contribute to an old pension plan

[speedyman]

I have a final salary pension, but was tuped to a new company so my plan was frozen and I had to start a new defined benefit pension a few years ago with the new company.

I know I will have to call the administrators of the scheme for a definitive answer, but is it possible to still pay into an old final salary scheme by way of paying a lump sum in from any redundancy payment from the new company?

[PurpleMoonlight]

Although current legislation does permit this, it is very unlikely the pension scheme will.

[speedyman]

The reason I ask is if I can take a maximum of 25% as a tax free lump sum from a pension plan and pension "A" has 350K in already and current pension plan "B" only 50k in already, putting 50k into scheme A means a cash free lump sum of up to 50k, thus no tax on the 50k but putting the same 50k into B will only get a tax free lump sum of 25k and tax to pay on 25k. Or is this a wrong assumption?

[ellroy]

Not a cat in hells chance that the DB scheme will take the extra cash.

They effectively take on a liability to you for life and this is especially the case, where in all likelihood, they'd want to wind up the whole pension and get rid of the liability full stop.

The 25% tax free cash element, the usual allowance for personal pensions, and it can vary for DB schemes, but in general, and ignoring grossing up contributions for tax, a contribution of 50k would allow you to take 25% of this amount i.e. 12.5k irrespective of which scheme you've put it in.

Also, the amount you can place into pensions in any year is falling to 40k. Can't recall the exact date of this, but you'd need to get proper advice around the contribution amount taking into account your taxable income.

[Ginge R]

speedyman said:

I know I will have to call the administrators of the scheme for a definitive answer, but is it possible to still pay into an old final salary scheme by way of paying a lump sum in from any redundancy payment from the new company?

Bear in mind that any pension contribution over £3,600 (gross) will need to be supported by relevant and current UK earnings. Therefore, if you received your redundancy payment at the start of the financial year and wished to use it to make a large contribution, and worse still, if it took you a while to find new employment, it is unlikely that you would have have the earnings at that point in the tax year to support the payment.

In addition, only the first £30,000 of any redundancy payment is tax-free so it is not treated as earned income – and therefore could not be classed as relevant UK earnings, which is what HMRC takes into account when determining how much you can pay. You refer too, to transferring tax free cash - again, be careful - pension payments, taxable or otherwise, don't count as relevant UK earnings. Any payment needs to be supported by earnings (in order to gain desired tax relief).

So, to summarise, only the part of your redundancy payment which is in excess of the first £30,000 (i.e. the taxable element) could be used as a contribution to your pension anyway and only then, if it is supported by relevant earnings. It is important to note too, that higher rate tax relief is only available where higher rate tax is actually paid.

[Zigster]

speedyman said:

The reason I ask is if I can take a maximum of 25% as a tax free lump sum from a pension plan and pension "A" has 350K in already and current pension plan "B" only 50k in already, putting 50k into scheme A means a cash free lump sum of up to 50k, thus no tax on the 50k but putting the same 50k into B will only get a tax free lump sum of 25k and tax to pay on 25k. Or is this a wrong assumption?

I think you're getting %ages and £s confused. The limit is 25% - e.g. on a pension fund worth £100k one could take £25k as tax-free cash. If the fund was worth £1million, one could take tax-free cash of £250k.

[anonymous-user]

25% of 50k is 12.5k, whichever scheme you put it in...