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Where Taxpayers and Advisers Meet

calculating max allowable yearly pension contribution

someone
Posts:692
Joined:Mon Feb 13, 2017 10:09 am
Re: calculating max allowable yearly pension contribution

Postby someone » Sat Jan 23, 2021 5:28 pm

Don't forget the risk of the pension exceeding the lifetime allowance. At the moment the government has said that it's going to be index linked (CPI I think) but a few years of high inflation and the government removing the index linking of LTA and you could be in trouble)

You are right that if there's zero chance of exceeding the lifetime allowance and you can guarantee to take the pension at basic rate and basic rate tax doesn't go up then pension wins. But that's a lot of ifs. Quite frankly I'm expecting the 25% tax free lump sum to disappear too soon, I just hope I'm close enough to retirement age not to lose it!

Also consider the possibility that you want to access the money before retirement - there is no chance with a pension. IMO you give up a lot if all you are getting is basic rate tax relief on the contributions.

On the delaying payments, I don't think you do lose. You will get basic rate relief this year or basic rate relief next year. In fact some suggestions I've seen are that everybody should get 30% relief rather than the 25% for a basic rate payer and 67% for a higher rate taxpayer. Were that to pass then delaying would win.

The numbers the OP was quoting I don't think there's any chance of them continuing to pay in at that rate unless they've won the lottery or something. The OP is talking about paying 40K of a 60K income. I don't think many people on 60K a year can afford to save 40K every year into a pension.

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: calculating max allowable yearly pension contribution

Postby robbob » Sat Jan 23, 2021 5:42 pm

The numbers the OP was quoting I don't think there's any chance of them continuing to pay in at that rate unless they've won the lottery or something. The OP is talking about paying 40K of a 60K income.

I don't think many people on 60K a year can afford to save 40K every year into a pension.


Its possibly more that you may expect (hardcore minority) - there is a boat load of people who may be within 5-10 years of 55 and want to go asap (ie never work agin) i think for that core group (probably mortgage paid off decent savings in an isa) the simple fact you get the 25% extra in their pension pot makes it a no brainer of a route for them at present to park as cash much as possible - i don't expect the 25% to go anytime soon (too unpopular and disrimantory - even if it does go i would be gobsmaked if current tax free pots are not protected - ie current tax free pot kept but suspended ) i know hmrc have screwed many over in past (dont ever mention gordon brown to my mate down the pub when he has had 5 pints of smiths) and my projected state pension went down £30 a week when they moved to flat rate the ......- but the 25% matters to everyone there would be fighting on them streets if that was taken away.


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