Pension MoneySaving: Buy a different way to boost returns Article Discussion Area

fairleads

bilbo51 wrote: »

How much income do you think you would need in today's terms - ie if you were retiring now?

17K plus
And this is my take on the scenario in question
If we take 5.5% as being the long term average real rate of return on growth investments.
Then, 240 per month invested for 29 years as a BR taxpayer with a fund manco fee of say .5%
Should provide , in today’s figures, a pension pot of 245K
Taking the 25% tax-free l/s invested @ 5.2% div yield, provides a tax-free annual income of 1.43K
The balance, 183.6K, remains invested in growth assets from which we take 6.8% = 12.5K as taxable income.
Result
Taxable income 12500, Personal Allowance 9940
12500- 9940 = 2560 x 20% = 512 tax
12500- 512 = 11988 plus 1430 = 13418
Including a net after tax basic state pension of 4,285 gives
Total tax-free annual income of around 17,700 p/a
Now, If our annual pension contributions are increased at the rate of inflation, and assume that our investment also grows by inflation plus the real rate of 5.5% p/a, then the figure above will also grow, and as important, maintain its buying power relative to that of today’s 17.7 K annual income.
So we could say that, over 29 years, a 240 per month contribution now - boosted by hmrc to 300 and increased each year at the rate of inflation - should provide a future livable income.

asi269

In the article it says that you also save NI contributions - is this still the case?

Does the pension contribution get taken before Tax and NI are deducted? For example £1,000 salary -> £100 to pension. Tax and NI paid on the £900 remaining?

jem16

asi269 wrote: »

In the article it says that you also save NI contributions - is this still the case?

Only through a salary sacrifice scheme.

Does the pension contribution get taken before Tax and NI are deducted? For example £1,000 salary -> £100 to pension. Tax and NI paid on the £900 remaining?

Tax is paid after deducting pension for occupational schemes. However NI is always charged on gross salary.

asi269

jem16 wrote: »

Only through a salary sacrifice scheme.



Tax is paid after deducting pension for occupational schemes. However NI is always charged on gross salary.

Thanks for that info.

Can you opt out of the additional state pension and if so, at what point in your income?

asi269

in the article it says:
This increases tax relief for all because not only do you avoid tax on contribution, you don't pay national insurance (NI) either.

Is this incorrect?

jem16

asi269 wrote: »

Can you opt out of the additional state pension and if so, at what point in your income?

Contracting out ends April 2012 and only final salary schemes will still operate under contracted out.

For all other pensions it is not possible now.

jem16

asi269 wrote: »

in the article it says:
This increases tax relief for all because not only do you avoid tax on contribution, you don't pay national insurance (NI) either.

Is this incorrect?

As I said it's only available with salary sacrifice schemes.

dunstonh

Can you opt out of the additional state pension and if so, at what point in your income?

Just for clarification. Its contract out. Opt out means not joining your works scheme.

oliveoil54

Daughter is 25 earns approx 18/19k per annum, doesnt have much spare income & no savings, most goes on rent, fuel etc. Employers do not have any pension scheme at all, they advised her to sort out her own private pension.

To start her off we would like to help her on a monthly basis, but am v confused as to what is the best option. But think the max she will be able to afford at present is only £50 to £100 p month. She hasn't got any savings at all & no ISAs etc, so would prefef to avoid large fees.

Any advice would be really welcome

dunstonh

Any advice would be really welcome

advice on pensions is a regulated activity. We cant give advice here. just discussion and comment.

At £100pm plus (gross premium) then an IFA would be a cost effective option. Under £100 gross then some IFAs may offer services on commission basis (ironically, commission is still the best option on stakeholder pensions - fee based pensions at £100pm plus are cheaper but not available below that amount). If there is a family IFA, then often they will give advice in these areas even at a loss given the family relationship.

The option is either to use an IFA or DIY. You need to decide if you have enough knowledge (or time to research) to pick the best provider and investments or use an IFA instead.