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

oliveoil54

Thanks for your reply & the info.

We dont have a regular/family IFA, as for most investments I tend to try & do the research myself. Having always been lucky enough to have good final salary pensions its not something I've really had to look at, so a lot of the terminology is quite new to me.

I have read that the Government is considering making firms provide some sort of pension provision for employees from 2012, but would this still apply to firms with only 120 staff?

As she may only be saving such a small sum per month would she better just putting her money in a cash ISA & locking it away?

hugheskevi

I have read that the Government is considering making firms provide some sort of pension provision for employees from 2012, but would this still apply to firms with only 120 staff?

From June 2014 it will apply to a company of that size.

As she may only be saving such a small sum per month would she better just putting her money in a cash ISA & locking it away?

A cash ISA is a totally different financial product to a pension.

But as you say she has no savings at all, building up a financial cushion of about 6 months of income should be high on the priority list. A cash ISA would be a suitable vehicle for that.

atush

First of all, you need to help her budget. The etc bit in the "rent, fuel etc" will most likely be full of things that are not essential or overpaid for (ie check insurance, phone and utilility contracts etc). This on its own can brign up a savings big enough fo her to start a pension and add to that fancy coffees and clothes overspends and then you have more for saving elsewhere.

You will have fees to pay whatever way you dp a pension, but if you want to star her off (and know a little or more about investing as you I presume also have pensioons and control your investments) then you can look at Cavendish online.

But once you get to more than 10/month it might pay to go to an IFA esp if you/she aren't big on learning about investing.

In general she needs the most help with budgeting and learning to live w/in her means as that is the hardest lesson to learn. And she needs to save in cash outside a pension to fund future lifestyle choices from cars, holidays to housing. Otherwise these are funded via debt which can be a slippery slope.

matthewg156

Hi,

I have a few questions on pensions. Any information would be greatly appreciated:

1. I was lucky enough to be given a bonus this year, and have the option of putting some or all of it into my pension. Is this advisable if I don't need the money right now?

2. How are pensions taxed when they are used?

Thanks!

jem16

matthewg156 wrote: »

Hi,

I have a few questions on pensions. Any information would be greatly appreciated:

1. I was lucky enough to be given a bonus this year, and have the option of putting some or all of it into my pension. Is this advisable if I don't need the money right now?

Not enough info to go on. It depends on your tax status now and in retirement.

2. How are pensions taxed when they are used?

Thanks!

Same as you are taxed at the moment.

dunstonh

1. I was lucky enough to be given a bonus this year, and have the option of putting some or all of it into my pension. Is this advisable if I don't need the money right now?

If it meets your objectives yes. (with pension that typically means provision of income in retirement)

2. How are pensions taxed when they are used?

Tax free before commencement of pension and outside of the estate if you die before commencement. Once you commence the pension, you can take out 25% tax free as a lump sum with the rest providing an income which would be taxable if it is above your personal allowance (just like any other income)

matthewg156

Thanks for the response.

Let's say I have a £5,000 bonus. I don't need the money right now, but it would be useful to have it on hand in case of job loss, etc. What about if, instead of putting my £5,000 bonus into my pension, I instead ask my employer to increase my salary sacrifice pension contributions by say £420 per month. After a year I still would have put away the £5,000 into my pension, but would have the safety net that, if I lost my job during the year, my extra pension contributions would also automatically cease. I know one disadvantage of this method is that I would lose a certain amount of pension growth, but considering I'm 33 this would be minor against the long term investment timeline of a pension.

Are there advantages to putting money into a pension via salary instead of as a lump sum? What about savings on NI?

matthewg156

Also, do pension contributions count towards reducing my income calculated for the personal allowance as I currently earn over £100,000?

jem16

matthewg156 wrote: »

Also, do pension contributions count towards reducing my income calculated for the personal allowance as I currently earn over £100,000?

Yes pension contributions reduce your taxable income.

matthewg156 wrote: »

Are there advantages to putting money into a pension via salary instead of as a lump sum? What about savings on NI?

No advantage from a tax point of view. Salary sacrifice is obviously giving you the benefit of the NI reductions. Can you salary sacrifice a lump sum into the pension?

matthewg156

jem16 wrote: »

No advantage from a tax point of view. Salary sacrifice is obviously giving you the benefit of the NI reductions. Can you salary sacrifice a lump sum into the pension?

I guess you may be able to 'salary sacrifice' a bonus lump sum, as you pay NI on your bonus, don't you? In fact, is there any difference between a bonus payout and a regular salary?