Pension Question

[romeogolf]

I'm 30 this year and want to make sure I'm planning wisely for when I'm twice+ my age.

My employer provides a pension scheme in which they match my contribution up to 5%. I've been enrolled in this since I joined the company and have always contributed my 5%, however, looking at my payslips their contribution is actually 4% - I assume the additional 1% is a tax relief somewhere. Is this correct and how might I find it?

Secondly, my pay is fairly heavily commission-based. Around 20% of my pay is commission, but my pension contribution amount is only calculated on my basic pay. So I'm effectively short-changing myself because I'm not really putting in a full 10%, it's more like 8%.

I was wondering what the general consensus of PH would be about asking payroll to adjust my pension contribution monthly to be 5% of my basic, 10% of my commission, plus their 5%... is 10% overall 'enough'? My commission varies each month so they would need to adjust it monthly, but I'm assuming this isn't impossible as we're a small company (14 employees).

I also have a small pension pot from a previous employer, started when I was 25, which was 10% of my then-pay so I didn't just start a year ago.

Any advice gratefully received

[JulianPH]

romeogolf said:

I'm 30 this year and want to make sure I'm planning wisely for when I'm twice+ my age.

My employer provides a pension scheme in which they match my contribution up to 5%. I've been enrolled in this since I joined the company and have always contributed my 5%, however, looking at my payslips their contribution is actually 4% - I assume the additional 1% is a tax relief somewhere. Is this correct and how might I find it?

Secondly, my pay is fairly heavily commission-based. Around 20% of my pay is commission, but my pension contribution amount is only calculated on my basic pay. So I'm effectively short-changing myself because I'm not really putting in a full 10%, it's more like 8%.

I was wondering what the general consensus of PH would be about asking payroll to adjust my pension contribution monthly to be 5% of my basic, 10% of my commission, plus their 5%... is 10% overall 'enough'? My commission varies each month so they would need to adjust it monthly, but I'm assuming this isn't impossible as we're a small company (14 employees).

I also have a small pension pot from a previous employer, started when I was 25, which was 10% of my then-pay so I didn't just start a year ago.

Any advice gratefully received

Firstly, your pension contribution is net, hence the additional tax relief being added. This is completely normal, so you have nothing to worry about on that front.

Your auto-enrolment contributions should be based upon your total salary (PAYE) but it may very well be the case that your total salary exceeds the AE limits, so is not counted.

I would not think any company would turn your request down. You should be going for an additional pension contribution to split the employer NI cost saving.

Just shout if I can add more.

[mikeiow]

romeogolf said:

I'm 30 this year and want to make sure I'm planning wisely for when I'm twice+ my age.

<snip>
I was wondering what the general consensus of PH would be about asking payroll to adjust my pension contribution monthly to be 5% of my basic, 10% of my commission, plus their 5%... is 10% overall 'enough'?

General rule of thumb is to contribute have your age in % terms....source:https://www.moneysavingexpert.com/savings/discount-pensions/#need-3

So ideally you should perhaps stash away 15% at your age.

That said, I doubt I adhered to that rule, but have been putting more in recent years....do as I say, not as I do (heading to mid-50s & still working here!)

[romeogolf]

JulianPH said:

Your auto-enrolment contributions should be based upon your total salary (PAYE) but it may very well be the case that your total salary exceeds the AE limits, so is not counted.

Thanks Julian - Could you explain this point a bit more? Pension contributions currently are calculated on my basic pay (low-30's) and I get about 20% more in commission, paid monthly, but varies month to month depending on sales achieved.

mikeiow said:

romeogolf said:

I'm 30 this year and want to make sure I'm planning wisely for when I'm twice+ my age.

<snip>
I was wondering what the general consensus of PH would be about asking payroll to adjust my pension contribution monthly to be 5% of my basic, 10% of my commission, plus their 5%... is 10% overall 'enough'?

General rule of thumb is to contribute have your age in % terms....source:https://www.moneysavingexpert.com/savings/discount-pensions/#need-3

So ideally you should perhaps stash away 15% at your age.

That said, I doubt I adhered to that rule, but have been putting more in recent years....do as I say, not as I do (heading to mid-50s & still working here!)

I started at 25 with my previous employer, putting in 10% - So arguably I should have been doing 12.5% from that point, right?

[Giacoi]

My employer provides the same pension scheme in which they match my contribution up to 5%. I've been enrolled in this since I joined the company and have always contributed my 5%, however, looking at my payslips their contribution is actually 4% - I assume the additional 1% is a tax relief somewhere.

[mikeiow]

romeogolf said:

I started at 25 with my previous employer, putting in 10% - So arguably I should have been doing 12.5% from that point, right?

Arguably yes....but I am always well aware his is NOT a precise science - that is a "rule of thumb". 10%, 12.5%, pretty similar.

If you have expensive tastes and hope for a 'luxury' retirement, put in more...if you enjoy camping, hiking, making coffee instead of buying at Costbucks, then less will probably be fine (I'm more in the latter category, tbh, but do have a penchant for gadget purchases that I need to quelle ;-)

My advice to a younger me would be to have just tried to put a "bit more" in earlier on: that compounding makes a difference!
Then again, I've been reasonably lucky to be in a reasonably well paid IT career and have been able to stack more in over the past 10 or so year: once you are in 40% tax bracket, those pension payments get more thrown in: max out whilst you can!

(but remember to live a little....family, life, holidays all has a habit of eating up available funds very efficiently too!)

[alistair1234]

I used to be in a similar situation where my earnings were made up of a good chunk of commission monthly.

My salary was £26k, but my commission used to take me to a salary of between £42k and £62k, so I took £50k as an average year.

I wanted to contribute a total of 10% to my pension, £5,000

My employer contributed up to 4% of £26k, so £1,000.

I therefore needed to contribute an extra £4,000 which was 15.4% of my £26k salary.

I don’t think they can take contributions from commission so I just got HR to change my contributions from my salary to the above.

[JulianPH]

romeogolf said:

JulianPH said:

Your auto-enrolment contributions should be based upon your total salary (PAYE) but it may very well be the case that your total salary exceeds the AE limits, so is not counted.

Thanks Julian - Could you explain this point a bit more? Pension contributions currently are calculated on my basic pay (low-30's) and I get about 20% more in commission, paid monthly, but varies month to month depending on sales achieved.

Sure. Auto Enrolment contributions are based upon your qualifying earnings from your total salary.

The qualifying earnings are any gross earnings between £6,032 and £46,350. So anything you earn below £6,032 and above £46,350 does not count towards auto enrolment (though of course you can elect to make additional contributions on these earnings).

The total minimum contribution is 5% of your qualifying earnings, but this will increase in April to 8%, so next month you will see yours and your employers pension contributions rise. The tax relief on your contributions will also increase as it is applied and collected on your larger contribution.

I hope that helps.

[emicen]

mikeiow said:

romeogolf said:

I started at 25 with my previous employer, putting in 10% - So arguably I should have been doing 12.5% from that point, right?

Arguably yes....but I am always well aware his is NOT a precise science - that is a "rule of thumb". 10%, 12.5%, pretty similar.

My understanding was the “half your age as a %” rule was based on starting afresh.

As in, starting your pension at 20 = 10%, starting your pension at 50 = 25%.

[Edible Roadkill]

Would opening up a SIPP maybe be a worthwhile trip endeavour to run concurrently with your employers pension.

I am planning to do this (before April 5th) to stick a bit extra away.

On the other hand my employer pension is not adjustable asides from avc’s I can add nothing to it so a sipp is maybe a more obvious approach.