Indexation

village_life

CLAPTON wrote: »

I suggested 20% in total of your salary
your employer pays 5% so that leaves 15%
the taxper will pay 40% of that

so you actually pay 67,000 x 15% x 60% = £6030net pa or 502 net per month

Do I understand this right..... so say I move to 5% contribution, as does my employer, so that would be £279 per month

So does my £279 contribution increase by 40% to £390 - is that what "tax relief on it" means.... or would my £279 contribution to my pension actually be £167 of potential take home salary?
i'm just struggling to work out/understand how/where the tax relief is felt

CLAPTON

village_life wrote: »

Do I understand this right..... so say I move to 5% contribution, as does my employer, so that would be £279 per month

So does my £279 contribution increase by 40% to £390 - is that what "tax relief on it" means....
i'm just struggling to work out/understand how/where the tax relief is felt

it depends upon your pension scheme

if it is an occupational pension and comes out of gross earnings, then the tax relief comes directly as the payroll deducts your pension payments before working out your tax.

if it is a personal pension and paid after tax then the pension fund reclaims 20% directly from the tax man and you then need to reclaim the remaining 20% via a tax form

zygurat789

Your pension fund increases by £1000 your paycheck goes down by £600. Tax relief - magic.

village_life

CLAPTON wrote: »

it depends upon your pension scheme

if it is an occupational pension and comes out of gross earnings, the the tax relief comes directly as the payroll deducts your pension payments before working out your tax.

if it is a personal pension and paid after tax then the pension fund reclaims 20% directly from the tax man and you then need to reclaim the remaining 20% via a tax form

latest scheme is an occupational GPP scheme, apparantly its done at source so payments are made from Gross salary

I think I understand it now, just need to validate....so if my 5% contribution is £279, is the cost TO ME actually 60% of £279.... i.e. £167 - i.e. is that the amount of extra take home i'd get if i made my contribution 0%?

village_life

zygurat789 wrote: »

Your pension fund increases by £1000 your paycheck goes down by £600. Tax relief - magic.

So I currently contribute 3% of salary - thats £167.50.... so is my salary reduced by £167.50, or is it reduced by 60% of that for the tax relief element, i.e. does it cost me £100.50 or £167.50

Equally if I up from 3% to 5%, thats £167.50 going up to £279... so is the cost to me £112, or 60% of £112?

hugheskevi

ok so how are you modelling it? i.e. are you using any meanstream calculators to conclude that your plan is indeed viable?

I model it all out in Excel. I've worked on the analytical side of pensions most of my career which helps a lot.

The key assumption is around the rate of return which I rate as being slightly cautious at 6.25% p/a nominal, 3.5% real, particularly as all of my pension is invested very aggressively. The risk is balanced elsewhere, notably in cash and S+S ISAs, which are invested cautiously.

The degree of freedom in it all is date of retirement - if assets disappoint, a year or two of extra work will put it all right, assuming a suitable rebalancing of risk as asset pots get bigger over time.

CLAPTON

if you are paying out of your gross income then your payslip should look something like this

gross pay = 5,583
pension payment = 167.5 (i.e. 3%)
taxable pay =5415

then they work out the tax

if you paid nothing into the pension you would be taxed on the full gross amount and you would pay more tax i.e. you would pay an extra £67
so although you're paying in £167.5 into your pension your take home pay will only show 100.5 less than if you paid nothing in.