Pensions?
- Thread starter Glaucus
- Start date
Not entirely sure about tax on the final pension. I believe at the very least you can take a lump sum tax free?
If you take a regular pension income, then this is taxed at your regular rate. At the moment the first £10,000/yr is tax free (I believe).
So it's quite possible you could pay very little tax on your pension...
I did say most of that!
A pension is definitely the better option if you're earning at 40% now. The benefit isn't quite so big if you're a basic rate tax payer.
Well, Im part of the manage your own pension mindset. Mainly due to my parents who were with Equitable Life, and now they have had £20,000 wiped off by smoothing...
Its clear to see who has experienced the wrong end of the stick and who hasnt.
Its clear to see who has experienced the wrong end of the stick and who hasnt.
Yes! That is scary!!!!!!
I'll be interested to see what's happened to my pension over the past 1-2yrs!
Even if they change it in someway from a final salary pension, it will still be a pension of some description equivalent to what has been put in, they won't be able to just get rid of it without putting something in place to cover not only me, but also the other few million people it would affect. The thought of anything hitting that was also the reason that the financial advisor recommended keeping my private pension going also. (Its also the reason why not all my 'retirement eggs' are in a pension).
Surely, you should discount the future value of the tax cost to today to get a more accurate calculation? Which would show that there is a slight gain in going down the pension contribution route.
For those that don't know - there are generally two types of pension scheme in the UK:
Defined benefit (final salary) and defined contribution (money purchase - or similar name). The defined benefit schemes are seen as the best, however they are slowly going away due to the huge liabilities that they are imposing on the firms that run them. These days, it tends only to be the public sector that provides them. Defined benefit pensions usually give you a portion of your final salary * time in employment * some other random factor. For example, I work for a university and the USS scheme is seen as one of the most generous still around. I pay 6.35% of my wages, and at the end of my working life, I'll get a pension of 1/80th of my salary (calculated at the date of retirement) for each year of pensionable service. I think that there is also a tax free lump sum of x3 my annual pension as well when I retire.
Defined contribution schemes have been increasing in popularity as they shift the liability from the employer to the employee. Your company will pay a set percentage into a scheme, where you are left to invest the money in the way that you see fit. This means, once the payment is made - that is the extent of their liability. For example, another pension scheme that I am in is a defined contribution from a part time job, where I selected the funds and the markets that my contributions are invested in.
I'd personally use a mix of pensions, ISAs and other investments depending on your risk appetite.
I believe the USS has 45 years of contributions as a cap (although I see some places have it listed as 40) - I am not 100% sure.
You can add additional years onto the pension by topping up, however again I am not sure if this goes beyond the 45 year limit.
You can add additional years onto the pension by topping up, however again I am not sure if this goes beyond the 45 year limit.