Pension Contributions: Lump Sum vs Monthly

elkyfer

Hi everyone,

Looking for some guidance on pension contributions.

My situation:

• Salary: ~£70k

• No salary sacrifice scheme at work

• Last year I contributed £20k, making monthly contributions from my salary.

• I have got in Savings £10k.

• Aviva applied 20% relief and I claimed the extra 20% as a higher-rate taxpayer web HMRC.

Questions:

1. Is there any difference between paying monthly vs. doing one lump sum before at the end of the tax year, since I don’t have salary sacrifice scheme?                                                                                                                                                                                                                                If not, I’d rather just pay a lump sum in March for easier planning.                                      

2. Can I also contribute my savings and still receive the full 40% tax relief?

Any guidance or clarification would be greatly appreciated!

---

Marcon

elkyfer said:

Hi everyone,

Looking for some guidance on pension contributions.

My situation:

• Salary: ~£70k

• No salary sacrifice scheme at work

• Last year I contributed £20k, making monthly contributions from my salary.

• I have got in Savings £10k.

• Aviva applied 20% relief and I claimed the extra 20% as a higher-rate taxpayer web HMRC.

Questions:

1. Is there any difference between paying monthly vs. doing one lump sum before at the end of the tax year, since I don’t have salary sacrifice scheme?                                                                                                                                                                                                                                If not, I’d rather just pay a lump sum in March for easier planning.                                      

2. Can I also contribute my savings and still receive the full 40% tax relief?

Any guidance or clarification would be greatly appreciated!

---

1. Have a look at this article, which should help you decide: https://www.aviva.co.uk/investments/investing-for-beginners/what-is-pound-cost-averaging/

2. You can only receive higher rate tax relief to the extend you paid higher rate tax in the first place. Looking at your figures, it doesn't look as if you'll have paid higher rate tax on the contribution amounts shown above.

DRS1

Are the savings in an ISA?  You could think about pitching your pension contributions so you get just below the higher rate band and using anything else you might have contributed to contribute to an ISA.  The benefit of an ISA is you can take money from it whenever you like so it could be useful if you want to retire early or if you just need some cash for something.  Yes pensions are better from a tax perspective - even if you only get basic rate tax relief but that money is locked away for a time.  The ISA could be invested in the same way as your pension.

ali_bear

elkyfer said:

Hi everyone,

Looking for some guidance on pension contributions.

Some of the guidance would depend on your age (or years to planned retirement)? 

Albermarle

DRS1 said:

Are the savings in an ISA?  You could think about pitching your pension contributions so you get just below the higher rate band and using anything else you might have contributed to contribute to an ISA.  The benefit of an ISA is you can take money from it whenever you like so it could be useful if you want to retire early or if you just need some cash for something.  Yes pensions are better from a tax perspective - even if you only get basic rate tax relief but that money is locked away for a time.  The ISA could be invested in the same way as your pension.

OPs salary is £70K and they are making £20K contributions from after tax pay. So they will already be getting the maximum 40% tax relief.

af1963

Albermarle said:

DRS1 said:

Are the savings in an ISA?  You could think about pitching your pension contributions so you get just below the higher rate band and using anything else you might have contributed to contribute to an ISA.  The benefit of an ISA is you can take money from it whenever you like so it could be useful if you want to retire early or if you just need some cash for something.  Yes pensions are better from a tax perspective - even if you only get basic rate tax relief but that money is locked away for a time.  The ISA could be invested in the same way as your pension.

OPs salary is £70K and they are making £20K contributions from after tax pay. So they will already be getting the maximum 40% tax relief.

... except for viewers in Scotland ... 

elkyfer

DRS1 said:

Are the savings in an ISA?  You could think about pitching your pension contributions so you get just below the higher rate band and using anything else you might have contributed to contribute to an ISA.  The benefit of an ISA is you can take money from it whenever you like so it could be useful if you want to retire early or if you just need some cash for something.  Yes pensions are better from a tax perspective - even if you only get basic rate tax relief but that money is locked away for a time.  The ISA could be invested in the same way as your pension.

It is not ISA. This is about getting tax relief of 40% for the money over 50k, there is not sacrifice scheme. thanks.

ali_bear said:

elkyfer said:

Hi everyone,

Looking for some guidance on pension contributions.

Some of the guidance would depend on your age (or years to planned retirement)? 

