Paying extra into pensions
Discussion
Hi all
Myself and my wife both work for the NHS and are members of that pension scheme. Neither of us have pensions elsewhere. Neither of us are reaching the £40k annual allowance as we are both part time. We are 35 and 34 years old. I have £150k in a ltd co which I am sole director of.
I’m considering paying a chunk of this money into pensions for us but have a few questions;
1) Should I pay lump sums into our NHS pensions?
2) Should I open new pensions, if so what? Would this be called a SIPP?
3) What are the differences between the above?
4) I’m the sole director of my ltd co. My wife is a shareholder - I’m assuming the Ltd co can pay into her pension as well as mine, is this correct?
Thanks. Rob
Myself and my wife both work for the NHS and are members of that pension scheme. Neither of us have pensions elsewhere. Neither of us are reaching the £40k annual allowance as we are both part time. We are 35 and 34 years old. I have £150k in a ltd co which I am sole director of.
I’m considering paying a chunk of this money into pensions for us but have a few questions;
1) Should I pay lump sums into our NHS pensions?
2) Should I open new pensions, if so what? Would this be called a SIPP?
3) What are the differences between the above?
4) I’m the sole director of my ltd co. My wife is a shareholder - I’m assuming the Ltd co can pay into her pension as well as mine, is this correct?
Thanks. Rob
I'm not an expert so can't be specific.
However, my wife paid £150K into a pension scheme a couple of years ago and got £30K back in tax relief for her trouble. Seemed like a no brainer.
We use a financial adviser (TFP Financial Planning) based in Essex who are excellent. They aren't really interested in selling you stuff, and are all about planning for your future, retirement etc. Pensions and how to make them work for you are their specialty.
https://tfp-fp.com/
I am not an expert, and this is mainly an observation on the sustainability of unfunded defined benefit schemes, but:
Being a member of the NHS defined benefit pension scheme (making assumptions that is what you are in) is amazing compared to anyone in the private sector on a defined contribution scheme.
However, I do wonder how this can be sustained - this is an "unfunded" scheme which means it has no assets and is therefore funded by the current contributions (and govt) each year (cough, Ponzi scheme, cough). At the last accounts it had FIVE. HUNDRED. BILLION of liabilities. And, again, no assets.
Being a cautious person, I might decide to put spare cash in a separate defined contribution scheme or some other form of investment, just in case when you are 70 this has all come apart.
Being a member of the NHS defined benefit pension scheme (making assumptions that is what you are in) is amazing compared to anyone in the private sector on a defined contribution scheme.
However, I do wonder how this can be sustained - this is an "unfunded" scheme which means it has no assets and is therefore funded by the current contributions (and govt) each year (cough, Ponzi scheme, cough). At the last accounts it had FIVE. HUNDRED. BILLION of liabilities. And, again, no assets.
Being a cautious person, I might decide to put spare cash in a separate defined contribution scheme or some other form of investment, just in case when you are 70 this has all come apart.
Paying lump sums into your NHS (defined benefit) pension will mean you know exactly what you're going to get for it up front, there's an NHS website which you can put some numbers in and it'll tell you straight away. This is of course assuming the whole system doesn't collapse like the previous poster suggests!
Outside of that a SIPP (defined contribution) is your option, where you'll get the 25% boost from tax relief on whatever you pay in. In terms of return on investment you'll probably do better in one of these, but there is a real risk you might not. What SIPP you choose and how you set it up will be one factor in how much risk there is. Vanguard just opened a SIPP and there's a thread on that, that's probably a reasonable place to start your research. The amounts of money and time invested means that if you can find good advice it could easily pay for itself.
One thing it sounds like you might need to bear in mind is that the amount going into your pensions can't exceed 40k OR your earned income for that year, whichever is lower. This amount includes employer and employee contributions (approx 30% of your salary for NHS I believe) and anything you put in a SIPP, and the tax relief you get on what you put in a SIPP.
This is all just my understanding having done a bit of research into this, so don't rely on it being true and I'd happily be corrected if anyone spots any untruths!
