Pension Annual Allowance

[sammyb349]

I’m in the fortunate position to earn a decent wage in my early thirties, something I hope continues!

The negative aspect to this situation is that my annual pension allowance is £10k p.a.

Reading this thread (https://www.pistonheads.com/gassing/topic.asp?h=0&t=1826604&d=14475.25200#seperator) got me thinking - to get to a half decent pension pot probably isn’t going to happen if the govt. don’t provide some form of age relief. With 22 years (taking me to 55) I’ll have a pot of £220k, which won’t be enough.

I’m not totally unaware however so I am provisioning with ISAs and managing down my mortgage

However, the missing out of additional pension ‘tax shelter’ of both Income Tax and Inheritance Tax has got me irked.

Short of suggesting I should earn less to get a higher allowance, are there any suggestions on how I can maximise my pension provisions in the most tax effective manner?

[ellroy]

How long have you been in the bracket for a reduced allowance? Maybe some scope to use some precious unused years allowances.

[mikeiow]

ellroy said:

How long have you been in the bracket for a reduced allowance? Maybe some scope to use some precious unused years allowances.

This is perhaps the best you can do regarding tax, I suspect.

Of course if you want to retire early, then fill up your ISA allowances each year. Go S&S (perhaps even a little IFISA?).
Yes, you have sadly paid tax on that investment on the way in....but at least in 20+ years from now, you should have a decent tax-free wedge available to take out when you want.

Sounds to me like you should drop a note into the sticky thread and have a chat with Nik....

[NickCQ]

I posted a thread about the pension taper a while ago as it is a pain.

I think the only other thing to be aware of is your CGT allowance - with accumulating funds and regular ‘bed and breakfasting’ you can minimise tax leakage on even a pretty large portfolio.

[alistair1234]

sammyb349 said:

I’m in the fortunate position to earn a decent wage in my early thirties, something I hope continues!

The negative aspect to this situation is that my annual pension allowance is £10k p.a.

Reading this thread (https://www.pistonheads.com/gassing/topic.asp?h=0&t=1826604&d=14475.25200#seperator) got me thinking - to get to a half decent pension pot probably isn’t going to happen if the govt. don’t provide some form of age relief. With 22 years (taking me to 55) I’ll have a pot of £220k, which won’t be enough.

I’m not totally unaware however so I am provisioning with ISAs and managing down my mortgage

However, the missing out of additional pension ‘tax shelter’ of both Income Tax and Inheritance Tax has got me irked.

Short of suggesting I should earn less to get a higher allowance, are there any suggestions on how I can maximise my pension provisions in the most tax effective manner?

If you have nothing in the pot already, assuming 4% growth and contributions increasing at 2% each year, that's a pot of £424k

[Mazinbrum]

Yup £424k is not enough for a comfortable retirement.

[JulianPH]

mikeiow said:

Sounds to me like you should drop a note into the sticky thread and have a chat with Nik....

Thanks for the recommendation Mike. OP - do have an initial chat with Nik before spending any money on a financial advisor.

He usually manages to save you unnecessary financial advice fees and the worst case is that you will know that if you do need financial advice (which he will always recommend if required) you are paying for something you really do need (rather than paying if you actually don't need to).

[sammyb349]

Thank you all. Most helpful - Julian, will pick up with Nik.

On the whole however, I am really seeing how pension sheltering is disappearing quite rapidly - but also miffed at how it was such a gift for previous generations... in 09/10 you could put in £245k !! and able to get sheltering for exceeding lifetime allowance...

[Condi]

Mad Scientist said:

If you net a minimum of 10k a month, you don’t really need tax relief to provide for your retirement though.......

This...

If someone earning £200k a year in their 30's is worried about retirement God help the rest of us.

[alistair1234]

Mad Scientist said:

If you net a minimum of 10k a month, you don’t really need tax relief to provide for your retirement though.......

Where has the figure come from?

[Revisitph]

alistair1234 said:

Where has the figure come from?

AA is £40k but as I recall, if adjusted income (all sources inc employer's contribution) is over £150k p.a. your AA is tapered at £1 for every £2 up until £210k when it bottoms out at £10k. A bit like the loss of nil rate band from £100k onwards though you lose all your nil rate band with no bottoming out. So the OP has an adjusted income of at least £210k p.a. Presumably the £10k/month is post-tax.

ET remove rant about peeps being forced to limit work and retire early because of the AA!

Edited by Revisitph on Wednesday 21st August 07:08

[Bobajobbob]

I'm in the same situation and once you have hoovered up your historic allowance you are stuffed. It is pretty annoying to be a positon to max out your pension contributions and then discover that you can't benefit equally to previous generations. Unless I am mistaken the only scenario where it still makes sense to contribute up to the annual cap is where you employer matches your contributions. You will be liable to for tax over the 10K but this is less that the matched contribution from your employer.

https://www.google.com/url?sa=t&rct=j&q=&a...

[red_slr]

Are you using your ISA ?

[sammyb349]

red_slr said:

Are you using your ISA ?

Yes, but it’s not the same. Taxable income in, tax free gains when you remove.... for now.

Also, ISA sits inside your inheritance tax net, where your pension does not. Ergo, a double whammy.

The only benefit I can see of a smaller pension pot, is that it is unlikely to meet the lifetime allowance with growth taken into account and as such I won’t need to stress about that aspect - 🙃

[Bobajobbob]

sammyb349 said:

The only benefit I can see of a smaller pension pot, is that it is unlikely to meet the lifetime allowance with growth taken into account and as such I won’t need to stress about that aspect - ??

It’s funny cos it’s true 😂 until they lower the lifetime allowance again.

[Revisitph]

Of course if they reduce the LTA again and you are close enough to the lifetime limit (which would be unlikely in your 30s after several years of AA limits restricting input regardless of income) then you can get protection at the current LTA.

The other thing that can be done with some schemes is that they will allow you to use part of the pot to pay the AA breach tax charge, annoying, but you are then using money which went in tax-free to pay the tax charge. If the scheme is a DB scheme they may charge you nasty compound interest on the amount used now to pay the tax charge which means a disproportionately lower final pension, but I am planning to use a separate, deferred DC scheme pot to pay the DB scheme AA breach, which will have the dual effect of 1) paying the tax out of income which went into the DC scheme untaxed, rather than paying it from income/savings which have already been taxed and 2) reducing the combined total, which either reduces the chance of hitting the LTA before retirement or deferring the point at which one has to pull out / get protection.

[LeoSayer]

Condi said:

Mad Scientist said:

If you net a minimum of 10k a month, you don’t really need tax relief to provide for your retirement though.......

This...

If someone earning £200k a year in their 30's is worried about retirement God help the rest of us.

If you can keep that level of earning going for many years then great.

The current rules give very little scope for pension saving for those who earn a lot in a relatively short space of time eg. sporting people, pop stars etc. So they look for loopholes.