At 67? it is left 23 years of work... in 13 years it is possible to take out the money, but everything it is gonna change. I want the 40% tax relief over 50k, and control in the policy pension. thanks

af1963 said:

Albermarle said:

DRS1 said:

Are the savings in an ISA?  You could think about pitching your pension contributions so you get just below the higher rate band and using anything else you might have contributed to contribute to an ISA.  The benefit of an ISA is you can take money from it whenever you like so it could be useful if you want to retire early or if you just need some cash for something.  Yes pensions are better from a tax perspective - even if you only get basic rate tax relief but that money is locked away for a time.  The ISA could be invested in the same way as your pension.

OPs salary is £70K and they are making £20K contributions from after tax pay. So they will already be getting the maximum 40% tax relief.

... except for viewers in Scotland ... 

uk, thanks

DRS1

elkyfer said:

DRS1 said:

Are the savings in an ISA?  You could think about pitching your pension contributions so you get just below the higher rate band and using anything else you might have contributed to contribute to an ISA.  The benefit of an ISA is you can take money from it whenever you like so it could be useful if you want to retire early or if you just need some cash for something.  Yes pensions are better from a tax perspective - even if you only get basic rate tax relief but that money is locked away for a time.  The ISA could be invested in the same way as your pension.

It is not ISA. This is about getting tax relief of 40% for the money over 50k, there is not sacrifice scheme. thanks.

Salary sacrifice or not has no bearing on the tax outcome.  It only affects NICs.

As @Albemarle pointed out if you have a salary of £70k and contribute £20k to a pension using relief at source you have got yourself into the basic rate tax bracket.  But that assumes you have no other taxable income.  If your £10k of savings is outside an ISA then it is generating taxable income.  You may in fact pay 0% tax on the income but it is still taxable and who knows you may get £450 gross interest on that £10k.  Personally I don't know if that would mean you could get 40% tax relief on an extra £180 of pension contribution.  Someone on here may know.  What I do know is you should look at your total taxable income and not just your salary.

My point was not to focus all in on the pension (or getting 40% tax relief).  If £10k is all you have outside the pension and you have no ISA then you probably need to accumulate some more outside the pension preferably in an ISA.

Bear in mind that the whole point of pensions and other savings/investments is to build up a nest egg so you can afford not to work.  You may think that will not happen until you are 67 but life may have other ideas.

HedgehogRulez

elkyfer said:

DRS1 said:

Are the savings in an ISA?  You could think about pitching your pension contributions so you get just below the higher rate band and using anything else you might have contributed to contribute to an ISA.  The benefit of an ISA is you can take money from it whenever you like so it could be useful if you want to retire early or if you just need some cash for something.  Yes pensions are better from a tax perspective - even if you only get basic rate tax relief but that money is locked away for a time.  The ISA could be invested in the same way as your pension.

It is not ISA. This is about getting tax relief of 40% for the money over 50k, there is not sacrifice scheme. thanks.

ali_bear said:

elkyfer said:

Hi everyone,

Looking for some guidance on pension contributions.

Some of the guidance would depend on your age (or years to planned retirement)? 

At 67? it is left 23 years of work... in 13 years it is possible to take out the money, but everything it is gonna change. I want the 40% tax relief over 50k, and control in the policy pension. thanks

af1963 said:

Albermarle said:

DRS1 said:

Are the savings in an ISA?  You could think about pitching your pension contributions so you get just below the higher rate band and using anything else you might have contributed to contribute to an ISA.  The benefit of an ISA is you can take money from it whenever you like so it could be useful if you want to retire early or if you just need some cash for something.  Yes pensions are better from a tax perspective - even if you only get basic rate tax relief but that money is locked away for a time.  The ISA could be invested in the same way as your pension.

OPs salary is £70K and they are making £20K contributions from after tax pay. So they will already be getting the maximum 40% tax relief.

... except for viewers in Scotland ... 

uk, thanks

Which part of the UK are you in? Scotland?

elkyfer

HedgehogRulez said

Which part of the UK are you in? Scotland?

London, England

ali_bear

So you have 15-20 years to retirement - it is good to be planning ahead. Have a look at the first reply above from Marcon. I always say that monthly is better. But your choice of investments is important, depending on your attitude to risk, for the next five years you probably want to be investing in a fund with a growth/risk level of 4 (where 1 is completely safe and 5 is high growth). 

But as well as pension savings it is good to have savings outside of the pension - something you can draw on if needed before retirement.