Pension contris?
Discussion
If I have cash on hand in a bank earning not very much, would I be better using that to supplement my income but then put a much higher percentage of my monthly salary into my pension ?
I currently pay in six percent and my employer pays seven, but if I increased my contributions by say £1000 a month, then £1000 would go into my pension ?
I would be, as a 40% taxpayer around say £580 a month worse off ? Tax plus NI ?
I could cover that anyway, but if I went even higher and just drip fed a bit of savings to cover any shortfall, would that be a fairly tax efficient way to proceed and get some decent sums into my pension pot for the next five years or so ?
I currently pay in six percent and my employer pays seven, but if I increased my contributions by say £1000 a month, then £1000 would go into my pension ?
I would be, as a 40% taxpayer around say £580 a month worse off ? Tax plus NI ?
I could cover that anyway, but if I went even higher and just drip fed a bit of savings to cover any shortfall, would that be a fairly tax efficient way to proceed and get some decent sums into my pension pot for the next five years or so ?
Mr Pointy said:
Do you have an emergency fund?
Are you using your ISA allowance?
Will your employer allow you to make pension contributions via salary sacrifice?
Yep, have an emergency fund, and am 55 in November so can always draw a percentage back if needs be.Are you using your ISA allowance?
Will your employer allow you to make pension contributions via salary sacrifice?
ISA allowance used
Our pension allows us to change the percentage each year in March and can put quite a bit in, is that salary sacrifice ? excuse my ignorance, not a financial whizz. Can put quite a bit in from what I remember. My contri is six percent, the minimum to trigger their maximum of 7 percent.
supersport said:
Didn't you say that you were close to retirement, this year or next?
In which case I think it makes perfect sense to get as much as you can in there, and you're not going to have to wait long to get your hands on it.
No, Im 54, 55 in Nov and have a few years to work yet I expect, aiming to go at sixty, might be sooner, might be later but want to start upping my contributions as now have spare cash to save, so may as well do it pre tax. In which case I think it makes perfect sense to get as much as you can in there, and you're not going to have to wait long to get your hands on it.
Previous always felt like a cost, a burden, but as you get nearer to retirement, it feels more like saving, previously had three kids dependent but dont now, they are all largely sorted.
J4CKO said:
Mr Pointy said:
Do you have an emergency fund?
Are you using your ISA allowance?
Will your employer allow you to make pension contributions via salary sacrifice?
Yep, have an emergency fund, and am 55 in November so can always draw a percentage back if needs be.Are you using your ISA allowance?
Will your employer allow you to make pension contributions via salary sacrifice?
ISA allowance used
Our pension allows us to change the percentage each year in March and can put quite a bit in, is that salary sacrifice ? excuse my ignorance, not a financial whizz. Can put quite a bit in from what I remember. My contri is six percent, the minimum to trigger their maximum of 7 percent.
https://www.unbiased.co.uk/discover/pensions-retir...
Mr Pointy said:
J4CKO said:
Mr Pointy said:
Do you have an emergency fund?
Are you using your ISA allowance?
Will your employer allow you to make pension contributions via salary sacrifice?
Yep, have an emergency fund, and am 55 in November so can always draw a percentage back if needs be.Are you using your ISA allowance?
Will your employer allow you to make pension contributions via salary sacrifice?
ISA allowance used
Our pension allows us to change the percentage each year in March and can put quite a bit in, is that salary sacrifice ? excuse my ignorance, not a financial whizz. Can put quite a bit in from what I remember. My contri is six percent, the minimum to trigger their maximum of 7 percent.
https://www.unbiased.co.uk/discover/pensions-retir...
J4CKO said:
Yeah, thats how ours works.
If I were you I would be absolutely smashing my pension contribs. I'm 52 and I contribute 21%, my company 9%. Along with salary sacrifice, I also top up with bonus sacrifice,and have used the 3-yr rule to overpay. Whilst these things are still available to us, I would greatly suggest to make use of them. The way things are going, I doubt they will be around for much longer.ukwill said:
J4CKO said:
Yeah, thats how ours works.
