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• pthogy
• By pthogy 15th Apr 18, 9:32 AM
• 5Posts
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pthogy
Assumes LTA< £1000000 and annual contributions are <£40000
I contribute to an NHS pension at 12.5% and earn £60000 in FY 18/19 and am 55 in Q4 of this year
If I invest £18000pa (gross) for the next 2 years into a low return, safe private pension and assume fund value amounts to £37400 after 2 years of investing can I then cash in the full pension in 2 steps at say 57 and 58 ensuring that this leaves me in the 20% tax bracket ( assumes taking full NHS pension and cashing in this investment does in fact leave me in the 20% tax bracket) and make a good gain?

1 Invest £18000 gross per year or £10800 net for 2 years amounting to £36000 gross or £21600 net (40% tax bracket during investment period)
2 Retire and cash in at end year 2 at age 57 the sum of £20000 assuming NHS pension at £14150 giving a total of £34150 thus 20% tax bracket giving £5000 of £20000 tax free (25%) and remaining £15000 taxed at 20% giving £12000 net.
3 Cash in at end year 3 at age 58 the balance of £17400 assuming NHS pension at £14150 giving a total of £31550 thus 20% tax bracket giving £4350 of £17400 tax free (25%) and remaining £13050 taxed at 20% giving £10440 net.
4 Input = £21600 whilst a 40% tax payer and output on retirement end of year 2 at age 57 = £5000 tax free and £12000 post 20% tax plus retirement end of year 3 at age 58 = £4350 tax free and £10440 post 20% tax
5 input = £21600 and Output = £5000+£12000+£4350+£10440 = £31790
DOES THIS WORK???
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• NoMore
• By NoMore 15th Apr 18, 11:03 AM
• 253 Posts
• 227 Thanks
NoMore
Just to be clear investing 10800 in your pension will not be grossed upto 18000 within the pension.

You will get 20% Tax relief from the lower rate claimed by the pension company so a total of 13500 in the pension, the other 20% you have to claim yourself from HMRC, which may be returned to you via various methods including changing your tax code but not directly into your pension. In effect it makes your contribution cheaper but does not directly increase the pension
• pthogy
• By pthogy 15th Apr 18, 11:22 AM
• 5 Posts
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pthogy
Ah yes, of course. Ok but the figures hold firm roughly? Correct? As the extra 20% will be claimed back through tax relief as you say. My main question is does the theory and practice work out in terms of gains over the 2 years i.e a roughly 50% gain on investment. As pension law has changed I am wondering if, for example, there is a minimum time to invest before you can cash in a pension in full even over 2 years? As far as I can see this strategy would work..... ??
• pthogy
• By pthogy 15th Apr 18, 11:37 AM
• 5 Posts
• 0 Thanks
pthogy
Correction, I make the gain around 30% of investment over the 2 years
• NoMore
• By NoMore 15th Apr 18, 11:47 AM
• 253 Posts
• 227 Thanks
NoMore
Haven't checked your figures but yes in theory Pensions are good for this due to the 25% TFLS and Paying in when subject to 40% tax and withdrawing at a lower rate of tax.

http://monevator.com/sipps-vs-isas-best-pension-vehicle/

This is a good article that explains it.
• hugheskevi
• 15th Apr 18, 1:02 PM
• 2,075 Posts
• 2,645 Thanks
hugheskevi
Assumes LTA< £1000000 and annual contributions are <£40000
Have you forecast your future pension input amounts and checked your past pension input amounts (which is what matters for Annual Allowance, rather than contributions), and that you will have adequate Annual Allowance plus carry-forward for the plan?

Things would also be different if you have total taxable income over £110,000.

Aside from that the theory looks sound.
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