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    • clifford_the_dog
    • By clifford_the_dog 9th Jan 18, 5:57 PM
    • 2Posts
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    clifford_the_dog
    Pension strategy for higher earners
    • #1
    • 9th Jan 18, 5:57 PM
    Pension strategy for higher earners 9th Jan 18 at 5:57 PM
    Hi
    I'm curious how other people are approaching their pension saving strategy since the annual tax relief limit on annual contributions tapered down to £10,000 for higher earners making over about £200k.
    In doing my tax return it has dawned on me that I have inadvertently created a tax bill for myself in making contributions via salary sacrifice that take me way over the 10k limit and it crosses my mind that perhaps from now I on I should just make the minimum employee contribution into my company scheme (3%) instead of 10% and let the company I work for continue to contribute their 7%.
    I am 48 and my pension pot is worth about £650K. I figure that with the right investment strategy this could get up to the £1M limit over the next 12 years anyway (I'd like to have the option to retire when I'm 60).
    Used to have an IFA but he decided to be a teacher, I probably need to find a new one........
Page 1
    • OldMusicGuy
    • By OldMusicGuy 9th Jan 18, 6:56 PM
    • 254 Posts
    • 478 Thanks
    OldMusicGuy
    • #2
    • 9th Jan 18, 6:56 PM
    • #2
    • 9th Jan 18, 6:56 PM
    My company offers the option stop all contributions when you reach the 10K threshold and they will then pay their contribution just as salary. Obviously that is taxed but it gives us the option to continue getting some money in.

    Regarding saving strategy, I was lucky enough to catch the tail end of the high annual pension allowance and was able to save significant amounts into my pension in the last few years of my career (I am retiring in 7 weeks). Sadly that's not much help I am afraid, apart from me sounding smug.
    • colesy
    • By colesy 9th Jan 18, 7:23 PM
    • 57 Posts
    • 33 Thanks
    colesy
    • #3
    • 9th Jan 18, 7:23 PM
    • #3
    • 9th Jan 18, 7:23 PM
    Self employed so no negotiation with an employer required. £10k gross into pension, £20k into ISA, £20k into wifeís ISA. Any excess going into taxable account but considering EIS and VCT investments, although a little uncomfortable with the risk factor there.
    • EdSwippet
    • By EdSwippet 9th Jan 18, 10:42 PM
    • 652 Posts
    • 618 Thanks
    EdSwippet
    • #4
    • 9th Jan 18, 10:42 PM
    • #4
    • 9th Jan 18, 10:42 PM
    I am 48 and my pension pot is worth about £650K. I figure that with the right investment strategy this could get up to the £1M limit ...
    Originally posted by clifford_the_dog
    The LTA is (currently, at least) indexed for inflation, but even so with 4% of above-inflation growth then by my reckoning your current £650k pot would grow to pretty much exactly reach it in 12 years even without any further contributions. So you will want to watch the angles here carefully.

    Taking salary instead is probably the best option for you at this point, if your employer allows. At least you will then have full control over any future pension payments you might make into (say) a SIPP.

    Unfortunately not all employers will pay salary in place of pension contributions. As a counterexample to OldMusicGuy, I was painted into a corner by the LTA drop from £1.25mm to £1mm that took effect in April 2016. My employer steadfastly refused outright to offer salary in place of pension contributions. So, effective March 2016 they became my ex-employer. I simply retired four years or so earlier than originally planned.
    • kidmugsy
    • By kidmugsy 9th Jan 18, 11:03 PM
    • 9,984 Posts
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    kidmugsy
    • #5
    • 9th Jan 18, 11:03 PM
    • #5
    • 9th Jan 18, 11:03 PM
    I should just make the minimum employee contribution into my company scheme (3%) instead of 10% and let the company I work for continue to contribute their 7%.
    Originally posted by clifford_the_dog
    But 10% of £200k is £20k, which exceeds the reduced annual allowance. Does that mean you'll be paying tax on the approx £10 excess? At what rate?
    Free the dunston one next time too.
    • clifford_the_dog
    • By clifford_the_dog 10th Jan 18, 6:29 AM
    • 2 Posts
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    clifford_the_dog
    • #6
    • 10th Jan 18, 6:29 AM
    • #6
    • 10th Jan 18, 6:29 AM
    Yes, Iíd be paying tax on that part as well which is why some of the posters here are stressing the importance of seeing if my employer will pay salary instead of pension

    Thank you to everyone who has replied, very useful and confirms what I suspected
    • adindas
    • By adindas 10th Jan 18, 6:46 AM
    • 3,241 Posts
    • 1,777 Thanks
    adindas
    • #7
    • 10th Jan 18, 6:46 AM
    • #7
    • 10th Jan 18, 6:46 AM
    Self employed so no negotiation with an employer required. £10k gross into pension, £20k into ISA, £20k into wifeís ISA. Any excess going into taxable account but considering EIS and VCT investments, although a little uncomfortable with the risk factor there.
    Originally posted by colesy
    This is not to argue jst personal though I fail to see the benefit of putting it on ISA, as the money used to subscribe to ISA is already taxed at higher rate at source.

