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Paying Into A Pension

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Hello

I would like a bit of advice if anyone can help me.

I am 35 and I spent my life up to the age of 26 studying to become an optometrist and since have been doing all I can to save and invest as well as I can and have managed to save about 135k, originally for a house for myself partner and our 4 yr old; (45 in S&S ISA, 45 in premium bonds 15 NS&I index linked bonds and the rest in cash ISAs).

Through my own stupid misadventure I have suffered an injury in February and lost the use of my right arm probably permanently which would make my job impossible so I will in all likelihood be looking at a complete career change and a big drop in earnings. I was on 52k a year for the last year or so, and with the end of the tax year coming my understanding is I can pay 50k from my savings into a self invested pension before the 6th April and get the tax relief.

I am thinking it would be best to get as much into a pension and get the tax relief on it as if I am unable to find work I will have to get through all of my savings before I can claim any state help and my pension wouldn't be included in that?

I should add I have every hope of finding gainful employment and not exhausting all my hard earned savings but my options may be slightly limited given where I am right now physically and psychologically.

I realise the best advice would probably be to consult a financial advisor but I am running out of time and getting out and about is pretty uncomfortable at the moment.

Really appreciate any input.

Thanks

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http://www.moneysavingexpert.com/savings/discount-pensions

See last paragraph.

...There are other advantages to pensions, though. If you lose your job, and need to then claim benefits, pension pots aren't counted as part of your wealth. However, ISA savings are and would be, so you may have to use a decent proportion of the savings before you'd be eligible for means-tested benefits.

So, Google agrees. I'd triple check as all I did was to search.

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First of all, deepest sympathy on your situation - injury and career wise. We all make mistakes - and most of us get away with them most of the time. I'm sure you have considered this, but might it still be possible to teach optometry to others? Could you work for a company that deals in optometry/ophthalmology related products? Could your current employer make reasonable adjustments?

I'd study that moneysavingexpert article in detail (and get advice too). My understanding is that you can put £40K/year and get full tax relief or your full salary - whichever is lower.

For you, it looks like that'll be £40K/year - but if you haven't used all of that allowance in the past 3 years i.e. £120K in total - you can top your contributions. Potentially, your partner and child can too - even if they aren't earning:

http://www.telegraph.co.uk/finance/personalfinance/special-reports/11437077/Turn-2000-into-500000-the-pros-and-cons-of-starting-a-Sipp-for-your-child.html

(don't know if this article is up to date).

Buying a house now outright is another possibility. Houses are also not considered as benefits are concerned (I believe). There are still areas of the country (and even overseas) where houses are OK value. Unfortunately, as far as the UK is concerned there are often good reasons for that e.g. unemployment blackspots. Bear in mind though that there will be upkeep - and obviously you lose any housing benefit eligibility and the flexibility to easily move for work if you have to.

Finally, if you are struggling to get around etc then I understand this is exactly what disability related benefits, like Personal Independence Payments, are for. Some of these aren't means tested.

Good luck, OP.

Edited by StainlessSteelCat

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Thanks for the replies..

Could you work for a company that deals in optometry/ophthalmology related products? Could your current employer make reasonable adjustments?

I have applied for a couple of jobs in the industry that don't involve eye examinations but I'm a bit under qualified as they seem to require experience I don't have or PhD's. I think further study may be an option but I'm a bit wary about putting more financial pressure on my family.

I think I'm going to put what I have in Premium bonds into SIPP as it seems like a tax deferral - get the tax back on it now and pay tax when I claim my pension (at which time I'm pretty sure I won't be a higher rate taxpayer) and it is not classed as assets, though I really hope that never becomes an important factor.

Thanks again, I really do appreciate the help!

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This'll be too late for your decision, but ...

With a pot that size, putting it in a pension too fast is problematic. Putting 40k (the normal annual limit AIUI) in isn't useful as far as benefits are concerned, 'cos you've still got way too much liquid assets to qualify. Putting more in is a waste, as you're likely to lose more tax than you save. Plus, they may penalise you if you deliberately deprive yourself of assets: I'd want to take advice before risking that.

Your other half's income and any joint savings would probably also affect any interaction with the welfare state.

Buying a house could be a great way to launder the pot, but worth it only if you find somewhere you want to live longer-term. Which would of course constrain any prospective career re-evaluation.

If you don't blow it on a house, my inclination would be to put enough in the pension pot to avoid paying any tax at the 40% rate, but keep the rest in liquid assets (no, not that kind of liquid). It'll serve as a buffer while re-evaluating the career.

Good luck with picking yourself and your life up from your accident!

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