Why would anyone pay over £60k a year into pension?

[Whitesky75]

that really. Are there any other benefits in saving more that £60k a year in a pension wrapper?

Because the earn a massive amount and are looking forward to a super-duper retirement?

Because they want a good pension when they retire. If you can afford it, why not?

Avoiding CMS payments.

Outside your estate for inheritance tax (broadly, subject to pension plan type and death benefits).

SIPPs can currently be inherited without any inheritance tax being paid, perhaps that is an incentive if you have a very large estate? Of course the inheritance tax exemption could be changed by the government.

Quite a few reasons, payments into a pension have tax relief on them. They want a worry free retirement. They may want to retire early. They are trying to reduce there overall tax or CMS liability. They may have started paying onto a pension later in life. Also many employers will match your pension contribution by a certain % so you have free money going into it

If they hadn't saved their full allowance in previous years then they might pay more this year to top up. You get 3 years worth of allowance that you can use up.

But as others have said, if they can afford it, why not? Theoretically the pension can be handed down and won't attract inheritance tax, unlike if you just invested outside of the pension wrapper. (Though it sounds as though that may change in the budget)

I pay a lot into my pension and I’m currently seeing a 22% year on year return making it much more attractive than a lot of other investments. Plus the tax incentives are incredible.

No-brainer if you have money to play with.

If you earn enough to be able to save a decent amount it can be very tax efficient. Not everyone is struggling with huge nursery fees and a big mortgage, and if you aren’t, having a spare £5,000 a month if you’re a senior professional with few commitments isn’t beyond thinkable.

It doesn't make sense to pay in more than 60k per year. Below 60k, you receive tax relief on the income tax you paid on your contributions. So you only pay tax once when you are retired and withdraw the money. Somebody with a high salary will often be in a lower tax band in retirement.

Above 60k contributions, you would pay tax on your salary. Then pay it into a pension. Then when you withdraw your pension after retirement you would pay income tax a second time.

Payments exceeding £60k a year don't attract any tax relief - that's the OP's point.

I missed the 'over' part and read it as just 60! Some of my answer still applies although anything over 60 would break the annual allowance unless they have carry over

But that's the OP's point - beyond the allowance of £60k a year, it isn't really tax efficient.

The exception would be if you didn't use your full allowance in the last 3 years, you can then effectively roll forward the unused allowance so that you can pay in more than £60k - but you can't do that forever.

Bang on £60k ok, the most tax efficient way of saving. If you go over you pay tax on the bit above £60k. You can also take out 25% tax free up to circa £250k at 55 if you set it up correctly.

I'm not sure why you are asking the question but here are a couple of reasons.

If they have a DB pension they might pay in more than £60K by accident if they don't factor in the employer contribution.

If they are made redundant they might want to put their redundancy payment into their pension and so the £60K limit (plus remaining allowances from previous 3 years) might not be enough.

Asset deprivation from a spouse if they’re due to split and think their pension is likely to be off limits? Particularly if they’re close to draw down age.

If your spouse is a really high earner and can’t put more than 10k in their pension and you earn less, it makes sense to maximise your pension and live of spouse salary, get tax relief and then when you both retire live off that pension pot.

Who does that?! Seems batshit if anyone does do this.

Just put it in a bank account/savings account. Far less risky.

Between £100-160k (after tax) they will take home £28,000.

So by putting £60,000 into their pension they gain £32,000.

If they have two children in childcare, they will lose their tax free childcare and free hours at £100k. Which might mean less tax and benefits they benefit to the tune of £14,000 from £60,000 of earnings.

So… into the pension and you are £46,000 better off.

You can also use 3x years allowance so may have some space to put more in. A parent earning £220k might elect to put 2x years worth in and get their childcare costs one year for example.

Doesn’t explain why anyone would put more than £60k in though…

@iNoticed because you can technically put in £180k in a year if no contributions in the previous two years.

I can see someone putting £40k in year 1 then £80k in year 2 to stay beneath £100k threshold for childcare.

Because it i the best place to put your money.

If you’re in a defined benefit scheme your pension growth is calculated every year. This is your contribution, the employers contribution and an inflation adjusted amount of the pension pot (which seems to be unknowable and uncalculatable by a normal human). This means that people in a defined benefit scheme can have ‘pension growth’ of more than £60k despite their personal contribution being around 10K. They then get taxed on money they have never had. And this is the issue with NHS pensions. And I’m sure other DB schemes but I only know about the NHS ones.

I have a small private pension that's accrued an 18% return in the last year. If I had money I'd throw it in as well.

I will this year because it’s tax efficient (I am a high rate tax payer and paid very little into my pension in each of the last 3 tax years) and I’m old enough to be able to treat pension pots as short to medium term savings.