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Just musing here. if I earn 50k, and I am over 55??, and assuming minimum wage is 20k (easy calculation) can I pay 30k into my pension and then draw down 30k a year from the same fund?
I think you could, but the drawdown (I think) would be taxable income. So potentially net zero worth.
draw dwon tax rate lower than if it were salaried? If so, that should work
As said, musing, the government also gives an allowance I believe on pension contributions? Just wondering how the system can be most efficiently used.....
Not sure of the details but I don’t think it’s simple as that, otherwise everyone would be doing it.
People are doing it if they can afford to! If you are on a 50k salary then that’s higher tax bracket too, so can claim back 40% tax relief via self assessment.
Scratch that - google tells me if your pension contributions drop your salary below the Higher Rate tax threshold, you can only claim 20% relief.
Still, open a SIPP, and yes, the govt will give you 20% on top of any contributions you make. £30k for 10 years, so at least £300k, probably 400k with compounding returns then take out £12700 a year tax free , as well as 100k tax free lump sum.
Taking any taxable money from a pension will trigger MPAA. That limits your further contributions to 10k per year forever I think.
Small pots rule excluded.
Ianafa
SIPP with regular monthly saving of £2500 (=£30k pa referred to by OP), tax relief of 20% (£625/mth as it's equivalent to 25% of sum invested), 10 years, 3% net pa (net of fees) will generate £437k at end of term.
Any changes to tax relief, investment period, fees, net return will impact the final value.
People are doing it if they can afford to! If you are on a 50k salary then that’s higher tax bracket too, so can claim back 40% tax relief via self assessment.
you can’t claim tax relief on anything you haven’t already paid tax on though! ie, if you salary sacrifice 30k the gov doesn’t give you any extra (although it’s still a good deal)
It's been a few years since I worked on pensions admin software so I'm not up to date but you may want to google 'pension recycling' before deciding what to do
Also depends on what type of pension. With my pension via work I cannot take money out of a plan I am contributing to and have to opt out of the plan, take money out and then opt back in and start again from scratch as I have to sort of retire while still working as far as the plan goes.
And if you take more than £10K of taxed money from a pension you can then only put £10k a year into a pension after that before it is taxed.
So basically, no you can't do what you are suggesting.
You could do it once. Though it’s a poor tax avoidance measure for reasons outlined earlier. And the following year and ever after, as has been said, you’d be restricted to a maximum contribution of £10,000 per year instead of the current maximum of £60,000. As we’ve seen, those limits can change at the chancellor’s whim.
plus if your investments drop in value in that year you’ll come out with less than £30,000
No, cos Sofaman & Bucaneer
Ie if you drawdown £30k pa then you can no longer get tax relief on paying in £30k pa.
Not sure of the details but I don’t think it’s simple as that, otherwise everyone would be doing it
Basically this. You need to remember that the rules are there only to allow very rich people to benefit, ir those that can afford a fancy accountant. All the basic, easily spotted loopholes for us proles have already been found and closed years ago.
😟
£30k for 10 years, so at least £300k, probably 400k with compounding returns then take out £12700 a year tax free , as well as 100k tax free lump sum.
how long will that last for? £12,700 doesn’t seem like it’d support an indulgent lifestyle even at 65 for the assumed 55 or older OP.
liking the optimism of ‘at least £300k’. Well, maybe. If bonds don’t collapse or there isn’t a crash. And if it’s in cash, that £12,700 would have about half of today’s spending value in 10 years. 🤔😭
If only there was a national pension that everyone who worked could receive
Makes sense to me, and a huge difference to the annual income, if you're lucky enough to be able to save to add to it , fantastic.
Basically this. You need to remember that the rules are there only to allow very rich people to benefit, ir those that can afford a fancy accountant. All the basic, easily spotted loopholes for us proles have already been found and closed years ago.
That's bollocks comrade as it doesn't even need to be a loophole. HMRC will let you have tax relief on £2,880 paid into pension every year even if you have no income and/or not paid any tax on that money. A free £720.
"That’s bollocks comrade as it doesn’t even need to be a loophole. HMRC will let you have tax relief on £2,880 paid into pension every year even if you have no income and/or not paid any tax on that money. A free £720."
Correct. For max benefit don't forget to get it back out tax free. 25% then £12k per year before you start getting your OAP as a full OAP wipes out most of your annual tax free allowance. So a free £720 per year plus any growth tax free.
I may have misread your intentions MrMo? Are you talking about adding money into pension for the tax relief whilst taking it out again as tax free lump sum cash? If so that won’t work.