Outside of that a SIPP (defined contribution) is your option, where you'll get the 25% boost from tax relief on whatever you pay in. In terms of return on investment you'll probably do better in one of these, but there is a real risk you might not. What SIPP you choose and how you set it up will be one factor in how much risk there is. Vanguard just opened a SIPP and there's a thread on that, that's probably a reasonable place to start your research. The amounts of money and time invested means that if you can find good advice it could easily pay for itself.
One thing it sounds like you might need to bear in mind is that the amount going into your pensions can't exceed 40k OR your earned income for that year, whichever is lower. This amount includes employer and employee contributions (approx 30% of your salary for NHS I believe) and anything you put in a SIPP, and the tax relief you get on what you put in a SIPP.
This is all just my understanding having done a bit of research into this, so don't rely on it being true and I'd happily be corrected if anyone spots any untruths!
JR,
have you done the maths on the AA thing, because you can trip across 40k for silly reasons. It not contributions.
Eg. Take on a 3k pay rise, and if it puts up your pensionable salary, and the final salary calculation therein, you get a 16x3k bill.
The thresholds are 110k income and 150k income, wherever you earn it.
I'm sure you're fine, but we are all scrabbling for specialist accountants at the moment....
have you done the maths on the AA thing, because you can trip across 40k for silly reasons. It not contributions.
Eg. Take on a 3k pay rise, and if it puts up your pensionable salary, and the final salary calculation therein, you get a 16x3k bill.
The thresholds are 110k income and 150k income, wherever you earn it.
I'm sure you're fine, but we are all scrabbling for specialist accountants at the moment....
David_M said:
However, I do wonder how this can be sustained - this is an "unfunded" scheme which means it has no assets and is therefore funded by the current contributions (and govt) each year (cough, Ponzi scheme, cough). At the last accounts it had FIVE. HUNDRED. BILLION of liabilities. And, again, no assets.
Central government enjoys the unique, permanent asset of the right to extract tax revenue from the population, backed up by the power to send non-payers to prison. There is no need for its pension schemes to be funded.tendown said:
Paying lump sums into your NHS (defined benefit) pension will mean you know exactly what you're going to get for it up front, there's an NHS website which you can put some numbers in and it'll tell you straight away. This is of course assuming the whole system doesn't collapse like the previous poster suggests!
Outside of that a SIPP (defined contribution) is your option, where you'll get the 25% boost from tax relief on whatever you pay in. In terms of return on investment you'll probably do better in one of these, but there is a real risk you might not. What SIPP you choose and how you set it up will be one factor in how much risk there is. Vanguard just opened a SIPP and there's a thread on that, that's probably a reasonable place to start your research. The amounts of money and time invested means that if you can find good advice it could easily pay for itself.
One thing it sounds like you might need to bear in mind is that the amount going into your pensions can't exceed 40k OR your earned income for that year, whichever is lower. This amount includes employer and employee contributions (approx 30% of your salary for NHS I believe) and anything you put in a SIPP, and the tax relief you get on what you put in a SIPP.
This is all just my understanding having done a bit of research into this, so don't rely on it being true and I'd happily be corrected if anyone spots any untruths!
Thanks Tendown. I’ve had a look on the NHS website and to get an extra £5000 per year I would need to pay in a lump sum of £50k. I’ve no idea whether this is “good” or “bad”...Outside of that a SIPP (defined contribution) is your option, where you'll get the 25% boost from tax relief on whatever you pay in. In terms of return on investment you'll probably do better in one of these, but there is a real risk you might not. What SIPP you choose and how you set it up will be one factor in how much risk there is. Vanguard just opened a SIPP and there's a thread on that, that's probably a reasonable place to start your research. The amounts of money and time invested means that if you can find good advice it could easily pay for itself.
One thing it sounds like you might need to bear in mind is that the amount going into your pensions can't exceed 40k OR your earned income for that year, whichever is lower. This amount includes employer and employee contributions (approx 30% of your salary for NHS I believe) and anything you put in a SIPP, and the tax relief you get on what you put in a SIPP.
