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maxed out pension

110 replies

CatherineHeathcliffe · 26/02/2026 16:01

Namechanged since I suspect I might be about to get flamed.

If you are maxed out on your pension (in terms of tax free sum) would you continue to put money in?

I own my own business and currently make a company contribution only into the pension each year (generally the max with then a small income by PAYE and dividends).

OP posts:
HarryVanderspeigle · 27/02/2026 12:55

With my sensible hat, I would suggest GIA's for you and pensions for the kids. They will benefit from a lot of compounding before retirement and not being able to spend it now means they still need to work hard at a career.

But my actual desire would be to go on lots of nice holidays while you are healthy enough to be able to do it. You never know how much time you will have after retiring, so do it while you have tbe health and the funds.

CatherineHeathcliffe · 27/02/2026 15:06

I think the key issue is that any money paid into my pension is deductible for corporation tax purposes. This means that because I am a one person business I am effectively saving another 25 percent here.

OP posts:
PensionTaxxaTnoisneP · 27/02/2026 17:42

CatherineHeathcliffe · 27/02/2026 15:06

I think the key issue is that any money paid into my pension is deductible for corporation tax purposes. This means that because I am a one person business I am effectively saving another 25 percent here.

You might find it helpful to let AI crunch all the numbers to see where the optimum position is - re: pension and other investment types / gifting… although you do need to give it a very clear steer (as it can make some very literal / wrong assumptions…). For example, when I did it, the first answer was overwhelmingly - oh yes, pay as much into dh’s pension as you can because it will be exempt from IHT. So I had to correct it and ask for the calculation assuming changes to IHT coming into force in April 2027. So you need to check - and double check, But it is an enlightening exercise.

For me, a clear priority is ensuring dc will achieve decent housing. And maximising how much we can pass down in that regard.

I think you probably need to have a good think (with your dh) about what you want to do, when you will retire, what sort of income you want to live on, and what your attitude towards IHT is.

I was trying to answer the simple question of do we pay into dh’s pension before year-end, while I was doing tax returns, and ended up spending a few days really putting some thought into what the future might look like.

Dh and I are both in the thick of supporting very elderly / frail / terminally ill parents, and that sort of thing does focus your mind somewhat…

tramtracks · 27/02/2026 18:18

CatherineHeathcliffe · 27/02/2026 15:06

I think the key issue is that any money paid into my pension is deductible for corporation tax purposes. This means that because I am a one person business I am effectively saving another 25 percent here.

The key is to consider the tax rate you will be paying to draw it out of the pension. The state pension will eat up all of your personal allowance - leaving you with a conundrum as to how to maximise your tax situation. AI is your friend for this.

tramtracks · 27/02/2026 18:19

HarryVanderspeigle · 27/02/2026 12:55

With my sensible hat, I would suggest GIA's for you and pensions for the kids. They will benefit from a lot of compounding before retirement and not being able to spend it now means they still need to work hard at a career.

But my actual desire would be to go on lots of nice holidays while you are healthy enough to be able to do it. You never know how much time you will have after retiring, so do it while you have tbe health and the funds.

The perfect post on this thread.

Bunnycat101 · 27/02/2026 19:17

There is also an excellent YouTube channel from a retirement planner James Shack. One of his biggest things is saying that clients are not very good at actually spending the wealth they’ve accumulated. There is something about your posts OP that make me wonder if you do have a slight fear about stopping accumulating. You really do have more than enough. Yes you could save the corporation tax if you put it in a pension but to what end? You’ll struggle to get it out as it is.

Rolluprollupadvice · 27/02/2026 19:25

OP not the same situation but similarish I would keep the money in the business and potentially invest in property or something else via it. I would then keep dividend coming while I didn’t work for longer.
You need a call with your accountant.
Some friends have made their children company directors and are paying into sipp for them (one has put the kids school fees through the company!).

CatherineHeathcliffe · 27/02/2026 20:59

Rolluprollupadvice · 27/02/2026 19:25

OP not the same situation but similarish I would keep the money in the business and potentially invest in property or something else via it. I would then keep dividend coming while I didn’t work for longer.
You need a call with your accountant.
Some friends have made their children company directors and are paying into sipp for them (one has put the kids school fees through the company!).

I can’t do anything like this. I’m a solicitor and have to be whiter than white.

OP posts:
FairyBatman · 27/02/2026 21:43

Is there not administration etc that they can do in the summer for you? Get them on as real employees doing actual work but with exceptionally generous pensions.

Jaffalemons · 27/02/2026 21:50

OP I’m in the same situation. It still works out better to
get corporation tax discount. However paying 40% tax and getting more money out of the business will be more beneficial until you have a GIA which uses your £3k allowance.

Without the LSA it still works but paying HR rate tax now is most probably also better in the long run.

Jaffalemons · 27/02/2026 21:52

Rolluprollupadvice · 27/02/2026 19:25

OP not the same situation but similarish I would keep the money in the business and potentially invest in property or something else via it. I would then keep dividend coming while I didn’t work for longer.
You need a call with your accountant.
Some friends have made their children company directors and are paying into sipp for them (one has put the kids school fees through the company!).