    In the meanwhile the OP is already 48yo so within seven years he could get access to some of his pension. Is it not better to put it on SIIP. COuld anyone who know cous shed the light how ISA here will be a better option then SIPP ??
    • TheTracker
    • By TheTracker 10th Jan 18, 7:59 AM
    • 1,178 Posts
    • 1,158 Thanks
    TheTracker
    • #8
    • 10th Jan 18, 7:59 AM
    • #8
    • 10th Jan 18, 7:59 AM
    COuld anyone who know cous shed the light how ISA here will be a better option then SIPP ??
    Originally posted by adindas
    I donít think anyone has suggested an ISA is better than a SIPP. A side effect of being paid very well is that itís often unavoidable but to receive more post tax money than you can spend, in which case one is wise to place up to £20k of it in an ISA.
    • EdSwippet
    • By EdSwippet 10th Jan 18, 1:57 PM
    • 652 Posts
    • 618 Thanks
    EdSwippet
    • #9
    • 10th Jan 18, 1:57 PM
    • #9
    • 10th Jan 18, 1:57 PM
    In the meanwhile the OP is already 48yo so within seven years he could get access to some of his pension. Is it not better to put it on SIPP?
    Originally posted by adindas
    Once you start breaching pension allowances, the effective tax rates and outcomes can make for unpleasant reading.

    Someone exceeding the taper would face 45% tax on contributions, but remember that pensions are also taxable again on the way out. Allowing for the 25% tax free lump sum this pension saver might lose a further 30% to tax on withdrawal, giving an overall 61.5% loss to tax. Clearly just taking the cash as salary here is better.

    The numbers for breaching both the taper and the lifetime allowance are truly grim. 45% tax on contributions, and then both a 25% lifetime allowance excess charge and normal marginal tax of say 40% on withdrawal creates a total 75.25% loss to tax. Ouch.
    • Jaguar Skills
    • By Jaguar Skills 10th Jan 18, 2:55 PM
    • 392 Posts
    • 58 Thanks
    Jaguar Skills
    Hi
    I'm curious how other people are approaching their pension saving strategy since the annual tax relief limit on annual contributions tapered down to £10,000 for higher earners making over about £200k.
    Originally posted by clifford_the_dog
    Does this only apply for people earning over £200k?

    I am currently at about £135 - 150 and trying to put as much as possible in my pension - well around 30k a year plus my workplace contributions which may get it to £35k ish.

    Could someone clarify. Sorry for hijacking the thread.
    • TheTracker
    • By TheTracker 10th Jan 18, 3:04 PM
    • 1,178 Posts
    • 1,158 Thanks
    TheTracker
    Does this only apply for people earning over £200k?

    I am currently at about £135 - 150 and trying to put as much as possible in my pension - well around 30k a year plus my workplace contributions which may get it to £35k ish.

    Could someone clarify. Sorry for hijacking the thread.
    Originally posted by Jaguar Skills
    Basically it starts applying at £150k. For every £2 of income over £150k you lose £1 of allowance, to a maximum reduction of £30k. So for £210k your allowance is only £10k. In your case, £30k contribution is safe while your income (including contribution) is under £170k, and £35k while under £160k.
    • Jaguar Skills
    • By Jaguar Skills 10th Jan 18, 3:26 PM
    • 392 Posts
    • 58 Thanks
    Jaguar Skills
    Basically it starts applying at £150k. For every £2 of income over £150k you lose £1 of allowance, to a maximum reduction of £30k. So for £210k your allowance is only £10k. In your case, £30k contribution is safe while your income (including contribution) is under £170k, and £35k while under £160k.
    Originally posted by TheTracker
    Thanks The Tracker. So if it goes beyond £170k is there a certain set of guidelines that I should follow?
    • gadgetmind
    • By gadgetmind 10th Jan 18, 3:30 PM
    • 10,690 Posts
    • 8,554 Thanks
    gadgetmind
    I've also hit full taper this year and will have tax to pay for exceeding TAA. I've also exceeded LTA due to the Brexit sterling crash, so lots of my pension will be taken from me.

