Hello,
I am trying to ascertain how much GROSS personal pension I require in order to break even with my expected expenditure. I have 2 forms of income - the State Pension and a personal pension. I understand that my personal pension is split with 75% of it being taxed and 25% being tax free. I also understand that the State Pension has no tax free element to it. I’m likely to pay income tax at the basic rate of 20%.
What I’m trying to establish is what the gross pension needs to be in each tax year in order that I break even at the end of the tax year.
E.g. If z equals my known expenditure (say £30K) and y is my known State Pension (say £8K) and x is my gross personal pension, how do I establish what x has to be in order that x plus y = z (given that part of the gross personal pension is tax free, and there is a personal allowance of £12.5K to be factored in)?
This could be completely wrong but I have tried to write an equation to show this, as follows:
z = (((x X 0.75) + y)) - 12500) X 0.2 + (x X 0.25)
Would anybody be able to let me know if this equation is correct and also is anyone able to simplify the equation with x being the subject of the equation?
Thank you!
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