The basics
I have some investments due to an inheritance. I pay tax on the interest. This has pushed me into high rate tax for a few years.
I now realise that i should be paying some income into a private pension to get the tax back. (£10k ish his year, maybe less)
The problem is that I’ve just taken my pension lump sum from my defined benefit teacher pension. I’m still paying into the other teacher pension.
I believe I can still pay into a private pension 30% of my lump sum. That’s enough this year, can i do the same next year? (another third?). Next year will be worse as I’ll have my pension plus salary.
This link says I’m ok because i say no to the question. “Is the increase less than 30% of the lump sum paid?”
There is also the question of annual contributions limit. But i think I’m way off that. I’ve found an old statement saying my max contributions back in 2018 was £20,000. More recent years were £14000 and I’ve gone part time since then.
Please help. I have a financial advisor booked for Thursday night. I take my first long haul flight since 1994 Friday morning. I would love to cancel him and just do it online myself.
Overall I’m in a great position. Just need to tune things a bit
The 30% rule is cumulative, not per year - from gov.uk:
"the cumulative amount of the additional contributions exceeds 30% of the pension commencement lump sum"
I presume the lump sum exceeded £7,500?
I pay tax on the interest.
Do you mean interest, or dividend earnings (or both)? Can you demonstrate that increased contributions are funded from the earnings from your inheritance, i.e. withdrawals from that account?
"The individual must still be shown to have intended to use the lump sum as the indirect means of making the increased contributions.
The recycling rule is not intended to apply to individuals who simply increase contributions to registered pension schemes (or who have increased contributions paid in respect of them, such as by way of salary or redundancy sacrifice) with the intention of increasing the benefits that will ultimately be paid from those schemes, particularly a pension commencement lump sum. This is provided no pension commencement lump sum is actually used as the means to increase those contributions, whether in a direct or indirect way. This is because the recycling rule applies only where contributions are significantly increased ‘because of’ the lump sum."
There is also the question of annual contributions limit.
It's equivalent to your annual earnings (up to £60k) and unused allowance from the past three years can also be used. If you've paid in £14k for the last three years, but had earned £30k, your total allowance would be £78K (£30k + £16K x 3).
Why not just ask your pension providers, or an accountant? In my experience a financial adviser is to advise you where/how to invest and you are already invested. An accountant works out your tax liabilities and gives advice there.
Yes the lump some was a chunk more than 7.5k
The lump sum absolutely isn’t funding the increase in pension contributions. They will be funded this year by my job and interest on savings. Next year will be more complicated as done of my earnings will be from a pension. You can’t ask for the tax back on that. But I’ll still have assuming earnings and interest to claim tax back on next year
I had looked at using previous years. But it looks like it can only be used in retrospect to pay into an existing pension. There is no way the teachers pension will sort that this financial year. Plus they are rubbish at letting you know the value of your contributions
Next year will be more complicated as done of my earnings will be from a pension.
Yes, but they aren't treated as earnings/income for pension contributions, so won't increase your allowance. Taxable pension payments will trigger the Money Purchase Annual Allowance though, which limits pension contributions thereon to £10k.
Teacher's Pensions should also be able to advise.
ooks like it can only be used in retrospect to pay into an existing pension. There is no way the teachers pension will sort that this financial year
Sorry, I read it that you had another private pension (SIPP?)
The problem is that I’ve just taken my pension lump sum from my defined benefit teacher pension
I know nothing about DB teachers Pension lump sums. Is this lump sum by definition tax free?
If not then I think the MPA trigger applies like wot boxelder said....
Have you already used your ISA allowance? If not can you move some of the investments into a stock and shares ISA? if you get a wobble on you could transfer £40k over the next fortnight.
Obviously I don't know the details of how far over the higher rate threshold you are, but just doing that would save you about £2k in taxable interest per annum.
The 30% rule only spans 2 years prior to and 2 years after your PCLS.
Another option is funding a spouses pension with the monies as that falls outside recycling rules.
Yes, but they aren't treated as earnings/income for pension contributions, so won't increase your allowance. Taxable pension payments will trigger the Money Purchase Annual Allowance though, which limits pension contributions thereon to £10k.
Teacher's Pensions should also be able to advise.
This needs looking into. It's not unusual for teachers to be taking a pension and and be recieiving a pension
The 30% rule only spans 2 years prior to and 2 years after your PCLS
It's a 30% increase, which is fine. As long as that is an annual increase, which I think it is.
Thanks for the replies. Yes I'll be using my ISA allowance. But that will help but not solve the problem
The MPAA is not triggered on recept of a DB pension, only where a taxable income or UFPLS are accessed flexibly from a DC pension