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Post by gramsky on Jul 27, 2023 8:22:48 GMT
I feel that I am overexposed to P2P lending and following recent developments in P2P sites I am invested in I am considering my options for the future.
Are there any pension and tax experts out there or anyone having experience of what I have set out below?
Thank you.
I am 70 years old and am receiving my full state pension.
I am receiving a salary based pension from a previous employer (approx. £17.5k gross).
I still work part-time 3 days a week for my present employer and have a defined contribution pension scheme with them.
My salary from my present employer is approx. £28k/year (this would not take me into the 40% tax bracket without the pensions that I am being paid).
My total income at present is approx. £58.5k gross and I have been paying 40% tax for at least the past 5 years.
I have a defined contribution pension scheme with my present employer into which they pay 5% of my salary, I then pay an additional 5% which they match. So 15% of my salary is being paid into my pension scheme.
The value of my pension scheme is approx. £97k.
I am considering withdrawing money from my investments and paying it into my pension scheme with my employer as a lump sum AVC, taking advantage of the 40% tax uplift and using the previous 3 years annual allowance.
I then intend to retire and transfer the pension into an independent draw down pension scheme, taking a 25% tax free lump sum and withdraw the maximum each year to keep me below the 40% tax bracket so that I only pay 20% tax on the withdrawals.
Q1. General question: can I do this?
Q2. Can I do this if I am drawing pensions from elsewhere and which take me into the 40% tax bracket whereas my salary alone would not.
Q3. The rule state that annual AVC can not exceed the value of pensionable salary in my case approx. £28k. Can I therefore pay 3x£28k into my pension using the 3 previous year rule and get a 40% uplift = £117.6k?
Q4. If I use the previous 3 years annual allowance, does this include this year (making 3 years) or plus this year making 4 years? If the later surely it is best to wait until near the end of the financial year to take full advantage of this year's allowance.
Q5. I assume that the extra 5% of my salary that I pay into my pension scheme as an AVC counts towards the maximum I can pay, but does the 5% extra that my employer pays count towards this?
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macq
Member of DD Central
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Post by macq on Jul 27, 2023 9:55:17 GMT
Unfortunately i can't help at that level of question - but not sure if you are aware of the Moneyhelper/pension wise site (from the Govt.) where you can even ring in to speak to someone for advice.Also the pension forum on MSE or even Age Uk could be worth a look
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Post by gramsky on Jul 27, 2023 10:01:58 GMT
Unfortunately i can't help at that level of question - but not sure if you are aware of the Moneyhelper/pension wise site (from the Govt.) where you can even ring in to speak to someone for advice.Also the pension forum on MSE or even Age Uk could be worth a look Funny you should say that, but my post here is a cut & paste from a question I have sent them and awaiting an answer. Just looking for second opinions if possible because if things go wrong and I pay too much money into my pension I get no tax uplift finish up paying tax on it when I withdraw so lose 20%. Thanks anyway.
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macq
Member of DD Central
Posts: 1,934
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Post by macq on Jul 27, 2023 10:18:35 GMT
Unfortunately i can't help at that level of question - but not sure if you are aware of the Moneyhelper/pension wise site (from the Govt.) where you can even ring in to speak to someone for advice.Also the pension forum on MSE or even Age Uk could be worth a look Funny you should say that, but my post here is a cut & paste from a question I have sent them and awaiting an answer. Just looking for second opinions if possible because if things go wrong and I pay too much money into my pension I get no tax uplift finish up paying tax on it when I withdraw so lose 20%. Thanks anyway. i would probably have seen it at the weekend when i normally have a quick scan  bit that does seem the sort of thing the pension wise site deals with and is govt. so should be free and up to date
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Post by bracknellboy on Jul 27, 2023 10:30:16 GMT
I feel that I am overexposed to P2P lending and following recent developments in P2P sites I am invested in I am considering my options for the future. Are there any pension and tax experts out there or anyone having experience of what I have set out below? Thank you. I am 70 years old and am receiving my full state pension.
I am receiving a salary based pension from a previous employer (approx. £17.5k gross).
I still work part-time 3 days a week for my present employer and have a defined contribution pension scheme with them.
My salary from my present employer is approx. £28k/year (this would not take me into the 40% tax bracket without the pensions that I am being paid).
My total income at present is approx. £58.5k gross and I have been paying 40% tax for at least the past 5 years.
I have a defined contribution pension scheme with my present employer into which they pay 5% of my salary, I then pay an additional 5% which they match. So 15% of my salary is being paid into my pension scheme.
The value of my pension scheme is approx. £97k.
I am considering withdrawing money from my investments and paying it into my pension scheme with my employer as a lump sum AVC, taking advantage of the 40% tax uplift and using the previous 3 years annual allowance.
I then intend to retire and transfer the pension into an independent draw down pension scheme, taking a 25% tax free lump sum and withdraw the maximum each year to keep me below the 40% tax bracket so that I only pay 20% tax on the withdrawals.
Q1. General question: can I do this?
Q2. Can I do this if I am drawing pensions from elsewhere and which take me into the 40% tax bracket whereas my salary alone would not.
Q3. The rule state that annual AVC can not exceed the value of pensionable salary in my case approx. £28k. Can I therefore pay 3x£28k into my pension using the 3 previous year rule and get a 40% uplift = £117.6k?
Q4. If I use the previous 3 years annual allowance, does this include this year (making 3 years) or plus this year making 4 years? If the later surely it is best to wait until near the end of the financial year to take full advantage of this year's allowance.
