lump sum to put in pension

333rocky333

Hi, this is my first post so apoligies if it is wrong.
I have some money I will not need for a while,
Is it correct that if I put it in my pension and declare it, I will not have to pay 40% tax on my higher earnings and saving income.

I am a bit lost at present and Appreciate directing ,as i am sure it can be found on this site.

As far as i know I contracted out and was put with Scottish widows
I also have a private one with abbey, which is now called phoenix.

What factors would decide which one to put the money in.
Thanks in advance

dunstonh

Is it correct that if I put it in my pension and declare it, I will not have to pay 40% tax on my higher earnings and saving income.

Only if the pension contribution lowers you back into basic rate.

What factors would decide which one to put the money in.

Phoenix is closed so you cannot. Scot Wid, if its one of their current whole of market plans should be fine.

What you should be asking yourself is where do you want it invested.

Melodyx

I've got a contracted out of SERPS policy with Scottish Widdows too. I want to start a pension (before I'm too old and grey!), where is a good starting point to see what's available, or can I just add to the Scottish Widdows policy and save on the start up costs?

dunstonh

where is a good starting point to see what's available,

There are a couple of hundred pensions and around 28,000 investment funds. Where do you want to start?

or can I just add to the Scottish Widdows policy and save on the start up costs?

What set up costs? Thats a throwback to the legacy pensions days. Most have no initial charge nowadays. Some do but dont rule them out as they can actually end up being the cheapest in the long run as they usually have lower annual charges.

EdInvestor

333rocky333 wrote: »

I have some money I will not need for a while,

Do be aware that once money is put in a pension, you can't take it out again, other than 25% of it after you turn 55.

dunstonh

The Govt doesnt give you tax relief and tax free growth so you can withdraw it next year to pay for a holiday. There is also a clue in the name of the product "pension".

333rocky333

Thank you for the responce.

My theory was but maybe wrong
If I roughly add my expected yearly income to my savings income and subtract £36,500 this leaves approx £6000, this is what I was prepared to put away.

Due to my age now and other accessable investments, this money can be safely put away and left till whenever.

If I contact s/widows is this a long process to pay it in , am I right it will need to be done by april.

This is all new to me and I am just fed up having to pay the extra tax each year.
Thanks again.

EdInvestor

dunstonh wrote: »

The Govt doesnt give you tax relief and tax free growth so you can withdraw it next year to pay for a holiday. There is also a clue in the name of the product "pension".

I mention it simply because it's quite apparent from the number of queries we get on the boards about how to cash in pensions that this factor is not an obvious one. No doubt the confusion is exacerbated by the different rules affecting different types of pensions - for instance some company pensions can be cashed in if you leave a job before two years.

jem16

333rocky333 wrote: »

Thank you for the responce.

My theory was but maybe wrong
If I roughly add my expected yearly income to my savings income and subtract £36,500 this leaves approx £6000, this is what I was prepared to put away.

Assuming you mean the £36,400 ( as opposed to £36,500 )of taxable income which is the starting rate for higher rate tax - have you remembered to also deduct your personal tax-free allowance?

For most people this is £5225 ( although this might be less depending on your tax code but I am assuming 522L ) so that would leave just £675 in higher rate tax.

333rocky333

No, I did not minus any.
Tax code was 134L last year but not sure now, so is that minus 1340 plus my investment income.
I owe them tax from past years which I think they where taking over the year.
It is that investment income that pushes me over.

jem16

Yes you should deduct £1340 instead of the £5225 I mentioned.

What you can do for next tax year is work on the basis of £5435 ( next year's personal allowance ) plus the starting rate for higher rate tax (currently £34,600 - next year's hasn't been announced yet) - so at least £40,035.

Then take your salary, plus savings interest and any dividend payments and add it all up. Work out the difference between the two figures and that will give you the amount you will be in higher rate tax by.