If I were you I would be absolutely smashing my pension contribs. I'm 52 and I contribute 21%, my company 9%. Along with salary sacrifice, I also top up with bonus sacrifice,and have used the 3-yr rule to overpay. Whilst these things are still available to us, I would greatly suggest to make use of them. The way things are going, I doubt they will be around for much longer.I also arrived at 20/21 percent along with an extra weeks holiday, dont lose much on take home pay, this basically removes what pay I get over the 40% tax threshold.
Got the form to put my bonus in as well.
I was thinking, I will be putting money into an ISA, which would get four percent, so would it be more advantageous to live off that 20k and pay an additional 20 into my pension ? As then that would then not be subject to the 20% tax ?
Apologies for all the daft questions, previously was just laying money out, didnt have much to save and pension contris were just a necessary evil.
MrGRT said:
You can do more than 60k per year if you have not fully used the allowance of previous 3 years
Yeah, have just read that.It wont be that much but if its all as it seems I can put a fair chunk away, compared to the current 13 percent total.
Looking at it int he salary calculator thing online, could potentially do 45%, which would leave me with enough to cover my monthly expenses, then the shortfall I could make up from cash, as and when I need to.
If I put that much in, plus my bonus, plus the company contri, could be like 40 grand going in per year.
I guess can go harder, but need to maintain a minimum to ensure I get my last couple of years of NI credits towards my state pension.
It seems almost to good to be true as for HMRC, they would take much less tax an NI, but I guess most folk don't generally have the cash to feed in to make up for the shortfall to exploit it ?
Just need to work out if there is a catch, or a downside I am missing ? Apart from it going into my pension for later use, not spending on fun stuff now ?
Bet Rachel will closing in on stuff like this....
Main point to remember is that it is, largely, tax deferral rather than escaping tax altogether. (Exceptions to this include the 25% tax fee cash, possible NI savings if using salary sacrifice, and tax band shifting where your marginal tax rate in retirement is less than your marginal tax rate in employment.)
So be wary if you are contributing so much salary that you’re “only” saving 20% income tax but will then be paying 20% when drawing down your pension.
So be wary if you are contributing so much salary that you’re “only” saving 20% income tax but will then be paying 20% when drawing down your pension.
Zigster said:
Main point to remember is that it is, largely, tax deferral rather than escaping tax altogether. (Exceptions to this include the 25% tax fee cash, possible NI savings if using salary sacrifice, and tax band shifting where your marginal tax rate in retirement is less than your marginal tax rate in employment.)
So be wary if you are contributing so much salary that you’re “only” saving 20% income tax but will then be paying 20% when drawing down your pension.
Doesn’t this also depend on pot size? You’re also growing the investment off a higher base which must have some clever calculation to the value that brings. So be wary if you are contributing so much salary that you’re “only” saving 20% income tax but will then be paying 20% when drawing down your pension.
Zigster said:
Main point to remember is that it is, largely, tax deferral rather than escaping tax altogether. (Exceptions to this include the 25% tax fee cash, possible NI savings if using salary sacrifice, and tax band shifting where your marginal tax rate in retirement is less than your marginal tax rate in employment.)
So be wary if you are contributing so much salary that you’re “only” saving 20% income tax but will then be paying 20% when drawing down your pension.
Income from the pension is still 20% greater than income from an ISA would be and that ignores the 25% tax free. I never had an ISA until just before retirement!So be wary if you are contributing so much salary that you’re “only” saving 20% income tax but will then be paying 20% when drawing down your pension.
There's almost no catch to putting your money into a pension, assuming you don't need it now and it's invested at a rate that's comparable to or better than what it would be otherwise. At age 54 it's a no-brainer.
Even if you're still a 40% taxpayer when you draw down, you're still better off thanks to the 25% tax-free.
Even if you're still a 40% taxpayer when you draw down, you're still better off thanks to the 25% tax-free.
IJWS15 said:
Income from the pension is still 20% greater than income from an ISA would be and that ignores the 25% tax free. I never had an ISA until just before retirement!
Presumably you’re assuming that he saves 40% tax now and pays 20% on the way out (and 25% of it tax free). But we don’t know the funds the OP already has or the sums of money he is thinking of contributing, or even his current earnings level.I’m just flagging that the tax benefits might not as good if certain criteria are met.
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