I have five years left to work before I retire. I have a workplace pension and my employer is already paying the maximum contribution of 10% into this.
I have £1,500 a month and a lump sum of £15,000 available to invest for five years to enhance my pension.
Should I use the £1,500 a month as extra contributions into my workplace pension, open another pension or invest it in another way? Also, should I plough the £15,000 as a lump sum into my pension?
It is positive that you are looking for ways to maximise your retirement income now.
You do not mention how much you are already contributing but you need to speak to an adviser about whether you run the risk of landing yourself with a tax bill by triggering either the annual or lifetime allowance charge by making these extra payments.
If you earn more than £150,000 a year, you face the added complication of being hit with the tapered annual allowance which reduces your annual allowance by £1 for every £2 you earn over this threshold.
If you were to pay both the £1,500 a month plus the £15,000 lump sum once the basic-rate tax relief was added, this would take you over the annual allowance limit so you would trigger a tax charge, unless you had enough unused annual allowance from previous tax years to use.
An adviser will make sure you don’t breach these limits and any leftover money can be channelled into other investments.
You don’t say how old you are, but you cannot touch your pension money until you are 55. If you are likely to need the money earlier, then a savings products such as a Cash Isa offers easier access.
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