Advice on Company Pension and Salary Sacrifice

ladybelle

I'm 50 next week ! and have no pension. I have just started a new job still only part time - but £9268 a year. My company offers what seems a good pension. My minimum contribution is 3% and they will pay 5%. I was told that that would equate to approx £23 a month I would pay ? I can choose to pay any percent I want - but the company will only pay a maximum of 7%.
I'm thinking of doing the 5% contribution which is approx £38 ? and then they will pay that too.

Now I have NO clue about tax relief or how things work so dont understand anything much else - nor do I know how much pension I would get if I paid at this rate for 17 years. I am due to retire at 67. So I've got 17 years to try and earn some sort of pension.

I've only been given a small leaflet about the salary sacrifice which I dont understand. I do understand the principle - but I dont know if it's a good or bad thing for ME ? I do get working tax credit currently and I believe this can have an effect on that, but I dont know how to work it out !

Also I have to choose which company I want to invest in ! How am I supposed to know that ? I believe it's through Standard Life, and there is a default one which is Lifestyle Profile ? Is that a good one ?

Can anyone advise ?

jamesd

Salary sacrifice is the best way of making pension payments.

mania112

As you are starting at £0 with only 17 years until retirement, I imagine you will want to invest in the most high risk/reward funds, but it's a personal decision if you're willing to take those risks.

ladybelle

No I'm certainly not willing to take any risks, I dont even know how long this job will last so I dont want to risk losing anything.

Can anyone advise if I make the 5% contribution which is approx £38 a month and the employer matches that - what will I get as a pension in 17 years time ?

I dont understand pensions, am on my own and noone to ask or advise me.

ladybelle

jamesd wrote: »

Salary sacrifice is the best way of making pension payments.

so will that give me a bigger pension ? and will it make me less entitled to my working tax which I rely on ?

jamesd

Your income for working tax credits is reduced by the value of any pension contributions you make, whether that is by salary sacrifice or not. I expect that your tax credit value will increase. You should verify this with HMRC to be certain that it will apply to your specific income level but that's the usual result.

ladybelle

So do I actually get more tax credit then ? as well as my company paying into the pension scheme ? That seems too good to be true ?

gadgetmind

Salary sacrifice works *very* well, but you can't sacrifice to below minimum wage, so watch for that. You get company contributions, tax relief on your contributions, and you also save on NI.

Are you on target for full state pension? Make sure you keep getting full years on NI contributions if not. Get a state pension projection.

Regards what you'll get, try this calculator.
http://www.hl.co.uk/pensions/interactive-calculators/pension-calculator

A quick play using what you've said so far and 5% from you and 5% from company means you'll have £20k in your pension at age 67, which will get you another £1k per anum on top of the state pension.

Note that under *current* rules, small pensions savings may not make sense as the income can reduce other benefits and top-ups. My view is that this issue is pretty important to you. The government have changes in the pipeline that should make any level of pension savings a better option but the details and timescales are murky.

mania112

ladybelle wrote: »

Can anyone advise if I make the 5% contribution which is approx £38 a month and the employer matches that - what will I get as a pension in 17 years time ?

Using a formula for regular savings - 'FV=P((1+r)n-1/r)' (which is simple!):

£1,140 going into the pension each year (inc Tax Relief)

Assume growth of 5% per year

17 years to retirement

Maturity Value = £29,458.02

If an Annuity offers a rate of 5% at that time = £1,472.90 per year.

Worth noting of course the affects of inflation mean that income will be worth less than it does today.

gadgetmind

I was using "today's money" figures in my calculation and also current annuity rates, hence the lower figures.

mania112

gadgetmind wrote: »

I was using "today's money" figures in my calculation and also current annuity rates, hence the lower figures.

I should have read your post - I wouldn't have hurt my head doing the sums.

All good practice for upcoming exam mind you.