On a more generic note, does anybody have any tips for pensions (workplace, Sipp) or lump sums, annuity, etc that they look back now and with they may have done something differently?
I'm going to add personal contributions to my workplace pension and consider salary sacrifice, but thought I'd ask this very handy board.
Salary sacrifice is well worth doing, saves NI, sometimes employers give you a little bit of their saving as well, so worth considering and asking. We can also salary sacrifice bonuses and we get half the NI saving back from the company as well as 10% uplift.
as @BalladMan has said, the earlier you start the better. I was fortunate that ever since I reached 21 my employers had pensions and I always took them.
Can't honestly say I'd do anything much different over the years by way of pensions. Certainly for me the main decision was back in 2014 when I cashed out an old final salary scheme, always felt it was the right decision at the time and has proved massively so since! It helped at the time Barclays were giving a ridiculous multiplier of near 40x so at aged 40 as I was then it was pretty low risk and I liked the fact I was in control and it didn't disappear on death.
If anything, our personal circumstances mean in hindsight I would have started topping up my wife's earlier than I did, my salary is 10x + hers so the result being my pension pot is very large hers is very small, but I'm trying to balance that out as much as possible. Reason being when we retire no point me being a 40% tax payer and her barely paying any tax.
Great point on balancing the pensions across spouses for tax benefits. Had not considered that myself.
I'd add also that its worth reviewing your pension periodically, at least annually, to make sure it's performing as you want to - dont just pay in and forget it.
Certainly salary sacrifice is a no brainer if you are a tax payer. The employer benefits from this as well so make sure they are putting something in on your behalf in addition to the amount sacrificed.
It is possible to pay contributions to a pension for children or those with no earnings but a basic rate tax credit is applied as if the contributor pays tax. So if you pay £100 you get £120 invested.
Pensions work on the basis of tax deferral so if you are a 40% taxpayer whist contributing, but a basic rate taxpayer after retirement, you have a double whammy benefit.
I would say ISA allowances should not be ignored. They have attractions in terms of flexibility, and are paid from taxed income so are untaxed on withdrawal. The investment growth has potential to outweigh basic rate tax relief benefits of pension contributions i.e the higher the investment returns on a pension the more tax you pay.
I'd add also that its worth reviewing your pension periodically, at least annually, to make sure it's performing as you want to - dont just pay in and forget it.
If only there was someone who could do that for you 😉
On a more generic note, does anybody have any tips for pensions (workplace, Sipp) or lump sums, annuity, etc that they look back now and with they may have done something differently?
I'm going to add personal contributions to my workplace pension and consider salary sacrifice, but thought I'd ask this very handy board.
Salary sacrifice is well worth doing, saves NI, sometimes employers give you a little bit of their saving as well, so worth considering and asking. We can also salary sacrifice bonuses and we get half the NI saving back from the company as well as 10% uplift.
as @BalladMan has said, the earlier you start the better. I was fortunate that ever since I reached 21 my employers had pensions and I always took them.
Can't honestly say I'd do anything much different over the years by way of pensions. Certainly for me the main decision was back in 2014 when I cashed out an old final salary scheme, always felt it was the right decision at the time and has proved massively so since! It helped at the time Barclays were giving a ridiculous multiplier of near 40x so at aged 40 as I was then it was pretty low risk and I liked the fact I was in control and it didn't disappear on death.
If anything, our personal circumstances mean in hindsight I would have started topping up my wife's earlier than I did, my salary is 10x + hers so the result being my pension pot is very large hers is very small, but I'm trying to balance that out as much as possible. Reason being when we retire no point me being a 40% tax payer and her barely paying any tax.
Great point on balancing the pensions across spouses for tax benefits. Had not considered that myself.
It is a little bit of swings and roundabouts, but can work. Obviously if you take my personal circumstances, paying into my own pension (via salary sacrifice!) is very tax efficient on the way in, sometimes I save on some 62% tax. But coming out a proportion will likely be taxed at 40%.
Whereas my wife, if I pay in for her she receives the basic 20% relief so I don't get the full benefit now, but then will get some back when drawing as it's likely her work pension, and even plus state pension will be no where near 40% band, the two combined will be sub £20k probably leaving up to £30k say @ 20%.
It's a balancing act, but if nothing else it gives my wife a better income in retirement than she has on her own now, especially once state pension kicks in, if we ever get there with the continual moving goal posts!
I did joke that upon retirement we should get divorced and she can take half my pension! :-)
I'd add also that it’s worth reviewing your pension periodically, at least annually, to make sure it's performing as you want to - dont just pay in and forget it.
Annual performance is meaningless in the context of a long term strategy. It’s not what you “want” it’s whether it’s in line with the expectations you should set at the outset against a benchmark you can monitor yourself.
If it’s not what you “want” then you chose the wrong benchmark or no one guided you on benchmarks and it’s all wishful thinking.
One thing to watch out for with salary sacrifice is that the amount sacrificed does not form part of your income for, say, mortgage purposes. I have known a few people caught out by that when looking to re-mortgage.
As Rob7lee says depending on your situation, the saving via Salary Sacrifice can be really good. If you have other deductions on your Personal Allowance, beneficial loan an or savings interest. It means your 40% tax will kick in before your NI reduces from 8%. So you can save 40% on tax an 8% on NI. An in my case employer gave me 5% of their saving. Therefore I was 53% better off putting a pound in my pension, rather than having it as take home pay.
Comments
It is possible to pay contributions to a pension for children or those with no earnings but a basic rate tax credit is applied as if the contributor pays tax. So if you pay £100 you get £120 invested.
Pensions work on the basis of tax deferral so if you are a 40% taxpayer whist contributing, but a basic rate taxpayer after retirement, you have a double whammy benefit.
I would say ISA allowances should not be ignored. They have attractions in terms of flexibility, and are paid from taxed income so are untaxed on withdrawal. The investment growth has potential to outweigh basic rate tax relief benefits of pension contributions i.e the higher the investment returns on a pension the more tax you pay.
Whereas my wife, if I pay in for her she receives the basic 20% relief so I don't get the full benefit now, but then will get some back when drawing as it's likely her work pension, and even plus state pension will be no where near 40% band, the two combined will be sub £20k probably leaving up to £30k say @ 20%.
It's a balancing act, but if nothing else it gives my wife a better income in retirement than she has on her own now, especially once state pension kicks in, if we ever get there with the continual moving goal posts!
I did joke that upon retirement we should get divorced and she can take half my pension! :-)
If it’s not what you “want” then you chose the wrong benchmark or no one guided you on benchmarks and it’s all wishful thinking.
I've got a couple of pensions and want to know what my best options are.