I have been left a £50,000 inheritance, I want to add it to my pension pot.

normandylife

I have just turned 64, I have a part time job earning £1,200 per month and a small HM Forces pension and a little savings. I also have a personal pension with Aegon and have a pot in the £40,000's.

I have just been left a £50,000 inheritance and I want to add this to my pension pot. Seems like a straight forward thing to do but I am sure it isn't as simple as ringing up Aegon and asking them to just add it to my pot, or is it?

I obviously do not want to do something costly and wasteful.

My way way of thinking is I do not want it sat in my bank doing nothing and tempting me to spend it on something stupid and wasteful.

Any advice would be appreciated

Triumph13

Your problem is that the max gross amount you can add to your pension in any one tax year is the amount of your part time earnings, less any existing pension contributions you are making. If your PT gross is exactly £1,200 a month and your existing contributions (not counting employer's contributions) were £400 total, then you could stick £14k gross / £11,200 net in before the end of this tax year and then the same next year. So it will take you four and a bit tax years to get it all into the pension, assuming you keep working.

DRS1

You won't get it all in the pension in one go (as @Triumph13 says). Put £20k in an ISA this tax year and another £20k into it next tax year. Assuming you have the ISA headroom. You could make it an S&S ISA if you want to invest it the same way you have invested the pension.

El_Torro

It's worth bearing in mind the MPAA rules around pensions. If you have at any point taken taxable money out of your Aegon pension then you can only contribute a maximum of £10k a year to your pension.

The fact that you are taking a DB pension (your HM Forces pension) isn't enough to trigger the MPAA. If you have taken a tax free lump sum from either pension that also doesn't trigger the MPAA.

Albermarle

Just for clarity - in theory you could add the £50K to your pension pot in one go, but you could not get tax relief on most of it. So in that case it would not be a very good idea. As said to get the tax relief you will have to spread the pension contributions over more tax years, and keep earning in those years as well.

normandylife

https://forums.moneysavingexpert.com/discussion/comment/81895163#Comment_81895163

This is the bit I am unsure about, tax relief on what?

If you are saying I won't get tax relief on the tax I will get from the interest I make on the £50k then I understand that. As you can tell I am really not savvy when it comes to pensions

Dazed_and_C0nfused

https://forums.moneysavingexpert.com/discussion/comment/81895179#Comment_81895179

If you personally add money to a pension it will be by using the relief at source method.

This means the pension company adds 25% to your net contribution (courtesy of HMRC).

So £10,000 from you becomes £12,500 in the pension (£2,500 is 20% of the gross contribution).

But you are limited by two things, you cannot add (as the gross contribution) more than your earnings for pension purposes. This is often the taxable pay figure from your P60.

The fact that you could afford to pay more than is immaterial. You could possibly pay more and not get tax relief but in most cases that would be a very odd choice, to the degree finding a pension company who would facilitate it would be hard work.

The other consideration is MPAA. Which limits your gross contribution to £10,000. MPAA generally applies when money (not an annuity) is taken out of a DC pension. Your forces pension is highly likely to be a Defined Benefit (DB) pension.

Albermarle

Pension contributions get tax relief added to them, which makes them attractive for saving for retirement.

You may well pay some tax when you withdraw from the pension later, but overall there will still be a tax benefit.

However you are limited by your earnings as to how much tax relief you can get on pension contributions.

So for example when you add £10,000 to a pension, £2,500 is added as tax relief ( as long as your earnings are above £10K)

Any money generated in pension, via stock market returns etc is free of tax.

Pensions explained | MoneyHelper

xylophone

If you are saying I won't get tax relief on the tax I will get from the interest I make on the £50k then I understand that. As you can tell I am really not savvy when it comes to pensions

In theory, you can contribute any amount to a pension. However, if you are seeking to make tax relievable contributions, see

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100

And note

For the avoidance of doubt a pension is not classed as earnings and cannot be included in the definition of relevant UK earnings.

Most private pensions are not set up in such a way as to allow non tax relievable contributions.

Let's suppose that you choose to invest the money you have contributed to your pension into an interest paying fund.

The income would be paid tax free within the pension.

What amount is your total gross relevant earnings for the tax year?

What is the total gross amount you have contributed to your pension (s) in this tax year?

DRS1

I think this bit in @albemarle's post should read

"So for example when you add £10,000 to a pension, £2,500 is added as tax relief ( as long as your earnings are above £12500)"

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81895238#Comment_81895238

Correct of course🙂