velohead66

I live overseas (at this point in time).
Just wondering what the overview of UK income tax, and pensions in UK is right now.
It’s been a while.
I have a UK work history, and some full NI years.

If one has made maximum NI contributions, what is max state pension one can get ?
Is it means tested at all ?

I can get tax rates and tax thresholds of internet – no problem there.

More importantly......
What about private pension if I decide to return to UK and work – do contributions inwards to pension funds reduce the PAYE tax on one’s take home pay ?
Is there a cap on private pension contributions ?

Not looking for tax advice, just “opinions” and “views” on how the tax regime *might* work.
I will confirm any opinions or views later, but just need an overview and/or starting point at this stage.

Thx.

velohead66

The bit about pensions is really important, namely...

What about private pension if I decide to return to UK and work – do contributions inwards to pension funds reduce the PAYE tax on one’s take home pay ?

Is there a cap on private pension contributions ?

LEO-RS

State pension is not means tested no, current rate is Ł113pw for all but can be topped up another Ł50 or so by pension credit (Dependent on income) Qualifying criteria is 30yrs paying NI for full pension.

As for tax relief on private pensions, this is at the same level of income tax that you pay so if you are a basic rate taxpayer you will receive 20% and if you are a higher rate tax payer, 40%. If you are a super high earner, 45%

Simple maths = Ł50k income, Ł10k of that is earned tax free leaving Ł40k liable for tax, Ł31,865 of that will be taxed at 20% and the remaining Ł8,135 at 40%. However, if you were to put all of that Ł8,135 into a pension fund, you would pay no 40% tax, instead, you would have Ł8,135 going into the fund but be receiving 40% tax relief on it (In essence, it would be costing you Ł4,881 from your take home pay for a contribution of Ł8,135 to your pot, so Ł3,254 difference or 40% relief)

If your income is Ł40k, Ł10k of that is earned tax free leaving Ł30k liable for tax, you are in the 20% band completely and if you wanted to contribute the same Ł8,135 as the example above, it would cost you Ł6,508 from your take home pay for a contribution of Ł8,135 to your pot, so Ł1,627 difference or 20% relief.

Pension relief limits for this year are Ł40k. If you want to put more in, you will be hit with a tax penalty at your marginal rate of interest.

If you are an employee, the offer of a pension scheme is attractive as the majority of employers will match your contribution. If you put Ł5k into your pot, so will your employer. This means that if you are a higher rate payer paying 40% tax, you will pay Ł3k net for Ł10k gross into your pension pot. With the recent pension changes giving full access to the sums of money in that pension pot come retirement, a very attractive prospect indeed

velohead66

Very comprehensive answer, and the worked examples make it crystal clear.
Thank You.

It seems that if your employer offers a pension scheme, then you will do well, especially if they match your contributions.
But do smaller employers offer pension schemes ?
I don't think there was any obligation when I last worked in the UK.



And what about accessing your pension - at what age is that possible ?


Where I live (which is now the 4th most expensive country to live), they have just increased the pension age to 70. At 70 you can draw on a means tested meagre state pension that wont buy too much beyond basic living. ($28k pa for couple, $25 pa for single, last time I looked). Employees should have a company funded superannuation, but for immigrants like myself, there has been little time to accumulate such a nest egg.

LEO-RS

State pension age is currently set at 65 but is being upped to 66/67 and 68 over the next 30yrs or so. (I'm 31 and my state pension age is now 68)

Company pension, most companies in the UK will match contributions up to a certain level or % yes, it's very rare that you will find an employer that does not offer this. The rules regarding pensionable age for private pensions have changed, you can choose to work on for as long as you like now, an employer can no longer get rid of you on your 65th birthday as was the case only a few years ago (age discrimination law). You can retire as early as 55 to get access to your pension funds but there is no upper maximum, you can work until you are 100 if you wanted too. I suspect most of us will work on until either 65 or when state pension kicks in or earlier perhaps if we can afford to do so.

velohead66

Always nicer to retire early, if you can afford it.

Also, nice to work less hours (in a transition to retirement), again if you can afford it.