Pension contribution seemingly capped?
Discussion
Hi,
I'm enrolled in a government-backed pension scheme and a while ago I decided to plough more money into it, so upped my contribution to 20%. I work on a commission basis so I don't earn the same amount each month, but I have noticed noticed that it appears to cap at £733.83, whether I earn, say £4.5k in a month or whether I earn £7k in a month, it's still capped at that. I checked what an online salary calculator would estimate it at and that even says the same
https://www.thesalarycalculator.co.uk/salary.php
Anyone know why?
Many thanks.
I'm enrolled in a government-backed pension scheme and a while ago I decided to plough more money into it, so upped my contribution to 20%. I work on a commission basis so I don't earn the same amount each month, but I have noticed noticed that it appears to cap at £733.83, whether I earn, say £4.5k in a month or whether I earn £7k in a month, it's still capped at that. I checked what an online salary calculator would estimate it at and that even says the same
https://www.thesalarycalculator.co.uk/salary.php
Anyone know why?
Many thanks.
Janosh said:
Your contributions are based on your basic salary, not the variable
Thanks for your reply. This isn't the case, because my basic salary is a paltry £1100/month, and, for example, if I go on holiday and therefore earn a fair bit less, my pension is under the £733.83. I still earn my "basic" salary even if I'm on holiday.From the help link on the Pension page of the salary calculator site:
Choose the type of pension that you have, either an auto-enrolment employer pension, an other (non-auto-enrolment) employer pension, a salary sacrifice scheme, or a personal pension. For auto-enrolment pensions, the percentage contribution field only applies to your earnings between the lower and upper thresholds (£6,240 to £50,270), not your whole income.
Choose the type of pension that you have, either an auto-enrolment employer pension, an other (non-auto-enrolment) employer pension, a salary sacrifice scheme, or a personal pension. For auto-enrolment pensions, the percentage contribution field only applies to your earnings between the lower and upper thresholds (£6,240 to £50,270), not your whole income.
JohnP68 said:
From the help link on the Pension page of the salary calculator site:
Choose the type of pension that you have, either an auto-enrolment employer pension, an other (non-auto-enrolment) employer pension, a salary sacrifice scheme, or a personal pension. For auto-enrolment pensions, the percentage contribution field only applies to your earnings between the lower and upper thresholds (£6,240 to £50,270), not your whole income.
Ah, seems like it's related to the upper £50,270 limit then. Something I need to chat to the pension people about!Choose the type of pension that you have, either an auto-enrolment employer pension, an other (non-auto-enrolment) employer pension, a salary sacrifice scheme, or a personal pension. For auto-enrolment pensions, the percentage contribution field only applies to your earnings between the lower and upper thresholds (£6,240 to £50,270), not your whole income.
Thanks!!!
Me again,
I have spoken to the pension people and they've said I just need to add a voluntary payment to my wages by speaking to my employer. My employer is all in favour of it but said I might look at ISAs because pension is obviously totally tied up until 60 or older. I always thought that it was better to put into the pension because it's taken before tax, and later in life you'd likely pay less tax because the draw amount is less?
Obviously putting into an ISA is paid in via income you've been taxed on, but obviously the interest is tax-free.
I've got enough in an "emergency fund" to mean I could live without any income at all for 9-10 months, so is there much benefit in me putting it into an ISA instead of ploughing it into my pension? Obviously the benefit of an ISA is you can draw from it when you like (or certainly at shorter notice).
I'm in the 40% tax bracket if that makes any difference. My long term goals are to pay off my mortgage ASAP as well (ideally by the time I'm 45-46) and retire by 60 or so if I'm lucky.
Would appreciate your thoughts!
I have spoken to the pension people and they've said I just need to add a voluntary payment to my wages by speaking to my employer. My employer is all in favour of it but said I might look at ISAs because pension is obviously totally tied up until 60 or older. I always thought that it was better to put into the pension because it's taken before tax, and later in life you'd likely pay less tax because the draw amount is less?
Obviously putting into an ISA is paid in via income you've been taxed on, but obviously the interest is tax-free.
I've got enough in an "emergency fund" to mean I could live without any income at all for 9-10 months, so is there much benefit in me putting it into an ISA instead of ploughing it into my pension? Obviously the benefit of an ISA is you can draw from it when you like (or certainly at shorter notice).
I'm in the 40% tax bracket if that makes any difference. My long term goals are to pay off my mortgage ASAP as well (ideally by the time I'm 45-46) and retire by 60 or so if I'm lucky.
Would appreciate your thoughts!
It's difficult so say without knowing a lot more detail.
The big problem for pensions are that the government use them as an ATM. You do not know at what age you will be able to access it, it's already changed from 55 to 57. The other problem I see with pensions for high earners in the Life Time Allowance, reduced over the last couple of years. You may find you get 40% tax relief in and taxed at 55% out!
