can make 4 x 2880 contributions (this year's and the past three year's worth)?

Quick answer is no, no doubt someone will be along with the long answer re sufficient income.