Kids school fees does not fly. I hope they get a tax investigation whilst the rest of us pay our tax.

Jaffalemons · 27/02/2026 21:54

CatherineHeathcliffe · 27/02/2026 15:06

I think the key issue is that any money paid into my pension is deductible for corporation tax purposes. This means that because I am a one person business I am effectively saving another 25 percent here.

It is but as you will be a 40% tax payer in retirement - if you want to spend your pension - then you should consider higher drawings now too.

How much retained profit do you have OP?

Rolluprollupadvice · 28/02/2026 07:46

Jaffalemons · 27/02/2026 21:52

Kids school fees does not fly. I hope they get a tax investigation whilst the rest of us pay our tax.

Not sure how they are doing or if they are really finding it more efficient! The kids are classed as employees (and actually they are as the family are influenced) and I believe they are getting the vat back but paying tax for benefit in kind.

BB052028 · 28/02/2026 08:46

Hi OP, we are in a similar boat, both solicitors. We are subject to taper so can't put much into pensions. We are putting additional money into GIAs, realising gains every year to use our CGT allowances then once we retire (in 4-5 years) we'll bed and ISA it over the years, again using CGT allowances (and also paying some tax).

One thing to think about is whether you'll want to make large gifts to your children- not sure how old they are but for us we're hoping to buy them each a flat in the next 5 years or so and then (depending on how our investments do) further gifts down the line. If you might want to do the same then it's worth thinking about where you would want the money to be to do this- if it's all tied up in the pension then you may end up paying 45% to get it out despite only having got 40% relief on the way in.

You've mentioned seeing an advisor or planner and that's a good idea, but you can also do some basic planning yourself just with a spreadsheet- put all your assets into it, model what might go into a GIA in the years up to retirement and how your investments might grow, then take a look at what you'll have on retirement and as you grow older and whether it's where you want it to be, then compare that to putting it into the pension. You can specifically run the numbers on your £60k which currently goes into the pension and see just how much tax you'd pay if it instead went into two GIAs (you and your husband) and you were careful about realising gains to make use of your allowances along the way, then compare that to what would happen to it inside the pension.

Another thing you could do is set up LISAs for your children but bear in mind that they only work where the property bought is under £450k so if they want to live in an expensive area LISAs may not be a good option. And of course you can put money into pensions for them- if you put in the max for non earners over 5 years that could end up at around £25k in each pot with a bit of growth, which may conceivably grow to £400k (nominal) by the time they retire even if they never put another penny in.

(Maybe not in the spirit of the board but my view is that it's very easy to over-focus on tax efficiency and end up tying yourself in a pretzel to avoid paying more tax than is absolutely necessary. There was an example on these boards not long ago- someone whose parent wanted to give them a house but couldn't face the CGT, so the child had no house, the parent had to keep paying the costs on a second home they didn't want, and the whole thing would be subject to IHT on death anyway at a higher rate than the CGT would have been. A better approach is to think first about what you actually want to do with the money in the longer term, and then consider how to do it tax efficiently. There's a lot of money knocking about so there will be tax to pay over the years and that's fine. Also PMSL at the people suggesting tax evasion!)

Jaffalemons · 28/02/2026 08:59

BB052028 · 28/02/2026 08:46

Hi OP, we are in a similar boat, both solicitors. We are subject to taper so can't put much into pensions. We are putting additional money into GIAs, realising gains every year to use our CGT allowances then once we retire (in 4-5 years) we'll bed and ISA it over the years, again using CGT allowances (and also paying some tax).

One thing to think about is whether you'll want to make large gifts to your children- not sure how old they are but for us we're hoping to buy them each a flat in the next 5 years or so and then (depending on how our investments do) further gifts down the line. If you might want to do the same then it's worth thinking about where you would want the money to be to do this- if it's all tied up in the pension then you may end up paying 45% to get it out despite only having got 40% relief on the way in.

You've mentioned seeing an advisor or planner and that's a good idea, but you can also do some basic planning yourself just with a spreadsheet- put all your assets into it, model what might go into a GIA in the years up to retirement and how your investments might grow, then take a look at what you'll have on retirement and as you grow older and whether it's where you want it to be, then compare that to putting it into the pension. You can specifically run the numbers on your £60k which currently goes into the pension and see just how much tax you'd pay if it instead went into two GIAs (you and your husband) and you were careful about realising gains to make use of your allowances along the way, then compare that to what would happen to it inside the pension.

Another thing you could do is set up LISAs for your children but bear in mind that they only work where the property bought is under £450k so if they want to live in an expensive area LISAs may not be a good option. And of course you can put money into pensions for them- if you put in the max for non earners over 5 years that could end up at around £25k in each pot with a bit of growth, which may conceivably grow to £400k (nominal) by the time they retire even if they never put another penny in.

