Take 25% pension at 55 to pay school fees

[Justwanttobebythesea]

Hi, I am almost 52 and have 2 dc in private school. I'm wondering if I could pay in 100% of my salary (less than £40k) into my pension for a few years so that it is invested and then when I'm 55 I can take 25% out tax free to put towards school fees. in the meantime using my savings as my salary each month as they are currently in a bank account not keeping up with inflation.

Is this a tax efficient plan? I feel like I may be missing something. I'm aware my pension could could down as well as up.

Why not just invest your savings? In a SIPP, even?

Yes you can do that. Are you leaving yourself enough for retirement?

I have investments already and cash savings - it's hard to invest to keep up with inflation. I just wondered if investing through pension contributions means you are getting a better return (i.e it's tax efficient so effectively you're investing more but costing you less).

By the time you have lived off your savings and lost a chunk of pension will you have enough to retire on?

Thanks for the confirmation. Sorry mis-worded as I wouldn't take out 25% (I know it is up to 25%). It's a small pension pot which I currently pay into at work, I have a larger one from a previous employment. Will hopefully be ok for retirement - not solely relying on my pension

I mean not 25% of the total pension pots - maybe 25% of one.

There are rules, you then cant pay more into the pension

That's not what I read

Yes you can do this OP

You can pay 100% of your salary, minus basic tax, or via salary sacrifice, into your pension.

if you take the tax free cash you can continue to save. IF you take any income you lose the 40k (max) allowance and you drop to 4k

Not correct. If you only take PCLS and not the whole pot, you can continue to save.

I'd be wary of the government changing the rules at the last minute - I'd make sure you have another source of cash just in case you can no longer withdraw the 25% or something.

If the rules change, all pension legislation has been “from here forward” accrued benefits are likely to be maintained.

Good point. I might try and save a little extra in my pension if I can but I have decided it's not the best investment vehicle for the short term to pay expenses.

Thanks to everyone for helping me come to this conclusion!

Isn’t there a massive actuarial reduction for hitting your pot at 55?

Only if:

1. It’s a defined benefit pension and
2. It’s NRA is >55

You can get free advice and a one to one telephone appointment at pensionwise. They are really helpful. Gov funded like Cit Advice.. and will give you links for other places to get quotes/advice.
you have to book a timed appointment and they send a helpful list of the info they will need to discuss it with you and they also send an email after the interview summarising their advice. Worth a shot?
www.citizensadvice.org.uk/about-us/our-work/advice-partnerships/pension-wise/

I didn't know about this - that's really helpful thanks!

We did a similar thing and used some of the 25% tax free amount to pay off out mortgage.

Three years is a relatively short time period in investment terms, so you'd be ill advised to invest in anything that's not low risk for that time period (if that's what you mean, apologies if I've misunderstood). Low risk obviously means unlikely to keep up with inflation unfortunately.

That must be pension dependent
Not in mine.

Is the intention to save on income tax? A few things to consider:

You don't need to pay 100% in, you only need to reduce your salary to the level of your personal allowance.

You will still be liable for NICs.

If the rules change, you may find your pension locked away for longer than you expect. You won't lose it, but the way in which you can take it may change.

I read the age you can access private pensions is likely to go up in line with the state pension, so 57, then 58 years old. Don't know if there will be an adjustment period or not.

Pension Wise don't offer advice. They give very good guidance and will tell you what you could do (with all the tax implications etc.) but not what you should do.

So pension administrators (whatever they are called) not take a MAHOOSIVE cut of the pension?

I can’t help but think it’s a bit weird that your pension is your go-to for this form of saving up? Try something else?

What usually happens is that once you have taken the tax free cash the rest of the pot is moved into another product. You won't normally be able to add to that pot but can save into other pensions up to your normal annual allowance if no taxable income has been drawn. Once taxable income has been drawn it's £4K pa.