pension question

[ritch]

I have a question regarding paying into a pension and the best way to maximise potential growth. I'm no financial whizz so looking to the finance and pension savvy PHers for some advice / validation etc.


I've recently changed jobs and have 3 pension pots -
pot 1 is previous employers pension scheme and small amount (under 50K) employer paid 6% of salary and I paid approx 12%
Pots 2 & 3 are old pensions that are dormant. These have a combined value of approx 130K.
my new employer will set me up with a workplace pension and pay 3%

I have a couple of options and think option b) may be more beneficial -
a) pay 12% in to new employers pension, and it will take time to build up
or
b) combine pots 2 & 3 into one pots and start paying 9% into these and 3% into new employers pot?

my thinking for option b) is that paying the minimum to the new employer and making a larger contribution to the bigger pension pot will yeild more overall % growth than the new employers pension starting from £0.

Also, as I will have paid tax on my salary, if I pay into combined pension pots 2 & 3, i will get a rebate from the tax man?

thanks!

[thekingisdead]

all things being equal (investment performance and investment costs) there is no advantage whether you contribute to the small pot or the large pot.
I very much doubt your investment fee's and performance will be identical across your different pensions here, however.

I'd look at whether your current contributions are made salary sacrifice or not (N.I saving) and your marginal tax rate.
If you're under ~£52k you will save an additional ~13% N.I by making your contributions via your current employee scheme. If you're still in the higher rate band after pension contributions your N.I saving is only 2%, so less significant.

[VR99]

As above poster has alluded to, I would be maximising your current work scheme especially if you are a higher rate tax payer. I would always say contribute enough yourself to get the max employer contribution. If you are in a higher rate tax band, it might be worthwhile contributing even more which is my current approach.

Otherwise your approach seems ok, I had 3 old pensions, transferred the lot into a SIPP and it's all gone into a single global equity ETF...not because it's necessarily the 'best' option but rather it's simple and cheap so minimal thinking/managing required. I've only added
further contributions to the SIPP in the last tax year when I was trying to bring my net income down for child benefit purposes but aside from that everything else goes into my current work pension.