(Maybe not in the spirit of the board but my view is that it's very easy to over-focus on tax efficiency and end up tying yourself in a pretzel to avoid paying more tax than is absolutely necessary. There was an example on these boards not long ago- someone whose parent wanted to give them a house but couldn't face the CGT, so the child had no house, the parent had to keep paying the costs on a second home they didn't want, and the whole thing would be subject to IHT on death anyway at a higher rate than the CGT would have been. A better approach is to think first about what you actually want to do with the money in the longer term, and then consider how to do it tax efficiently. There's a lot of money knocking about so there will be tax to pay over the years and that's fine. Also PMSL at the people suggesting tax evasion!)

The OP has a company so the 40 in 45 out doesn’t work in the same way. She also isn’t subject to the taper as she controls that.

My one observation is that buying your kids a flat takes away their own ability to strive and achieve. I’d think carefully before doing too much, it’s not as much help as you might think for most personalities.

BB052028 · 28/02/2026 09:02

I know she's not subject to taper- just mentioned taper to give some context to what we're doing. I did forget about the corporation tax point, fair enough.

Not sure that having a flat means you don't need to strive and achieve- most people have higher aspirations than just a roof over their head!

Hotpants123 · 28/02/2026 09:04

I misunderstood, I would continue to put in 60k per year, even if you were over the 25% threshold. I would not put more than 60k in.

PensionTaxxaTnoisneP · 28/02/2026 09:49

Jaffalemons · 28/02/2026 08:59

The OP has a company so the 40 in 45 out doesn’t work in the same way. She also isn’t subject to the taper as she controls that.

My one observation is that buying your kids a flat takes away their own ability to strive and achieve. I’d think carefully before doing too much, it’s not as much help as you might think for most personalities.

Edited

I do see where you are coming from, and I do understand that there is a risk involved in having dc grow up into adults who think they have it all on a plate and do not need to budget or strive. But I am so hyper aware that we are in a very fortunate position, pretty much only down to our age, and that the fact that from an early age we were able to get on the property ladder and have subsequently improved each property, sold it and moved to a more expensive property, then improved that and sold again. This was only really possible because we first got on the property ladder in the 1980’s (my dh) and early 1990s (me). This is no longer possible for young people, for a whole variety of economic / property market / tax and regulation reasons. I am highly aware that probably 2 of my 3 dc may never earn more than about £40k per year, which would limit them to individual mortgages of maybe £140k each, which would make it incredibly difficult to get adequate housing. I just can’t let my kids go through this when it is in our power to help them get a foot on the ladder (only through the good fortune of being in our 50s and having benefitted from lower property prices, and lower taxes / duties in the 1980s-2000s).

We have been paying for dc1 at uni - they are very aware of why we are doing this, and very grateful - in addition to budgeting hard (shopping in Lidl, weekly food bill is about £30; doesn’t go out drinking) and working every summer holiday to earn additional money to top up their funds / spending money. Dc has a really strong work ethic (has taken on leadership roles at uni), and I am hopeful that this will give them resilience.

So on balance, I don’t know how to ensure that dc do not end up ‘spoilt’, hopefully those are things that we can help instil in them - regardless of whether they have help to buy a home, or whether they have much fewer choices or opportunities in life.

LadyGnome · 28/02/2026 09:50

Another name changer

We in the process of setting up a Family Investment Company to hold our future property investments in a way that manages IHT risk more efficiently now our DC are adults. We may set up further FIC for other investments depending on the advice we get.

There is no point in us constantly adding to unprotected asset pools and the DC ending up with a 7 figure IHT bill.

FlashAbe · 28/02/2026 10:41

Jaffalemons · 28/02/2026 08:59

The OP has a company so the 40 in 45 out doesn’t work in the same way. She also isn’t subject to the taper as she controls that.

My one observation is that buying your kids a flat takes away their own ability to strive and achieve. I’d think carefully before doing too much, it’s not as much help as you might think for most personalities.

Edited

We are keen not get into the "hand out" situation for many reasons but related to your post -
I know of parents local to us who gifted their ds a large house when he got married - ds sold the house and the couple rent, living off the proceeds from the expensive house. That has caused all sorts of problems within the family. There was a post a few weeks ago from a parents whose ds was gifted £50k and he spent it travelling the world. I don't think my kids would do that but I don't want to take the chance of a very generous gift becoming the source of unwanted decisions/behaviour.

CatherineHeathcliffe · 01/03/2026 13:35

DH feels the same way. He wants the DC to appreciate the value of money.

OP posts:
CatherineHeathcliffe · 02/03/2026 16:03

Update we are seeing a financial advisor next week

OP posts:
1apenny2apenny · 02/03/2026 17:22

Why a financial advisor and not a tax specialist as surely that’s what you need. In my experience FAs have limited knowledge on tax and advise getting an accountant/tax advisor.

CatherineHeathcliffe · 02/03/2026 17:26

Its a wealth manager and he is the most senior person in the firm (contact of DHs)

OP posts:
Jaffalemons · 02/03/2026 20:38

1apenny2apenny · 02/03/2026 17:22

Why a financial advisor and not a tax specialist as surely that’s what you need. In my experience FAs have limited knowledge on tax and advise getting an accountant/tax advisor.

I have tax qualifications, as a Chartered FA it’s totally our bag 🤔