PhD and pension advice

bristol_pilot

Lokolo wrote: »

If he comes out of with a job working at £20k a year with no employer contribution - then what?

Then he will have wasted his time doing a PhD.

Jennifer_Jane

Can I just ask - if you take out a pension, this is pre-tax and pre-NI, so it's not just 20% tax advantage, it's the NI contribution too. When I was last working that amounted to a total of 31%. That's a pretty good 'return', even without the magic of compound interest being included in that. Yes, if the tax rate stays the same when the OP would be paying a marginal (not average) tax of 20% on the amount.


Yes, the money is tied up for the 28 years till the OP can 'retire', but that's an advantage. I do like hugheskevi's plan, if you are disciplined enough through life's tribulations to not dip into it. But locking it away can be good. Don't forget that the S&S ISA is paid out of net income. Once you get the tax-free capital, you still need to put it somewhere (the pension per hugheskevi, or in savings or wherever, where it will be difficult to avoid paying tax somehow on it (I mean interest or income, obviously not the capital).

Anyway, as said above, choose iii.co.uk or someone to reduce the upfront and ongoing annual charges in your investment.

hugheskevi

Can I just ask - if you take out a pension, this is pre-tax and pre-NI, so it's not just 20% tax advantage, it's the NI contribution too. When I was last working that amounted to a total of 31%.

That is a salary sacrifice arrangement.

Not all pensions have salary sacrifice available (it depends on your employer) - those that don't just get income tax relief and National Insurance contributions are charged on the pension contribution.

So say you put £800 into a pension without any of the good things on offer. It is grossed up to £1000 (basic rate tax relief) and that's it.

Alternatively, put it into an S+S ISA as the incentives to save in a pension are bad.

Later in life, you might find yourself working for an employer who offers salary sacrifice, and you are a higher rate taxpayer.

Now you get 40% income tax saving (or maybe even 50% or 60% if you do particularly well), 2% NICs saving, and the employer NICs of 13.8% on your contribution put into the pension as well.

Puts you miles ahead of if you had decided to put into a pension when you just got 20%.

jem16

hugheskevi wrote: »

Much better to put the money you would have saved into the pension into an S+S ISA instead, and contribute more to a pension at a time when one of the things that make pension saving worthwhile apply (higher rate tax, salary sacrifice, employer contributions, receiving means-tested benefits).

If you have money saved in a S&S ISA it will be counted and may well stop you getting means tested benefits if you lose your job. Money within a pension would have been discounted.

hugheskevi

If you have money saved in a S&S ISA it will be counted and may well stop you getting means tested benefits if you lose your job. Money within a pension would have been discounted.

It is more about Tax Credits than out of work benefits.

Add in the 41% taper of Tax Credits to 20% income tax relief, 12% employee NICs, 13.8% employer NICs and pension contributions and the cost of pension contributions is very little in net income.

It is right that S+S ISA income would interfere with out of work benefits, but equally I wouldn't fancy living on means-testing unemployment benefits and would like to have my assets liquid in such a circumstance.

jem16

hugheskevi wrote: »

It is right that S+S ISA income would interfere with out of work benefits, but equally I wouldn't fancy living on means-testing unemployment benefits and would like to have my assets liquid in such a circumstance.

That's why it's best to have a mixture - 6 months cash savings in case you are out of work, S&S ISA and pension to mop up the approximate £3k of personal allowance you will have left over if you qualify for the full state pension (basic plus S2P).

kidmugsy

"assuming the tax rate stays at 20%": the expression "fat chance" springs to mind.

caliban1

Thanks for all the suggestions!
I like hugheskevi's plan, will look into s&s isas