What should I do with £80,000? Should I put it into a pension?

9 January 2017


I will be retiring in two years and have £80,000 to invest now. I would like to know if I should put the money into a pension. I am self-employed with an annual income of £25,000.

Is it worth investing the money into a pension in several lump sums, and if so how much can I invest? Also, can I go back in years to carry over allowances? I already have £250,000 in frozen* pensions.



*Moneywise says: A ‘frozen pension’ is a workplace pension from a previous employment, into which you no longer make contributions. They're also (more accurately) known as preserved pensions.

For many people investing in a pension is the default choice for retirement savings. Pension investments benefit from initial tax relief on contributions at your marginal rate of income tax, freedom to access your money from age 55, and 25% of your fund available as a tax free lump sum when it is withdrawn.


There are limits though to how much you are allowed to invest tax efficiently into a pension each year. There is the annual pension allowance, which for most people is £40,000 per annum. It is also possible to carry forward any annual allowance which you’ve not used in the previous three tax years.

However, you can only benefit from tax relief on pension contributions up to the amount you earn each year. So, if your annual income is £25,000 then you can only benefit from tax relief on pension contributions of up to £25,000 this year.


You need to give some thought to what else you can do with the money. You can make a further pension contribution tax efficiently in the new tax year from 6 April 2017, up to what your earnings will be next year. You could also look at individual savings account (Isa) investments. The annual Isa allowance for this tax year is £15,240 and this will increase to £20,000 for the tax year starting on 6 April 2017.