Pension question

[Crumpet]

Over the years I've neglected my pension and paid very little into it, so I have what I hope isn't an unbelievably stupid question.

For instance (hypothetically): I have savings and assets (that will be sold and currently earn very little interest) that provide a sum large enough to effectively pay myself a salary from the proceeds for 24 months. Eg. Savings and assets equal £48,000, split over 24 months would give me £2000 a month.

Can I then put my entire salary from employment over and above the basic allowance but below the £40,000 annual cap into my pension? Such that I'd pay no income tax and effectively earn 20% to 40% more, albeit with the money being inaccessible and stuck in a pension.

The earnings on the £10,800 basic allowance would then be added to the £2000 a month from savings to give a total monthly 'salary'.

Am I being completely stupid here and missing something, or would this actually work and be benficial? (And also give my pension fund a significant kick up the arse.)

[Crumpet]

No, nowhere near the £150k mark! Just into the 40% bracket at the moment.

So in theory this approach would work and see me get paid effectively 20% extra between the £11,000 basic allowance and the start of the 40% bracket and effectively a 40% increase in anything over that amount?

[Crumpet]

Age 33, was looking at it as an option for 12-24 months to get my pension up to an acceptable level. Got my wife's salary as backup over that period as well as the saleable assets so I don't think we'd starve. No expensive purchases or holidays planned.

I'd be keen to hear any of the drawbacks and downsides though as I know very little about pensions.

[Crumpet]

TwigtheWonderkid said:

supersport said:

Why not just put the £48K in your pension over 2 years, get the same relief without mucking about.

This was my first thought. Ignoring the issue of how good an idea it is, it seems an easier way of achieving the same thing.

Does it achieve the same thing? I'd then be back to paying tax on my employment income and therefore lose out on 20% to 40% tax relief on what I put in the pension. If I lived off my lump sum and savings I wouldn't pay income tax on it? Right?

I do agree that I need a long term strategy though. This was sort of my way of making up for being slack over the past 10 years!

[Crumpet]

PurpleMoonlight said:

If it were me I would keep the savings and establish a 10% of salary pension contribution going forward (or whatever salary is subject to 40% tax if higher). You can then dip into your savings should you need any additional cash at some point.

Edited by PurpleMoonlight on Tuesday 5th April 13:13

I think that's my most likely route. I've had a play around with a few calculators and assuming 10% of salary it works out to an acceptable amount in the future. Especially coupled with my wife's public sector pension and a couple of rental properties. I suppose there's only so much planning you can do without compromising your lifestyle today!

Oyster: I don't fully understand what you mean, but are you saying that by putting all your salary into a pension and effectively taking home minimum wage it has basically allowed you to go 'on benefits'?