Pension maths for newbie!

Nicknack_2

hi,

can someone check my proposed pension maths please?!

"the company requests you contribute a minimum of 3% of your gross salary. the company will also contribute a flat rate of 3%"

I propose to contribute 7% of my wages making the total contribution of 10%.

7% of £1750 total gross = £122.50

only pay 80% of this due to tax relief (that's what the guide states) which equals £98

will my gross now be £1652 (gross minus pension contribution) minus paye (£242) and NI (£140)

leaving a take home of £1270

thanks for looking!

Lokolo

You are correct.

http://listentotaxman.com/index.php

Go here. Enter 7% into Pension Contribution. And Gross Income every Month (12 months) as £1750. And it tells you

CLAPTON

if you have just started a new job then the tax will depend upon what your earning have been since april 2010 as well as the new job


however for a full tax year earning 1750 per month it works out like this

annual salary
=21,000
less pension payment of 7% = 1470

so taxable salary is therefore 19,530
tax allowance is 6475
so you pay tax at 20% on 13,055 i.e. 2,611 pa or 217.5 per month

NI allowance is 476 per month and charged at 11% of unless opted out of the second state pension when it is 9.4%

so NI =11% of = (1750-476) = 140


so tax home will be 1,270 per month

Nicknack_2

Many thanks to both of you for your clear explanations. Appreciated!

Loughton_Monkey

Nicknack wrote: »

I propose to contribute 7% of my wages making the total contribution of 10%.

This is an excellent start, and excellent value, since for every £56 you pay, £100 is being invested for your pension.

Just a word of long-term advice, though. To get the 'traditional' 2/3rds of final salary (as offered by the now mainly defunct final salary schemes) you need to have about 20% of gross salary invested throughout your working life.

I recommend you keep tabs on this every couple of years or so, and perhaps if you get an occasional bonus or something, consider dumping more in. Make sure you know how to get (and get regularly) statements for the value of your pension fund.

Your pension fund should grow, but so will inflation and your salary (hopefully), but it is reasonable to assume that the fund will grow around 1% above inflation. So if you assume this, you then only need to project this to retirement age, and then apply an assumed Annuity Rate (e.g. around 6.5% for a 65 year old male) to give you a ball-park value of the actual pension you might receive.

The main reason why you need to keep doing it, is that by the time you get into your 50's, it is getting rather too late to affect it much - without putting unrealistically high extra amounts in.

Good luck