Pensions lump sum

[disney332]

Originally Posted by Tetrarch

It's actually £2,880 that grosses up to £3,600. You can even do this if you are in receipt of a pension

Regards

Gary

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Thats because its grossed up by the basic rate of income tax - 20%

Disney332

[tspill]

Originally Posted by hvasey

If you are going to be short of NI contributions, as I am, be aware that if you are a grandparent and do childcare, you can claim NI credits towards your state pension, you can download the form online.
I’ve stopped work to care for my grandson and am about 5 years short of full SP contributions so claiming part of my Daughter’s NI ( she has to sign the form) will go some way to filling the gap.
Also be aware that you can still contribute to a private pension even if not working - you get a 25% tax relief uplift so if you pay in the max allowed, @£2800 per year, you get @£650 on top of that, which is far better than any savings interest.

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You put in £2880 which is grossed up to £3600.
While you can take 25% of this (£900) out tax free (tax saving value of £180), the remainder is taxed at marginal. Great for non tax payers, good for tax payers.

[disney332]

Originally Posted by tspill

You put in £2880 which is grossed up to £3600.
While you can take 25% of this (£900) out tax free (tax saving value of £180), the remainder is taxed at marginal. Great for non tax payers, good for tax payers.

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There is no other investment that gives a 20% uplift on day 1.

If there was, people would be queuing up for it. As this is a pension and pensions have been given a bad name, very few people do it.

Disney332

[tspill]

Originally Posted by disney332

There is no other investment that gives a 20% uplift on day 1.

If there was, people would be queuing up for it. As this is a pension and pensions have been given a bad name, very few people do it.

Disney332

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You actually get a 25% uplift on day 1. But when planning, you cant ignore the tax you pay on the way out. For the majority, much of the tax advantage is really just delay. For most, the 25% tax free and marginal (BRT at 20%) for the remainder - this in effect reduces 20% tax to 15% tax on the whole - so really a 5% advantage. For those that wont pay tax on the way out - it is a huge advantage. Still excellent and well worth doing - but as part of an overall financial plan.
Much of pension planning revolves around tax planning.

You can also get 30% tax relief on VCTs. Higher risk and need to hold for 5 years - but can be excellent for some.

[disney332]

Originally Posted by tspill

You actually get a 25% uplift on day 1. But when planning, you cant ignore the tax you pay on the way out. For the majority, much of the tax advantage is really just delay. For most, the 25% tax free and marginal (BRT at 20%) for the remainder - this in effect reduces 20% tax to 15% tax on the whole - so really a 5% advantage. For those that wont pay tax on the way out - it is a huge advantage. Still excellent and well worth doing - but as part of an overall financial plan.
Much of pension planning revolves around tax planning.

You can also get 30% tax relief on VCTs. Higher risk and need to hold for 5 years - but can be excellent for some.

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With respect, the £720 uplift from your contribution of £2880 to £3600 on day 1 is 20% (of £3600), equal to the basic rate of tax.

This leaves aside any exit taxation, which is another story.

Disney332

[tspill]

Originally Posted by disney332

With respect, the £720 uplift from your contribution of £2880 to £3600 on day 1 is 20% (of £3600), equal to the basic rate of tax.

This leaves aside any exit taxation, which is another story.

Disney332

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When someone starts with "with respect", it is generally means the opposite.

The uplift is 25%. You start with 2880 and this is uplifted to 3600. 720 is 25% of 2880. Uplift is always measured on the start sum. Not the end sum. Same as any interest return. 5% interest on £100 is £105. The 5% relates to the £100, not the resulting £105.

The total 3600 is made up of 80% your money and 20% tax. If you look at any financial texts, this is how it is presented. Always documented as a 25% uplift - as this is what it is.

[disney332]

Originally Posted by tspill

The uplift is 25%. You start with 2880 and this is uplifted to 3600. 720 is 25% of 2880. Uplift is always measured on the start sum. Not the end sum. Same as any interest return. 5% interest on £100 is £105. The 5% relates to the £100, not the resulting £105.

The total 3600 is made up of 80% your money and 20% tax. If you look at any financial texts, this is how it is presented. Always documented as a 25% uplift - as this is what it is.

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This is fun...

£3,600 is the gross contribution

£2,800 is the net contribution after 20% tax relief on the gross.

If pension contributions interact with income tax, where does 25% tax come from? 25% is not a UK rate of income tax.

Disney332

Edit: likewise, if i want to make a £30,000 gross contribution, i give my advisor a cheque for £24,000 (24 +80 x 100 = 30)

[YorkshireT]

Last IFA I saw suggested I put all my pension money in Woodford’s fund.
Glad I didn’t listen to that idiot.

[disney332]

Originally Posted by tspill

When someone starts with "with respect", it is generally means the opposite.

The uplift is 25%. You start with 2880 and this is uplifted to 3600. 720 is 25% of 2880. Uplift is always measured on the start sum. Not the end sum. Same as any interest return. 5% interest on £100 is £105. The 5% relates to the £100, not the resulting £105.

The total 3600 is made up of 80% your money and 20% tax. If you look at any financial texts, this is how it is presented. Always documented as a 25% uplift - as this is what it is.

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I really did mean with respect whether you believe that is your prerogative.

Disney332

[tspill]

Originally Posted by disney332

I really did mean with respect whether you believe that is your prerogative.

Disney332

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Fair enough. Apologies.