J4CKO

iTrader: (1)

Leo, I am in a company scheme which is 5 percent of my basic, so about £200 odd a month, I can go to 7 percent but I was under the impression that pension contributions to a normal workplace pension dont count, it is simply your gross salary they take into consideration, even if you dont see the money for 20 odd years you still lose CB now on it, I thought you had to so salary sacrifice which I am assuming is where they dotn give the money to you in the first place, they stick it straight into your pension.

The other methind I thought of were going 4 days but really I dont think that would happen, I can take an extra weeks leave so that would be a grand less of gross basic and wont affect bonus, car allowance or any of that so that would mean I retain 10 percent of the CB, would pay less forty percent tax, so effectively would lose perhaps £200 net for an extra weeks holiday.

Only other think is cycle to work, wonder if the payments for that can be offset.

Cant think of anything else I can do.

They really have introduced a glass ceiling here for those of us over 50k with kids, it means we effectively pay £73p in the pound tax for every quid over 50k when you take the CB off as well as tax and NI. I do call out and get a poxy £100 and see £27 of it realtive to now.

Dingdongler

If we are talking about things like me nhs final salary scheme then that is a no brainer. I have always paid into that and always will. But that is final salary (for now!) and the money is not invested anywhere.

However if you are talking about private pension schemes I am unconvinced, though I'd be interested to see if you can convert me!

I understand the concept of tax relief on these pensions. To keep it simple we could say that.I can get £10,000 pot from £6000 worth of contributions in a private pension plan.

But what becomes of this £10k? What good does it do me? A combination of management charges and poor investment by the pension company means it could be worth squat diddly once the ravages of inflation have been applied.

Even if it isn't worth sqat diddly I have to buy an annuity at the end. Remind me please what annuity rates are like at the moment??

Even forgetting that lets say I retire at 65 and by 70 my wife and I die. Then what? Basically the pension company walks off with all my money and my kids get nothing. Their old man slaves all his life to put money in and the pension company becomes the beneficiary of my hard graft rather than my children.

I've gone over this arguement in my head and with other people for years, the 40% tax relief is appealing but I still don't get private pension schemes.

john banks

Jacko, interesting 73% tax over that glass ceiling, I thought my 62% was bad.

LEO-RS

My maths was slightly flawed in my original post, 60% of £5k contributions is £3k not £3,600 so in that example it's a £3k net outlay for a £10k investment into the pension pot. This can be reduced even further should your employer offer a salary sacrifice scheme where the tax relief is 42% (40% IT + 2% NIC) This would make the figures £2,900 for every £10k going into the pot. Consider the 25% tax free cash you are allowed to take out means that you are going to get back £25k of every £29k that you put into the pot.

If that is not an incentive to invest in a private pension scheme then I dont know what is. You are in effect getting 86% (25/29) of all contributions back come retirement when you opt for the 25% tax free cash. (Based on employer matching contribution)

The AMC on my private pension scheme is 0.29% so is minimal and costs peanuts to administer. In the majority of private pension schemes, life assurance policies are attached. My own pays out 5x my annual salary tax free.

You mention public sector pension schemes, for sure, they are very good schemes, offer a guaranteed income based on your final/average pay and a private sector pension scheme would have to do very well if it was to try and match it. However, there are a couple of pros to the private sector schemes, if you die in a public sector role, your beneficiaries will get a tax free lump sum of 3x annual salary, in private, like mine, it is 5x. The same at the other end come retirement, in a private scheme, you get to take 25% tax free from your pot, in a public, the payment is capped at 3x annual salary tax free. Also, In a private scheme, the contents of your pension pot at the time of death is paid out tax free, in a public scheme, there is no pension pot as such so no such payment although a spouse pension of usually 50% would be paid out.

There is no need to buy an annuity with your pension pot, opt for a drawdown scheme and you control it yourself, the funds remain with you, not the pension provider

Going back to the grass roots, if you are an employee, it's free money. By opting not to join your private pension scheme, you are in effect costing your company less and saying no to a payrise. In addition to this, you are saying no to a generous life assurance policy.

For me, I've got it pretty good, my employer matches contributions upto 12%, I'm in a salary sacrifice scheme so save the whole 42% and have a good life assurance policy attached (5x annual payout)

LEO-RS

Childcare vouchers if you have kids in nursery.

As to pension, I believe it is based on taxable income rather than whole gross. If not, then you should try and persuade your employer to use a salary sacrifice scheme. You may think, what a lot of hassle but if they are not already doing so, they are being inefficient. There are big savings to your employer by using salary sacrifice.

john banks

My career average scheme requires me to make both the employer's and employee's contributions. They are still messing around with the contribution rates so I haven't decided whether to pull out, but with adequate life cover and the house except for a bit more building work paid off (at 40 next year that is effectively my wife's pension as her work history has lots of almost worthless schemes that have performed terribly) plus sickness insurance up to 60, and the scheme in surplus the only advantage to me is tax free lump sum and tax deferral to a lower rate in retirement. In exchange they keep the money I put in, limit when they will start paying me and move the goalposts withh contribution rates. Tax relief on contributions will therefore only interest me in avoiding glass ceilings of 62% marginal tax. I still think private pensions are designed around making the administrators in it the money.