Pension to savings ratio

af1963

https://forums.moneysavingexpert.com/discussion/comment/82004437#Comment_82004437

Only if you have enough income to support that.

The 60k limit also needs to cover all personal and employer contributions, with the option to carry forward unused allowance from previous years to extend this 60k limit.

But you can also only get tax relief on gross personal contributions up to your gross earnings, with no carry forward available for this limit. So if you earn less, you can't get tax relief on anything above your earnings - which makes those extra contributions fairly pointless.

On the original q: when I got above the age when I could access the pension if I ever needed to, I started to move as much as possible from other savings into the pension, to benefit from the tax relief and the tax free cash portion, as describe by dunstonh above - but the amount I could pay each year was limited by my (part time, by then) earnings.

If you retire before state pension age, you can also take out some of the pension each year, tax free, until state pension starts, by using your annual tax allowance alongside tax free cash. OP already has an annuity using up almost £5k of the tax allowance so would be able to take about £10.5k in this way.

Veloflyer

https://forums.moneysavingexpert.com/discussion/comment/82004493#Comment_82004493

Surely it is 60K regardless of income? If the OP has savings as he suggests, then he can move 60K/annum into a pension if he has no other contributions. As you say, he also has the c/f allowance so could be more if he wishes.

We don't know what the OP puts in presently. 60K could very well mean he benefits from the HMG contribution.

Still don't understand the time constraint.

NoMore

To get the maximum benefit of using the Pension, they want to get the tax relief. The amount of tax relief you can get is limited to your current years relevant uk earnings, so yes you could put more than that in (nobody has disagreed with you) but the point is you won't get tax relief on amounts above your earnings, which makes it largely pointless and could actually lose you money compared to leaving it outside a pension.

Putting £100 into an ISA is still £100 on withdrawal.

Putting £100 into a Pension and getting tax relief, is £106.25 on withdrawal, assuming 25% tax free and rest taxed at 20%

Putting £100 into a Pension without tax relief is £85 on withdrawal, assuming 25% tax free and rest taxed at 20%

So if you have savings larger than your relevant earnings you want to stagger the contributions over several tax years to get it all in at maximum tax efficiency.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82004518#Comment_82004518

The annual allowance (60k) interaction with tax relief (taxable earnings/profits) gets a lot of coverage on here and is not simple to understand. They are two parallel things.

As mentioned if your taxable earnings are £40k then £40k is the maximum gross pension contribution you can make and get tax relief on.

That usually translates into "you can't contribute more than £40k gross" so you can't use the other £20k which the annual allowance would give you.

It has been pointed out that that is not strictly true because you could be in a scheme with an employer who makes an employer contribution of say £20k and that £20k when added to your gross £40k contribution would get you to £60k. And maybe the employer would contribute more and then you'd be looking at carry forward.

Another complication may be where you are in a DB scheme and have a pension input amount which could spike if you are promoted in the year. If the PIA was £40k on its own and you had earnings of £40k you could still pay personal gross pension contributions of £40k but only if you had £20k of carry forward.

The thing is none of those scenarios apply to the OP who is self employed. So there is no employer to bump up the personal pension contributions and no DB scheme to muddy the water.

And just as an aside if you have no taxable earnings/profits you are still allowed to contribute gross £3600 to a pension and get tax relief - there wouldn't be much point to that allowance if you could anyway contribute £60k.

Albermarle

The annual allowance (60k) interaction with tax relief (taxable earnings/profits) gets a lot of coverage on here

Yes if @Veloflyer stays on the forum for just a few months, they will see these misunderstandings discussed again, again and again…………….

Veloflyer

https://forums.moneysavingexpert.com/discussion/comment/82004573#Comment_82004573

I get the tax relief but that wasn't the point. If the OP transfers 60K from his cash pot as I suggested, and using the c/f, could he not gain from any future market growth and benefit from TFLS? Even if he did contribute to an extent, he could still top up over 2 or 3 years perhaps. Basically - and as dunstonh admirably demonstrated earlier - that 60K is far better in a pension than languishing in cash being eaten away by inflation.

NoMore

https://forums.moneysavingexpert.com/discussion/comment/82004732#Comment_82004732

If they want to move from cash to investment, they would be better doing that in an S&S ISA than non relieved Pension contributions, see my earlier post.

QrizB

If the OP transfers 60K from his cash pot as I suggested, and using the c/f, could he not gain from any future market growth and benefit from TFLS?

Let's imagine an extreme case - the OP puts £60k into a pension as a non-tax-relievable contributon.

The OP invests this in DogAI - "it's AI for dogs!" - which quadruples in value over the next however-many years.

The OP now has £240k in a pension. £60k of that will be TFLS but the remaining £180k will be taxable at their marginal rate. Even if that's only 20%, they'll be paying £36k in tax.

Basically - and as dunstonh admirably demonstrated earlier - that 60K is far better in a pension than languishing in cash being eaten away by inflation.

But the same £60k could be invested in DogAI in a SSISA (subject to annual limits) where the £240k would be tax-free.

Making this non-tax-relievable pension contributions using cash the OP has already paid tax on would leave them £36k worse off.

HedgehogRulez

what if they had invested in cats-AIs?

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82004757#Comment_82004757

Cats are too intelligent to get taken in by AI.