Maximising on proposed pension changes

Mrs Jones is aged 60, has a salary of 70,000 per annum and wants to retire at age 62. She has also completed 38 years’ service in a final salary scheme.

At age 62 her pension will be ….

  • £35,000 per annum (Estimated)
  • Plus, she will have £105,000 tax free lump sum.

What action can Mrs Jones take?

  • She can pay £30,000 (gross IE Before tax Relief) into a personal pension for each of the next two years.
  • Total Gross Contribution £60,000 over two years
  • The net cost after tax relief will be £36,000. (IE pay £24,000 less tax)
  • Total Fund Value £60,000.

At Retirement she can ….

  • Have £15,000 Tax free.
  • Draw down additional £45,000 and pay tax of circa £17,000.
  • Net Result Mrs Jones has spendable income of £43,000 an increase of £7,000 compared to not funnelling via a pension.

OR

At Retirement draw down a mixture of tax free cash and taxable income each year to stay inside being a basic rate tax payer. This would allow Mrs Jones to daw down her fund of £60,000 over a relatively short numbers of years and have £51,000 after tax for a net cost of £36,000. This is an extra £15,000 of spendable income compared to not funnelling via a pension.

NOTE

This is based on Hart Greaves understanding of legislation, this is not advice and action should not be taken based in this note. Any one over age 55 is able, Please call Hart Greaves to arrange a full review of your options. 

A FULL AND COMPREHENSIVE MEETING NEEDS TO BE CARRIED OUT AND FULL FACTS OBTAINED ABOUT AN INDIVIDUAL’S CIRCUMSTANCES IS UNDERTAKEN BEFORE ANY RECCOMENDATION IS MADE. THIS EXAMPLE IS NOT A RECCOMENDATION.

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