Pension need to knows Official MSE Guide Discussion
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My husband and I are in an quandary... we have seen an IFA but aren't sure what to do.
The situation is:
I am in a final salary pension, already accrued 14 years (14/80) age 38, current salary £45,000, so I'm fine and dandy.
My DH however hasn't had a pension since leaving a large well known bank 4 years ago. He worked there 5 years and contributed to a pension which he thinks is worth £2-3,000 pa. He also had a pension before with a company that went bust. According to the IFA because the company went bust at a time when the economy was low (c. 2008) the pension fund was at a low point due to investments failing so he's only got 90% of a pretty poor pot of money left, which equates to a pitiful sum p.a. My DH is 42.
First of all, is this right that the money he invested in the pension is all but gone, as the fund was at a low point at the point it was taken into the protected scheme?
We were thinking of getting him a private pension as his employer is small and won't be part of the new auto enrolment scheme until 2018. We can't get a projection of what sort of income this would get us if we invested c. £240 (before tax added to c. £300) per month for the next 23 years, without paying an upfront fee to the IFA. But we kind of need to know roughly what the benefit would be before paying out as we would then commit if it was worthwhile via the IFA. Can anyone give us a ball park if we went for a low risk investment (not just cash but some shares)? Perhaps that's a ridiculous question?
Given that our fingers have been burnt with the pension scheme that went horribly wrong (allegedly), we're wondering if it's worth doing a pension at all for him! I know there are tax reasons but could we end up with pretty much nothing at the end from his pension scheme?
We own our own home outright, and my pension alone stands to be pretty good should I continue to work for my employer (and even if I don't TBH) and we have savings. Are we better off putting our eggs into a different basket (eg. buy to let?) or is it still a no brainer to go for the pension route?
We are so confused!:cool2::footie: Mummy to 2 boys - born 2009 and 2011 :footie:0 -
Can anyone help with the following paragraph that appears on this site to do with salary sacrifice.
Basic rate taxpayers: Here, as well as avoiding the 20% income tax you would normally face, the salary you sacrifice doesn't attract 12% NI. All told, this means for every £68 of pay you sacrifice from your pay packet, £100 goes into your pension pot.
I cannot work out how the £68.00 you sacrifice turns into £100 in your pension pot.
Any help understanding this would be greatly appreciated.
Thanks:o0 -
Can anyone help with the following paragraph that appears on this site to do with salary sacrifice.
Basic rate taxpayers: Here, as well as avoiding the 20% income tax you would normally face, the salary you sacrifice doesn't attract 12% NI. All told, this means for every £68 of pay you sacrifice from your pay packet, £100 goes into your pension pot.
I cannot work out how the £68.00 you sacrifice turns into £100 in your pension pot.
Any help understanding this would be greatly appreciated.
Thanks:o
100 goes into the pot. Tax plus national insurance is 20 + 12 = 32 and 100 - 32 is 68.
You always work from the gross sum backwards.
It can actually be better than this as the company saves the employers national insurance which is 13.8%, it's common to split this, so net payment could easily be 61, or if the employer is generous around 55.0 -
Hi trying to get some information on pensions, im 28 and apparently I need to start thinking about my pension, I only work part time due to bringing child up so dont pay into company pension due to low wage, any advice on what to do to save towards my pension , ive heard bad reports on private pensions so abit cautious with doing this anybhelp or advice would be great x0
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dawngleave wrote: »Hi trying to get some information on pensions, im 28 and apparently I need to start thinking about my pension, I only work part time due to bringing child up so dont pay into company pension due to low wage, any advice on what to do to save towards my pension , ive heard bad reports on private pensions so abit cautious with doing this anybhelp or advice would be great x
You need a pension to live when you're older so need to save.
You should normally join your employers pension and contribute enough to get all their matching contributions, so if they match up to say 5% then put that much in. Your actual contribution is only really 4% as the government pay the other 1% through tax relief. The employer pension should also be lower cost than a private one.
Once you've doen that then there's no real benefit in pensions for those on lower salaries, saving a cash emergency fund and then into shares isas if you can afford it os often the preferred option.0 -
There is one other benefit of pensions: they aren't subject to benefits means tests or bankruptcy, so they are safe from being lost during particularly hard times.
What bad reports worry you about private pensions? There's a lot of obsolete information out there, things like being forced to buy an annuity - you're not - or not having the pension pot protected by the Financial Services Compensation Scheme, when it is protected by it.0 -
100 goes into the pot. Tax plus national insurance is 20 + 12 = 32 and 100 - 32 is 68.
You always work from the gross sum backwards.
It can actually be better than this as the company saves the employers national insurance which is 13.8%, it's common to split this, so net payment could easily be 61, or if the employer is generous around 55.
Thanks for your response.
My employer has given us a detailed comparison example between Sacrificing and not sacrificing. My confusion is that they are implying that our contribution + 20% tax relief will be put in our pot by them along with their contribution, our Gross salary will obviously be reduced by our contribution + 20% tax relief. They are therefore saying that the NI that we would not be paying on the sacrificed salary will be in our pay packet.
Is this correct? If so why is Martin's example including NI going into your pot.
I am probably being really think but just like to understand processes of things before I make a decision.
Incidently my employer hasn't made any noise about passing on a percentage of their NI saving so I guess we won't be any of the lucky ones :mad:
Thanks again
Michelle0 -
Thanks for your response.
My employer has given us a detailed comparison example between Sacrificing and not sacrificing. My confusion is that they are implying that our contribution + 20% tax relief will be put in our pot by them along with their contribution, our Gross salary will obviously be reduced by our contribution + 20% tax relief. They are therefore saying that the NI that we would not be paying on the sacrificed salary will be in our pay packet.
Is this correct? If so why is Martin's example including NI going into your pot.
I am probably being really think but just like to understand processes of things before I make a decision.
Incidently my employer hasn't made any noise about passing on a percentage of their NI saving so I guess we won't be any of the lucky ones :mad:
Thanks again
Michelle
The NI will go into the pension pot, you won't be paid it as you are giving up that income.
If the employer hasn't made any noise about passing on the NI maybe they are doing that without fully informing you and this is cosmiderd part of the benefit in your pay, I'd ask them if I were you.
Salary sacrifice is a good thing in most instances but there could be some minor drawbacks. In many cases you can only opt in or out once a year and as you are nominally giving up salary so it could impact in things like mortgage offers.0 -
There are two ways of operating salary sacrifice. One way puts the NI into the pension pot so the amount there is higher for the same net cost for you. The other way keeps the amount going into the pension pot the same an increases the take-home pay by the value of the saved NI minus income tax on that saving.They are therefore saying that the NI that we would not be paying on the sacrificed salary will be in our pay packet.
Is this correct? If so why is Martin's example including NI going into your pot.
So yes, it's correct, just one of the ways of doing things. You can probably get the other way if you like just by increasing the amount you pay in until your take-home pay is the same. The way they are doing it is nicer for employees who are really sensitive about their take-home pay changing, so they avoid upsetting those people with the way they are doing it: they get more into their net pay so it looks good to them - more cash for some beats more in the pension.
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Does anyone know if there is anything to stop a company reducing your salary in order to cover their minimum contributions on auto enrollment?0
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