Q5. I assume that the extra 5% of my salary that I pay into my pension scheme as an AVC counts towards the maximum I can pay, but does the 5% extra that my employer pays count towards this?I may not be understanding quite what you are saying here, so take this with a pinch of salt / just things to think of/clarify. The 'warning bells' I have here is any assumptions you might be making about annual allowance and what you status is. You are already taking a pension. That being the case, would you not be limited to the much reduced annual allowance. While that is £10k this year, in previous few tax years was it not lower at £4k ? How long have you been making those 15% contributions in ? This would significantly constrain what you actually have available in carry forward annual allowance.
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james100
Member of DD Central
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Post by james100 on Jul 27, 2023 10:55:23 GMT
It's difficult to give an answer based on the post because some terms are a little imprecise and there are some relevant facts missing. I'm not qualified to give advice but would suggest it's an issue of 1) can I? followed by 2) should I?
For 1) key issue is whether you're subject to MPAA limit (now 10k, previously 4k from the date it was triggered in the tax year it was triggered). You need to compare your specific history with exceptions detailed in legislation (the pension advice service can probably help). Everything hinges on this.
If it has been triggered then you're limited to 10K gross contributions pa whilst earning. If not earning (irrespective of MPAA status it's 3,660).
If no MPAA triggered, you can theoretically do 60k (or max salary + bonus) this year, 40k previous. Backfilling in reverse chronology if required. If you chose to top up the most cost effective way is salary sacrifice as you bypass NI (in addition to benefitting from employer co-contributions). So if this is an option you'd probably be best diverting your entire salary and bonus this year, and using AVC end March to backfill to your applicable limit for last year and so on. I'm not 100% sure but think you can use savings for previous years and that particular year's annual salary is the relevant one.
Question 2 relates to your personal situation and needs and plans...pension income is tax deferred (lump sum aside) and you may be better off, having reduced income to escape 40% band, taking a 1 off tax hit and maxing out ISAs which,if you have one, are effectively spouse transferrable on death and potentially provides tax free income stream. There are other avenues to explore depending on your circs but I'll stop there.
Complicated stuff and lots of options but maybe this gives you a few questions to consider.
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Post by bernythedolt on Jul 27, 2023 11:47:59 GMT
Small typo above...the 3660 should read 3600, I think. For those no longer working, it's 2880 from yourself, topped up with 720 contribution from HMRC. I only know because I do this myself.
Do be aware, too, of 'pension recycling' rules (Google that term). You may need to show your lump sum contribution has indeed come from your investments and not ultimately from a previous pension lump sum, for example. You are not allowed to recycle the tax free element of one pension to gain tax relief on another pension.
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Post by gramsky on Jul 27, 2023 11:55:46 GMT
Small typo above...the 3660 should read 3600, I think. For those no longer working, it's 2880 from yourself, topped up with 720 contribution from HMRC. I only know because I do this myself. Do be aware, too, of 'pension recycling' rules (Google that term). You may need to show your lump sum contribution has indeed come from your investments and not ultimately from a previous pension lump sum, for example. You are not allowed to recycle the tax free element of one pension to gain tax relief on another pension. Thanks I was not aware of these rules, so I am going to need to do some more research. When I was 60 I was forced to take a salary based pension from a previous employer and took a £68k tax free lump sum in the process so could be hit by 'pension recycling rules'. Thank you
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ozboy
Member of DD Central
Mine's a Large One! (Snigger, snigger .......)
Posts: 3,168
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Post by ozboy on Jul 27, 2023 12:05:39 GMT
When I was in the game there were perennial internal arguments discussions as whether to advise clients to Pension/AVC/FSAVC or ISA (previously PEPs). It should always be based on a client's individual circumstances anyway. They both have tax advantages, albeit via different approaches, and for some clients the choice was easy & obvious.. If we are talking "Investing" an annual amount of up to £20,000 (currently) I usually lumped for ISA/PEP because of ease of "administration"/lack of "red tape", and also mainly liquidity. Consider both of course if your swag is big enough! A BIG consideration, definitely if yer a certain age, is to strongly look at what happens to the pot if it's still in the Pension/ISA/PEP when you croak. This is most definitely NOT OzBoy Financial Advice, do your own Due Diligence and formulate your own Decisions, I am just relating my own experience.  |
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Post by gramsky on Jul 27, 2023 16:56:28 GMT
I have done some further research into all this, found this video very helpful and hope I have understood it correctly:- www.youtube.com/watch?v=iNN7wpwTZigFrom this it seems that the ‘MPAA limit’ and ‘pension recycling rules’ are not triggered by me receiving state pension or my defined benefit (salary based) pension and 25% tax free lump sum from my previous employer (only defined contribution pensions apply). It also explains very clearly the ‘annual allowance’ and carry forward rules’. It seems that you can pay the equivalent of current year’s pensionable salary up to a maximum of £40k using this year’s allowance. If this pensionable salary is more than £40k you can use the past 3 years allowance starting with year 1, then years 2 & 3 at £40k per year. So if your pensionable salary for this year is say £200k you can pay £40k for this year and £40k for each of the previous 3 years = £160k. But not 4x£200k if that makes sense. (One rule for the rich and another for the poor!) So in my case I would expect my pensionable salary this current year to be approx. £28K and could deposit this sum into my pension, but only if I continue to work until the end of this financial year. My plan was to retire before then and I would therefore earn a fraction of this sum making it not worth my while and in any case it would not solve my financial problem of what to do with over £100k in P2P lending ISAs at present. It will only work for me if I work until after the end of this financial year and is it worth it for 20% of £28k (£5.6k) . May be dead by then. Now looking at transferring it to Cash ISAs. |
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bit that does seem the sort of thing the pension wise site deals with and is govt. so should be free and up to date
