Question
I am a high rate taxpayer with a Government pension due in some years (I am currently 45 years old). I still have a dormant personal pension from the days when you could opt out of Serps. This is only worth £9000 today, as for various reasons I switched back to a Govt pension after I had taken out the personal one. It will currently not do me much good in 2032. I understand that I can now top it up and claim tax relief for doing so. What are my options for topping it up now - more to offset my current tax bill than to plan for a windfall when I am 65?Answer
The personal pension you have from when you 'contracted-out' of SERPs is generally called a 'protected rights' pension. It can continue to remain invested and when you eventually take benefits (i.e. a retirement income) you'll be able to take 25% of the fund as a tax-free cash lump sum.
Although your existing protected rights pension will remain unaffected, from 6 April 2012 the Government will no longer allow contracting out via occupational money purchase schemes, stakeholder or personal pensions, so only those will final salary pensions will have the option to contract out of the State Second Pension (S2P) from then. In any case, plans to introduce a flat weekly state pension would likely spell the end of contracting out if introduced.
If you wish to top up your pension provision you can do so via an occupational or personal pension. This would be via conventional pension contributions rather than contracted out.
Your only restriction will be an annual pension contribution limit of £50,000 from 6 April 2011, which includes any employer pension contributions.
If you're employed and your employer offers a pension scheme then it would be worth considering contributions via that scheme, especially if your employer makes contributions on your behalf and/or subsidises the cost of the pension.
Otherwise you might consider a stakeholder or self-invested personal pension (SIPP), particularly if you're self-employed. SIPPs are generally more expensive, but offer a wider choice of underlying investments than stakeholder. Whether it's worth paying the extra depends on how you wish to invest.
Whichever you choose, the tax relief works in the same way. If you contribute £80 the pension provider will automatically add a basic rate tax rebate (£20) so £100 is invested. You can then reclaim the 20% higher rate tax rebate (£20) via your tax return (or sometimes PAYE), meaning a £100 pension contribution has effectively cost you just £60.
The downsides of pension investing are your money being inaccessible until at least age 55 and the pension income, when eventually taken, being taxable.
I am a high rate taxpayer with a Government pension due in some years (I am currently 45 years old). I still have a dormant personal pension from the days when you could opt out of Serps. This is only worth £9000 today, as for various reasons I switched back to a Govt pension after I had taken out the personal one. It will currently not do me much good in 2032. I understand that I can now top it up and claim tax relief for doing so. What are my options for topping it up now - more to offset my current tax bill than to plan for a windfall when I am 65?Answer
The personal pension you have from when you 'contracted-out' of SERPs is generally called a 'protected rights' pension. It can continue to remain invested and when you eventually take benefits (i.e. a retirement income) you'll be able to take 25% of the fund as a tax-free cash lump sum.
Although your existing protected rights pension will remain unaffected, from 6 April 2012 the Government will no longer allow contracting out via occupational money purchase schemes, stakeholder or personal pensions, so only those will final salary pensions will have the option to contract out of the State Second Pension (S2P) from then. In any case, plans to introduce a flat weekly state pension would likely spell the end of contracting out if introduced.
If you wish to top up your pension provision you can do so via an occupational or personal pension. This would be via conventional pension contributions rather than contracted out.
Your only restriction will be an annual pension contribution limit of £50,000 from 6 April 2011, which includes any employer pension contributions.
If you're employed and your employer offers a pension scheme then it would be worth considering contributions via that scheme, especially if your employer makes contributions on your behalf and/or subsidises the cost of the pension.
Otherwise you might consider a stakeholder or self-invested personal pension (SIPP), particularly if you're self-employed. SIPPs are generally more expensive, but offer a wider choice of underlying investments than stakeholder. Whether it's worth paying the extra depends on how you wish to invest.
Whichever you choose, the tax relief works in the same way. If you contribute £80 the pension provider will automatically add a basic rate tax rebate (£20) so £100 is invested. You can then reclaim the 20% higher rate tax rebate (£20) via your tax return (or sometimes PAYE), meaning a £100 pension contribution has effectively cost you just £60.
The downsides of pension investing are your money being inaccessible until at least age 55 and the pension income, when eventually taken, being taxable.
Read this Q and A at http://www.candidmoney.com/questions/question444.aspx
Pension release is a provision in the UK that allows you to withdraw money from your pension scheme prior to full retirement. Eligibility for this procedure requires in the very least that the person is over 50 and has a UK pension plan. Other factors will be assessed on application before you can be deemed fully eligible to receive a tax free cash sum and/or income. For the most part, people go through with the process of releasing their pension funds as they may require some money now but not have reached retirement yet. Alternatively, an individual may be thinking about retirement and want to look at their options.
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