Maxing out pension

Lux_K

Hi I hope some of you lovely forumites can help.

I’ve received an inheritance and want to use the money to max out my workplace pension this year. They don’t offer salary sacrifice so this will be a one off lump sum payment not through payroll.
If my salary is £105K and I’ve already made contributions since April through my salary do I just subtract the contributions from the available £60K then take 20% off this amount to figure out how much to pay?
Also there could be potential redundancy in my work if I haven’t earned over £60K by that time what happens?
TIA

NoMore

You also have to take account of employer contributions.

You also may be able to use carry forward of unused AA from the previous three years to allow you to get up to possibly your full 105k salary into your pension.

Lux_K

https://forums.moneysavingexpert.com/discussion/comment/82150377#Comment_82150377

Yes I have my carry forward numbers from the pension provider in my annual statement showing how much allowance I’ve used in the past 3 years. It’s just this years that I’m struggling to calculate, also with the redundancy looming I’m worried I’ll not have earned up to the £60K by the time I’m possibly made redundant.

Albermarle

You need to check with your workplace pension provider, if they will accept lump sum contributions from individuals in the scheme and that they will add the basic rate tax relief. Normally they will but sometimes they are not set up to accept such contributions.

With the redundancy issue looming, you might be better not to make maximum contributions straightaway and wait until the situation is clearer. Any money not put in the pension, could be simply put in a easy access savings account for now.

NoMore

If you end up not earning enough by the end of the FY, then usually you can contact the provider, and they can unwind the contribution for you.

Is there any need to put all the contribution in right now ? You could put in enough that covers your earnings to date and then closer to year end put the rest in when your final earnings are clear.

Don't forget that your redundancy money can contribute to your earnings as well. The tax free part won't but the rest could.

Lux_K

https://forums.moneysavingexpert.com/discussion/comment/82150403#Comment_82150403

Thanks Albermarle, I have received a large inheritance and wanted to put it in the most tax efficient place I’ve used my ISA allowance

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82150411#Comment_82150411

5% savings interest minus 20% tax = 4 % , so not the end of the world. Or you could try Premium Bonds.

Lux_K

https://forums.moneysavingexpert.com/discussion/comment/82150404#Comment_82150404

thanks for this NoMore I’ve received a large inheritance and want put it in the most tax effective place. I really wanted to use my carry forward allowances too but if I’m not maxing out this year then I can’t use them.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82150417#Comment_82150417

There is nothing to stop you making a contribution now, and a top up contribution in March, when the redundancy situation will hopefully be clearer.

Secret2ndAccount

Two Separate, Independent limits.

Whether your salary is 1p or 150k, you can use up to your 60k annual allowance, then whatever is left over from previous years. That limits the total of your contributions plus your employer's contributions.

You can only receive tax relief up to your salary. So if you earn 105k, you can pay in 105k. If you get made redundant and only earn 50k or 70k, you can get tax relief on 50k or 70k. It would be pointless to pay more into your pension. Whilst legal, it could cause administrative issues, or you could end up paying tax on the way out for money on which you received no relief going in. I would suggest not paying in more than you have earned so far. Then make another payment later if you have earned more. This limit does not look at employer contributions. It looks at the total paid in by you - monthly, plus lump sums.

Two separate limits. Both apply. Effectively you are limited by the lower of the two calculations. We can't answer whether you can pay in 105k because we don't know your employer's contribution and we don't know how much carry forward you have.

ali_bear

You need to work out how much carry forward you can use from previous years. But whether you could contribute all of your salary for the rest of this tax year, or just 5k per month (grossed up), ask your employer to make these contributions from your salary on your behalf. And live off the inheritance money while you're getting little to nothing in your pay packet.

It is better to make regular contributions to a pension than single large ones. Imagine if your big investment went in the week before a big fall in the investment fund values. By spreading out the investment you spread that risk.