This is all just my understanding having done a bit of research into this, so don't rely on it being true and I'd happily be corrected if anyone spots any untruths!
But I’m guessing I can’t pay this in (not as a lump sum anyway) as I’ll end up going over my AA (although I could maybe split it over the past 3 years unused allowance)...
RE your comment; pension contributions can’t exceed £40k OR earned income for the year. Is this total income or just income from my PAYE NHS job? I currently earn £30k PAYE and £70k in dividends....
The_Doc said:
JR,
have you done the maths on the AA thing, because you can trip across 40k for silly reasons. It not contributions.
Eg. Take on a 3k pay rise, and if it puts up your pensionable salary, and the final salary calculation therein, you get a 16x3k bill.
The thresholds are 110k income and 150k income, wherever you earn it.
I'm sure you're fine, but we are all scrabbling for specialist accountants at the moment....
Thanks Doc, I make sure I stay just below £100k earnings per year. Anything extra I leave in my ltd co. have you done the maths on the AA thing, because you can trip across 40k for silly reasons. It not contributions.
Eg. Take on a 3k pay rise, and if it puts up your pensionable salary, and the final salary calculation therein, you get a 16x3k bill.
The thresholds are 110k income and 150k income, wherever you earn it.
I'm sure you're fine, but we are all scrabbling for specialist accountants at the moment....
jayxx83 said:
It’s a no brainer to fund pension contributions from the Ltd co as you get corporation tax relief. In essence the fund needs to drop by 19 pc before you actually lose.
My main concern is if doing so puts me over the lifetime allowance, and whether it would still be worth it....JapanRed said:
I’ve had a look on the NHS website and to get an extra £5000 per year I would need to pay in a lump sum of £50k. I’ve no idea whether this is “good” or “bad”...
10% guaranteed annual return for life with immunity from all the stock market bs that’s currently going on...Take a straw poll amongst anyone funding a DC pot and I’m pretty sure they’ll assure you it’s the former
emicen said:
JapanRed said:
I’ve had a look on the NHS website and to get an extra £5000 per year I would need to pay in a lump sum of £50k. I’ve no idea whether this is “good” or “bad”...
10% guaranteed annual return for life with immunity from all the stock market bs that’s currently going on...Take a straw poll amongst anyone funding a DC pot and I’m pretty sure they’ll assure you it’s the former
You quote 68 for retirement but it might be worth looking into the Early Retirement Reduction Buy Out (ERRBO). My understanding of the ERRBO is you can choose to pay an amount extra per month and you are then able to retire from the NHS up to 3 years earlier than the standard pension age without losing any benefits.
I'm only 33 but its something I want to put in place in the near future if it works as I think it does.
I'm only 33 but its something I want to put in place in the near future if it works as I think it does.
JapanRed said:
Agree but what that doesn’t take into consideration is the fact that I “invest” my £50k today but don’t get any return for at least 30 years (until I’m 68). Coupled with the fact that £5k in 2050 might be more like £3k in today’s money.
Surely as a DB scheme it’s index linked? So it’s always £5k equivalent?marknemo said:
You quote 68 for retirement but it might be worth looking into the Early Retirement Reduction Buy Out (ERRBO). My understanding of the ERRBO is you can choose to pay an amount extra per month and you are then able to retire from the NHS up to 3 years earlier than the standard pension age without losing any benefits.
I'm only 33 but its something I want to put in place in the near future if it works as I think it does.
Thanks I’ve seen this but have other plans. I’m hoping to retire at 55 so have to fund 13 years per-pension. I’ve got a buy to let worth approx £180k and hoping to buy another one in future. Both to be paid off before I’m 55 so hoping that will bridge the gap. I'm only 33 but its something I want to put in place in the near future if it works as I think it does.
emicen said:
JapanRed said:
Agree but what that doesn’t take into consideration is the fact that I “invest” my £50k today but don’t get any return for at least 30 years (until I’m 68). Coupled with the fact that £5k in 2050 might be more like £3k in today’s money.
Surely as a DB scheme it’s index linked? So it’s always £5k equivalent?Gassing Station | Finance | Top of Page | What's New | My Stuff