Exceeding lifetime pension allowance
Discussion
EddieSteadyGo said:
If your company makes a payment on your behalf into a pension scheme, it would normally be an 'allowable expense'. This means the company will receive corporation tax relief on this amount. You personally wouldn't receive any tax relief as you wouldn't be saving any tax.
You won't pay tax on the dividends though. You have to look at the whole picture.My wife's scheme did very well out of our Ltd Co (She was a director and employee). As the accountant pointed out - we were not saving anything on the way in by putting into her scheme rather than mine but we would pay less when it came to drawing it out as I am expecting to pay tax on my pension and she isn't.
JapanRed said:
I’ve read that someone earning £40k for 40 years will likely gain a pension of around £1M.
I’m in a fortunate position that I currently pay 12.5% into my pension plus my employer pays 14.3%. I’m 35 and in that there’s a reasonable chance I’ll exceed my lifetime personal pension allowance (£1,055,000).
What happens if and when I reach/exceed my personal allowance? Should I be looking to reduce my pension contributions? Or increasing them?
I’ve got about £150k sitting in a ltd co and have read that the 40% pension contributions relief may end soon. I’m toying with the idea of using the funds in the ltd co to maximise mine and my wife’s contributions for the past 3 years. But this would mean we will almost certainly go over the £1M allowance.
Any advice? (Please don’t tell me to go to a tax advisor, I’ve got an appt booked with one in a few weeks I just want to get the basics in my head before then).
Thank you.
Rob
That first line is pretty unlikely isn’t it?I’m in a fortunate position that I currently pay 12.5% into my pension plus my employer pays 14.3%. I’m 35 and in that there’s a reasonable chance I’ll exceed my lifetime personal pension allowance (£1,055,000).
What happens if and when I reach/exceed my personal allowance? Should I be looking to reduce my pension contributions? Or increasing them?
I’ve got about £150k sitting in a ltd co and have read that the 40% pension contributions relief may end soon. I’m toying with the idea of using the funds in the ltd co to maximise mine and my wife’s contributions for the past 3 years. But this would mean we will almost certainly go over the £1M allowance.
Any advice? (Please don’t tell me to go to a tax advisor, I’ve got an appt booked with one in a few weeks I just want to get the basics in my head before then).
Thank you.
Rob
JapanRed said:
Say someone was 5 years from retirement and still earning good money. If they checked their “pot values” and it came close to, or exceeded, the lifetime allowance, would it be prudent to stop paying into the pension, or would they still benefit from paying in?
Depends on the circumstances.Does the firm match your contributions? If so, then the benefit of this 'free money' may exceed the LTA charges. That is, unless your firm offers you an alternative way of getting the matching.
What rate of tax will you be getting relief on? If it's one of those high marginal rates then it may still make sense to pay the LTA charge.
Your marginal rate of tax you expect to pay when you draw on your pension can also influence whether it is worth it.
2 GKC said:
JapanRed said:
I’ve read that someone earning £40k for 40 years will likely gain a pension of around £1M.
I’m in a fortunate position that I currently pay 12.5% into my pension plus my employer pays 14.3%. I’m 35 and in that there’s a reasonable chance I’ll exceed my lifetime personal pension allowance (£1,055,000).
What happens if and when I reach/exceed my personal allowance? Should I be looking to reduce my pension contributions? Or increasing them?
I’ve got about £150k sitting in a ltd co and have read that the 40% pension contributions relief may end soon. I’m toying with the idea of using the funds in the ltd co to maximise mine and my wife’s contributions for the past 3 years. But this would mean we will almost certainly go over the £1M allowance.
Any advice? (Please don’t tell me to go to a tax advisor, I’ve got an appt booked with one in a few weeks I just want to get the basics in my head before then).
Thank you.
Rob
That first line is pretty unlikely isn’t it?I’m in a fortunate position that I currently pay 12.5% into my pension plus my employer pays 14.3%. I’m 35 and in that there’s a reasonable chance I’ll exceed my lifetime personal pension allowance (£1,055,000).
What happens if and when I reach/exceed my personal allowance? Should I be looking to reduce my pension contributions? Or increasing them?
