Pensions. Earning over 50k

[413x]

Much needed look at my pension status.

This tax year I've moved Into the 50k+ 40pc tax band (not by much before you ask!)

Its enough that it's probably sensible for me to put the entire amount over 50k into a pension.

Apart from maxing out work place percentage, is it better to just increase my contribution here?
Or get some personal Product?

Importantly.. How does tax relief work over on the proportion that would be hit by 40pc if it goes into pension?

What I've read is slightly confusing. Some places have said it requires a self assessment to get over the basic relief? But this could be nonsense as they look like sites trying to sell something.

 

[413x]

How is it you guys are clearer than the Internet.

That's what I thought. But the top few hits either didn't use the 50k+ as a clear example or were saying about having to do SA.

I will look into SIPP options vs work place and see what my options are.

To my shame, I've been fairly passive on pensions to date.

 

[413x]

I'm not sure if it is. I have asked.
But on my payslip it appears after my salary in the deductions section

 

[413x]

It still will appear in the deductions section, it has to by law.

If I put my salary and contribution into the MSE calculator.. It comes to exactly the figures in the calculator. Probably easier to wait for payroll to reply

 

[413x]

I tell a lie.
Taxable income is lower than base salary on the slip. I assume this means salary sacrifice? Looks like it from a online calculator.

So looks Like I can increase contribution to get under?

This may be too late this tax year. Unless I change it now and again in April 2024

 

[413x]

Note that there's a pensions lifetime allowance of just over 1m. if you end up earning 70k+ you'll find that following this strategy with modest forecasting would put you over the limit (albeit super hard to predict the future). The tories are scrapping that limit (to get doctors back into work), but labour said they'd bring it back, so who knows...

It's worth making spreadsheets for calculating your:
- income, pension contrib, taxable income, tax paid at each band, ni paid at each band, net income
- pension forecast: contribs + company contribs, investment growth, payrises, key ages (ni credits, private pension, state pension)

I'm so far from 1mln I can't see that being am issue!

I'm 38 and think I have about 60-70k?

I worked in some super rubbish jobs for fat too long.

 

[413x]

That's hard to say really, very much depends on your future success and contributions, and investment growth, and when you want to retire. It's worth going through the exercise of making a spreadsheet on a rainy weekend, I think you'd enjoy the process anyway. Even if you find you're not going over a limit, it's useful to have a sense of how much you're likely to have in your pot at various ages.

Yeah I know it needs some attention.
And you're right. I do love a finance spreadsheet!

 

[413x]

This is the easiest solution.

But tbh, doing it yourself and claiming the tax relief is easy, it takes 5 minutes to pull the contribution history from your SIPP provider and bang it in your self assessment, job done, get your payment from HMRC August time, if I remember rightly from the last couple years.

I guess this would allow me to make a lump sum contribution?
And then get paid some of the tax back that I've paid throughout the year?

 

[413x]

You pay 1k from your net salary into your SIPP. Your SIPP provider gets the 20% tax relief added for you. £1200 in your SIPP.

At the end of the year, you declare that contribution on your self assessment (it's the amount you contributed, PLUS the tax relief), and you will then get a further 20% tax refund, (£240).

Thanks. This is really clear

 

[413x]

In really basic terms:

With a pension you can take a defined lump sum at retirement, but otherwise considered an income and you get taxed at that point in time on it. I.e. it’s deferred tax.


ISA = you pay tax now but no additional tax up to 20k per year input (I think, can’t quite remember)




Main goal - don’t put eggs in a single basket. Get an independent financial advisor.

Let me know if you want a recommendation

I do put away into an isa.
But it seems daft not to put more into pension, get the tax free uplift and then put this into the isa.

Obviously I don't want to put it all indy a pension. Because.. Life.
But as my salary is 55k and I only see, 3k of that 5 I may as well put away that 3k and get the 20pc extra back on it.

(all numbers above are rough principles)

 

[413x]

It is annoying that salary sacrifice is both a verb and a noun lol. Some confusion as to what folk mean.

Simple maths 413x - just take your gross, add on any other income that is taxable (e.g. savings interest is considering income and will count towards your 50k limit), subtract from 50k - ensure that amount is in your pension each year. You can do that by getting your employer to increase the amount they take gross, or you can make a payment yourself around March (pre April 6th anyway) and then inform them during self-assessment period.

