Another pension? I hope this a simple yes/no question.

[FidoGoRetroGo]

I shall try to keep this short.

I'm 53 tomorrow and at 55 I can (and will) take my company pension. Income from it will be around £21k. So I will be paying some income tax.

These days I'm self-employed, and will probably carry on working until I'm 60. I will never have enough income to be paying a higher rate of tax, but I will always have enough income to pay at the standard rate.

As I understand things I can put some of the money I now earn into another pension, and won't have to pay income tax on it. That seems like a good idea.

But... and here's where I'm confused... is it not the case that when I come to take money out of this second pension I'll just be paying income tax on it anyway?

In other words, for someone who is paying the standard rate of income tax, and always will be, is putting more money into a pension not just a case of paying tax on it later instead of now?

Many thanks for any help.

[ellroy]

To some extent you're correct, but remember that the growth of the funds, wherever invested prior to you taking an income, are free of all tax on that growth. Whereas pretty much everywhere else you invested them would be liable to tax of one sort or another.

Also, pensions now are pretty much completely free of IHT, so another reason to use the allowances you have.

[Jockman]

Don't forget the potential for paying zero tax on circa 25% of your pot.

Oh, and happy birthday for tomorrow.

[LeoSayer]

FidoGoRetroGo said:

In other words, for someone who is paying the standard rate of income tax, and always will be, is putting more money into a pension not just a case of paying tax on it later instead of now?

Yes.

However, you can take 25% of your pension pot tax free.

[FidoGoRetroGo]

Thanks to both of you.

It was just that idea that I either pay the tax now or later given my circumstances that I wanted confirming. I do of course accept that there are a lot of variables and I will certainly be tempted with a Ferrari-sized lump sum. (Not sure if I can have a lump sum at all though).

Cheers

[Phooey]

Other option is an ISA - no tax on the way out. Not sure what risk I'd be taking though with only 7yrs of investing whilst FTSE currently at a high...

[PurpleMoonlight]

Once you start drawing your pension your annual contribution allowance will be limited to £4,000 pa (reduced from £10,000 in the Autumn Statement).

[BarryGibb]

PurpleMoonlight said:

Once you start drawing your pension your annual contribution allowance will be limited to £4,000 pa (reduced from £10,000 in the Autumn Statement).

Depends how you access it

[PurpleMoonlight]

BarryGibb said:

Depends how you access it

Yes, fair point.

The OP didn't state if the pension was payable from a DB or DC arrangement.

[FidoGoRetroGo]

The pension that I can take at 55 is from a final salary scheme which I left in 2008. (The old type of BBC pension which hasn't been open to new members for some time).