I’ve got about £150k sitting in a ltd co and have read that the 40% pension contributions relief may end soon. I’m toying with the idea of using the funds in the ltd co to maximise mine and my wife’s contributions for the past 3 years. But this would mean we will almost certainly go over the £1M allowance.
Any advice? (Please don’t tell me to go to a tax advisor, I’ve got an appt booked with one in a few weeks I just want to get the basics in my head before then).
Thank you.
Rob
Edited by JapanRed on Wednesday 26th February 21:05
LeoSayer said:
JapanRed said:
Say someone was 5 years from retirement and still earning good money. If they checked their “pot values” and it came close to, or exceeded, the lifetime allowance, would it be prudent to stop paying into the pension, or would they still benefit from paying in?
Depends on the circumstances.Does the firm match your contributions? If so, then the benefit of this 'free money' may exceed the LTA charges. That is, unless your firm offers you an alternative way of getting the matching.
What rate of tax will you be getting relief on? If it's one of those high marginal rates then it may still make sense to pay the LTA charge.
Your marginal rate of tax you expect to pay when you draw on your pension can also influence whether it is worth it.
2 GKC said:
JapanRed said:
No it’s not unlikely at all. £40k per year in the NHS pension scheme for 40 years, assuming 4% growth per year would end up close to £1M
He didn’t say NHS pension though did he?Edited by JapanRed on Wednesday 26th February 21:05
JapanRed said:
He was quoting my OP where I was discussing my own (NHS) pension, which £40k for 40 years would end up around £1M as per my example above. What’s difficult to understand here?
The OP makes no reference to the NHS, at least not that I can see. No matter, I’ve got it now. I was just making the point that generally someone on £40k would be very unlikely to hit the max. JapanRed said:
Thanks mate I didn’t realise that this was how you calculated a pots “value”. Seems like I might not hit lifetime limit after all so could potentially put a bit extra in.
Say someone was 5 years from retirement and still earning good money. If they checked their “pot values” and it came close to, or exceeded, the lifetime allowance, would it be prudent to stop paying into the pension, or would they still benefit from paying in?
Which NHS pension schemes are you in? I only assumed 1995 and 2015 because of your age. The NHS pension is incredibly complicated!Say someone was 5 years from retirement and still earning good money. If they checked their “pot values” and it came close to, or exceeded, the lifetime allowance, would it be prudent to stop paying into the pension, or would they still benefit from paying in?
The 1995 scheme is based on final salary, whereas the 2015 is career average earnings (which might not be too different for you). Also, it will differ if you're in hospital medicine or general practice.
I also don't think your Ltd company will be able to make a contribution directly to the NHS pension scheme, if that's how you were thinking about making an additional contribution to top up.
BritPop said:
JapanRed said:
Thanks mate I didn’t realise that this was how you calculated a pots “value”. Seems like I might not hit lifetime limit after all so could potentially put a bit extra in.
Say someone was 5 years from retirement and still earning good money. If they checked their “pot values” and it came close to, or exceeded, the lifetime allowance, would it be prudent to stop paying into the pension, or would they still benefit from paying in?
Which NHS pension schemes are you in? I only assumed 1995 and 2015 because of your age. The NHS pension is incredibly complicated!Say someone was 5 years from retirement and still earning good money. If they checked their “pot values” and it came close to, or exceeded, the lifetime allowance, would it be prudent to stop paying into the pension, or would they still benefit from paying in?
The 1995 scheme is based on final salary, whereas the 2015 is career average earnings (which might not be too different for you). Also, it will differ if you're in hospital medicine or general practice.
I also don't think your Ltd company will be able to make a contribution directly to the NHS pension scheme, if that's how you were thinking about making an additional contribution to top up.
I’ve got a telephone call scheduled with Nik from Intelligent Money on Tuesday so hopefully find out a bit more about whether I should pay in a lump sum, and if so, how to go about it.
40K salary with 40 years in the NHS wouldn't get to a £1m pot (nowhere near).
The 2015 scheme won't grow at 4% - it has a defined benefit growth of CPI + 1.5%
Each year of membership gives you a pension of 1/54th of pensionable salary (not all of your NHS salary is pensionable), averaged over your career, so it grows as you go up the increment scales.
40K would be a Band 7 job (senior ward sister level), and most NHS staff will be on considerably less than a Band 7 job - Junior Doctors start at £27689 per year.