Yeah that's what I'll do.

Looks like I'm already at the max matched contribution.
So I'll probably just put the rest in a sipp before the new tax year. Do SA and claim some cash I wouldn't otherwise have.

I don't want to put anymore in as I'm not finished moving up property ladder. And such things.

But seems sensible to put anything over 50k in as I'd only be getting taxed on it and bundling it into the isa anyway.

Vanguard looks like it has some simple funds/etfs etc that have done well last 10 years. I already use one in my isa.

I only expect to contribute 2k+ a year to the sipp. (Any work bonuses would allow me to still avoid 40pc this way by just popping it in)

I will look for some advice maybe, but again, it's not loads of cash.

 

[413x]

I've always thought of pension fairly simply, just always pay in as much as I can regardless of earnings and thresholds.

I don't want to pay in too much. As its all locked away.

But that's a very personal. "Now vs Then" balance

 

[413x]

Just one more ask.

Let's say I earn 55k this tax year.
I've been paying in via work 2000 from this via place.
This gets gets the 40pc tax back automatically?

I then pay in another 2k. That I've recieved via my salary (ie 40pc taxed)

Can I literally debit card/Bank transfer this into a SIPP?
And the 20pc gets added automatically?
And I have to SA for the other 20pc (which comes to me via a cheque/bank transfer from hmrc?

 

[413x]

This £2k would be paid out of gross, so would have never had 40% taken. If you took it as cash, it would only be worth £1200 to you.



You can put £2k in via debit card but that £2k would have cost you ~£3.3k in gross salary. You'd then do an SA to claim the tax paid, back (i.e. £1.3k).


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Alternatively, just tell your employer to deduct X% plus a one-off sum closer to the time, and avoid any SA or claiming tax back stuff. I only use my debit card to pay into my pension if I can see on my P60 I've cocked my maths up and need to do an emergency top-up. I then claim the diff back on SA.

Much appreciated bud!

 

[413x]

Some other things to consider OP:

- ensure you get the maximum matched contribution from your employer, as it's free money.
- child benefit tapering if you have children
- other salary sacrifice arrangements you may have - company share schemes, healthcare, car etc
- login to your pension provider & see where the money is invested. It might be in a fairly high fee fund. Consider selecting a cheaper global tracker or similar, or transfer to a SIPP

- the point you get access to a private pension is closer than you think!

-Yeah I max that out already
-no kids here and none planned.
-I do have private healthcare but not taking up the electric car thing. (they have one for EVs)
-I do need to check this.
I have so many pension pots from jobs

 

[413x]

consolidating the random pension pots into a sipp is a reasonable thing to do (I do it)
but for your current employment just salary sacrifice into their scheme, can always transfer it if/when you don't work there anymore.
you gotta have some discipline though, don't gamble your pension, get some boring trackers and leave it (can elaborate on how I asset allocate in vanguard sipp if helpful)

Oh yeah absolutely I would not be doing individual shares.
I'll probably got for vanguard.
Some of thier etfs have done pretty well over the decade. Taking risks in an isa is a bit different to pension.

 

[413x]

This has probably been one of my most important threads. Really appreciate the help.

This forum is invaluable (as well as all the letter box posts)

 

[413x]

413x don't mean to hijack the thread but I'd like to ask a pension question. I suspect answers will be to consult a financial advisor but...

I probably have like 5-10 pension pots over the years of working at different companies. Some will have literally peanuts in. Others significant amounts. Is it generally better to keep them all as individual pots, or combine them? How does one come to any conclusions as to what to do?

Don't worry. I have the same issue!

 

[413x]

But is it an issue though? Is it possible for annual fees to wipe out smaller pots entirely over many years? EDIT: I didn't even know there were annual fees.

No idea haven't looked at them if I'm honest!

 

[413x]

Slightly unrelated but did anyone get a letter from Aviva in the last few weeks saying they are going to transfer a bunch of their trackers out of arms, coal mining and tobacco companies on ESG grounds, and charge you 0.04% for doing so?

If my pension provider is going to make moral decisions on my behalf that is one thing, but to charge me for it another!

I might need to start a new thread soon asking for some SIPP recommendations

Part of me is outraged. Part of me wishes they didn't tell you and just did it.

As a shareholder in AV. The more they can charge the better.

Damn it capitalism! Don't steal my soul.