Have a look at some compound interest calculators to whether it will apply to your SIPP.
The other thing that might be worth thinking about is the ISA annual limit of £20,000 seems too generous, it could be reduced in the future.
Good luck.
The big problem for pensions are that the government use them as an ATM. You do not know at what age you will be able to access it, it's already changed from 55 to 57. The other problem I see with pensions for high earners in the Life Time Allowance, reduced over the last couple of years. You may find you get 40% tax relief in and taxed at 55% out!
Have a look at some compound interest calculators to whether it will apply to your SIPP.
The other thing that might be worth thinking about is the ISA annual limit of £20,000 seems too generous, it could be reduced in the future.
Good luck.
Claret m said:
It's difficult so say without knowing a lot more detail.
The big problem for pensions are that the government use them as an ATM. You do not know at what age you will be able to access it, it's already changed from 55 to 57. The other problem I see with pensions for high earners in the Life Time Allowance, reduced over the last couple of years. You may find you get 40% tax relief in and taxed at 55% out!
Have a look at some compound interest calculators to whether it will apply to your SIPP.
The other thing that might be worth thinking about is the ISA annual limit of £20,000 seems too generous, it could be reduced in the future.
Good luck.
Thanks for your input. Many £20k ISAs require an upfront single-payment of £20k. That'd just about rinse me The big problem for pensions are that the government use them as an ATM. You do not know at what age you will be able to access it, it's already changed from 55 to 57. The other problem I see with pensions for high earners in the Life Time Allowance, reduced over the last couple of years. You may find you get 40% tax relief in and taxed at 55% out!
Have a look at some compound interest calculators to whether it will apply to your SIPP.
The other thing that might be worth thinking about is the ISA annual limit of £20,000 seems too generous, it could be reduced in the future.
Good luck.
I guess it's something to have thoughts on over the next few weeks. I suspect I'll end up chucking maybe 15% at the pension, a fair chunk off the mortgage and the rest into an ISA. I know there are "better" ways to invest, but I really do want my mortgage done with, I don't like that debt hanging over my head.
As already said there's no simple answer as circunstances vary. Personally at my stage of life I'd rather have £1m in an ISA than £1m in a pension but then I don't care about IHT. Given that you already have an emergency fund & are paying a fair sum into a pension then I'd certainly consider an ISA - it's much more flexible (& tax free) when withdrawing & it can be a useful weapon when trying to minimise tax paid on pension withdrawals.
One caveat is if your employer is contributing to your pension & will match your raised payments - that's free money (ish anyway).
One caveat is if your employer is contributing to your pension & will match your raised payments - that's free money (ish anyway).
Mr Pointy said:
As already said there's no simple answer as circunstances vary. Personally at my stage of life I'd rather have £1m in an ISA than £1m in a pension but then I don't care about IHT. Given that you already have an emergency fund & are paying a fair sum into a pension then I'd certainly consider an ISA - it's much more flexible (& tax free) when withdrawing & it can be a useful weapon when trying to minimise tax paid on pension withdrawals.
One caveat is if your employer is contributing to your pension & will match your raised payments - that's free money (ish anyway).
Employer unfortunately just a base 3%, irrespective of what I pay in.One caveat is if your employer is contributing to your pension & will match your raised payments - that's free money (ish anyway).
Any recommendations for a decent ISA? I bank with Nationwide who are seemingly offering a 2 year term with a single max £20k payment and no payments after (so I couldn't put in, say, £10k now and £10k in another year) at 2.5% fixed. In an ideal world I'd like one where I could pay in monthly, but appreciate that isn't likely.
Thanks!
Many ISA's also don't require a 20K upfront payment.
The advantage of the Pension is that as you get all this nicely tax free, but as you say it's locked away.
The only difference between the ISA and pension is the way the tax operates, you could hold the same investments in both. I guess it really comes down to an age thing, if you are young locking it all away now might not be the best.
But the pension is the most tax efficient (on the way in).
I guess it also depends on how you plan on accessing the cash in retirement.
The advantage of the Pension is that as you get all this nicely tax free, but as you say it's locked away.
The only difference between the ISA and pension is the way the tax operates, you could hold the same investments in both. I guess it really comes down to an age thing, if you are young locking it all away now might not be the best.
But the pension is the most tax efficient (on the way in).
I guess it also depends on how you plan on accessing the cash in retirement.
TyrannosauRoss Lex said:
Would appreciate your thoughts!
I also want to vary how much goes into pension on an ad-hoc basis, so I have an AJ Bell account, and within that have setup a SIPP and ISA. App on my phone and I can just add money to either at anytime. Each is then invested in managed funds, so not individual shares.The ISA behaves exactly as you would expect.
The SIPP get 25% added the following month. This is the refund of the 20% basic rate tax. e.g. if you put £800 in, they credit an extra £200. You can then claim the higher rate tax rebate on your tax return at the end of the year.
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