40 years would give you 40/54 * 40K = £29K pension a year. This would have a total "pot" value of £580k
There isn't actually a "pot" for the NHS pension scheme - it's a government scheme, which mostly relies on staff at the start of their career funding those who have retired!
The 2015 scheme won't grow at 4% - it has a defined benefit growth of CPI + 1.5%
Each year of membership gives you a pension of 1/54th of pensionable salary (not all of your NHS salary is pensionable), averaged over your career, so it grows as you go up the increment scales.
40K would be a Band 7 job (senior ward sister level), and most NHS staff will be on considerably less than a Band 7 job - Junior Doctors start at £27689 per year.
40 years would give you 40/54 * 40K = £29K pension a year. This would have a total "pot" value of £580k
There isn't actually a "pot" for the NHS pension scheme - it's a government scheme, which mostly relies on staff at the start of their career funding those who have retired!
Mr Pointy said:
That simply demonstrates that doctors are grossly overpaid and/or their pension arrangements are far too generous (thanks Tony Blair). A good first step would be to cut their pay by at least a third.
Just as it happens HR today confirmed my hourly rate is £43/hr. In exchange for that amount I get to work on the front door, dealing with 999 calls/sudden cardiac arrests who don't make it and than spend 30 minutes telling relatives their mum/dad/brother who was sitting next to them just an hour ago will never be next to them again, immediately follow this by trying to stick a 15 cm needle into someones neck whilst they are struggling to breath to give them live saving medications, than when ever there is a nice friendly virus floating around be one of the first to see the patients - Ebola/H1N1 been there done that, Corona is next.Oh lets not forget working over xmas, new years - did 24hr this year, and if I make a mistake its off to see the corners in court - again that is a lovely experience if you haven't been.
To get to where I am I've had to get a degree, a PHD, a masters, and two diplomas, in-order to earn a grand sum of £43/hr.......The last BMW dealer I went to wanted to charge me £120/hr+vat to change the oil + filter.
So yes NHS staff are clearly way over paid, maybe that why only mugs work in the NHS and there is a chronic shortage of staff on all levels, from cleaners all the way through to CEOs.
Edited by gangzoom on Thursday 27th February 19:22
JapanRed said:
Yes I am in the 1995 and 2015 schemes.
I’ve got a telephone call scheduled with Nik from Intelligent Money on Tuesday so hopefully find out a bit more about whether I should pay in a lump sum, and if so, how to go about it.
Good plan I’ve got a telephone call scheduled with Nik from Intelligent Money on Tuesday so hopefully find out a bit more about whether I should pay in a lump sum, and if so, how to go about it.
A SIPP would allow you to use your Ltd Co to pay into your pension (with tax benefits), and you can access that SIPP a lot earlier than the NHS pension scheme (you can't access the 2015 scheme until state retirement age, unless you take massive reductions in penision).
gangzoom said:
Mr Pointy said:
That simply demonstrates that doctors are grossly overpaid and/or their pension arrangements are far too generous (thanks Tony Blair). A good first step would be to cut their pay by at least a third.
Just as it happens HR today confirmed my hourly rate is £43/hr. In exchange for that amount I get to work on the front door, dealing with 999 calls/sudden cardiac arrests who don't make it and than spend 30 minutes telling relatives their mum/dad/brother who was sitting next to them just an hour ago will never be next to them again, immediately follow this by trying to stick a 15 cm needle into someones neck whilst they are struggling to breath to give them live saving medications, than when ever there is a nice friendly virus floating around be one of the first to see the patients - Ebola/H1N1 been there done that, Corona is next.Oh lets not forget working over xmas, new years - did 24hr this year, and if I make a mistake its off to see the corners in court - again that is a lovely experience if you haven't been.
To get to where I am I've had to get a degree, a PHD, a masters, and two diplomas, in-order to earn a grand sum of £43/hr.......The last BMW dealer I went to wanted to charge me £120/hr+vat to change the oil + filter.
So yes NHS staff are clearly way over paid, maybe that why only mugs work in the NHS and there is a chronic shortage of staff on all levels, from cleaners all the way through to CEOs.
Edited by gangzoom on Thursday 27th February 19:22
Personally, I think people like yourself are grossly underpaid.
Keep the good work up !
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