    For younger people in this fix, maybe consider getting posted elsewhere in the world and work on fresh pension under different rules?
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • Jaguar Skills
    • By Jaguar Skills 10th Jan 18, 3:37 PM
    • 392 Posts
    • 58 Thanks
    Jaguar Skills
    Thanks The Tracker. So if it goes beyond £170k is there a certain set of guidelines that I should follow?
    Originally posted by Jaguar Skills
    If my OH is not working, presumably I can put the full amount into her allowance?

    Just a risk as we aren't married.

    Can I just gift her money?
    • TheTracker
    • By TheTracker 10th Jan 18, 3:44 PM
    • 1,178 Posts
    • 1,158 Thanks
    TheTracker
    I've also hit full taper this year and will have tax to pay for exceeding TAA. I've also exceeded LTA due to the Brexit sterling crash, so lots of my pension will be taken from me.

    For younger people in this fix, maybe consider getting posted elsewhere in the world and work on fresh pension under different rules?
    Originally posted by gadgetmind
    Good to see an old name pop up.

    For successful young people I'd suggest, apart from looking internationally, to look at incorporating your evidently valuable skills in your own business, where you may enjoy vastly more flexibility in how you manage the tax efficiency of your earnings. I'm sure there are roles which only exist within the construct of working for the man, but many times the avenue exists to create your own path as a small or medium enterprise and in the process rid yourself of many of the crazy tax constraints imposed on a salaryman. Or at least exchange one set of rules for another!
    • gadgetmind
    • By gadgetmind 10th Jan 18, 3:49 PM
    • 10,690 Posts
    • 8,554 Thanks
    gadgetmind
    incorporating your evidently valuable skills in your own business, where you may enjoy vastly more flexibility in how you manage the tax efficiency of your earnings.
    Originally posted by TheTracker
    Yeah, that's what I've always done, but then someone went and bought the business and I never got around to leaving!
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • TcpnT
    • By TcpnT 10th Jan 18, 4:22 PM
    • 50 Posts
    • 28 Thanks
    TcpnT
    If my OH is not working, presumably I can put the full amount into her allowance?

    Just a risk as we aren't married.

    Can I just gift her money?
    If she is not earning she is limited a maximum £3600 gross annual pension contribution. There is nothing to stop you gifting any amount of money to her but bear in mind IHT liability if you die within 7 years. However she cannot pay more than £3600 or her earned income, whichever is greater, into a pension
    • greenglide
    • By greenglide 10th Jan 18, 4:30 PM
    • 2,970 Posts
    • 1,921 Thanks
    greenglide
    , but then someone went and bought the business
    ... but someone must have sold it?

    An offer that couldn't be refused?
    • EdSwippet
    • By EdSwippet 10th Jan 18, 4:50 PM
    • 652 Posts
    • 618 Thanks
    EdSwippet
    So if it goes beyond £170k is there a certain set of guidelines that I should follow?
    Originally posted by Jaguar Skills
    You would end up paying any tax due to the taper with your annual self-assessment. The instructions for working out your pensions annual allowance are here:

    https://www.gov.uk/guidance/pension-schemes-work-out-your-tapered-annual-allowance

    The whole edifice is ridiculously complicated. The definition of 'income' for tapering includes not just salary received but also any dividends, interest, rent that you receive, bonuses, and even your own and your employer's pension contributions. Some of these will be hard to impossible to know until the very end of the tax year, perhaps even after the end of it, and so beyond the point at which you have any control over your pension contributions. And including pension contributions in the calculation of a pensions annual allowance borders on circular reasoning.

    In essence, unless you have either really simple financial affairs or an accurately functioning crystal ball you may find it hard to impossible to exactly hit your pension annual allowance. Safest is probably to aim to undershoot and hope to use that next year with carry forwards. But of course, that becomes complex even in itself.

    Utter nonsense.
    • andy001
    • By andy001 10th Jan 18, 6:25 PM
    • 15 Posts
    • 3 Thanks
    andy001
    Once you start breaching pension allowances, the effective tax rates and outcomes can make for unpleasant reading.

    Someone exceeding the taper would face 45% tax on contributions, but remember that pensions are also taxable again on the way out. Allowing for the 25% tax free lump sum this pension saver might lose a further 30% to tax on withdrawal, giving an overall 61.5% loss to tax. Clearly just taking the cash as salary here is better.

    The numbers for breaching both the taper and the lifetime allowance are truly grim. 45% tax on contributions, and then both a 25% lifetime allowance excess charge and normal marginal tax of say 40% on withdrawal creates a total 75.25% loss to tax. Ouch.
    Originally posted by EdSwippet
    Just to add some different perspective from other NHS pension dilemma thread: If suppose that OP is in NHS pension and is earning up to 210k. Is it still viable to stay in Pension in above situation?
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