Should I contribute to my own pension or company pension

TheLearner2008

I earn £44k and am therefore in higher rate tax bracket I believe.

My company contributes a maximum of 12% of my gross salary to pension if I contribute 8% which is great - so its 20% of my gross salary - however if I take this option then I don't get topped up by the government.

I have another pension which is in my own name not through the company. For every £60 I contribute the government tops that up for £40 I believe.

Should I contribute maximum to my employer pension and zero to my other pension

OR

Should I contribute minimum to my employer pension and maximum to my own pension.

I am not sure which is the best route

BobQ

If your employer pays 12% when you pay 8% you would be barking to prioritise contributions to to your other pension.Your 8% will still attract tax relief on your contributions in the same way as your private pension contributions.

CLAPTON

for 'standard' people, the 40% band starts at 42,475

you get the 40% taxpayer contribution on your own contributions to your company scheme.

JoeCrystal

Errr... It is still topped up by government by virtue of not taking their share since you are paying gross.

Private pension: £80 net + £20 tax relief = £100
Company pension: £100 gross = £100.

Cheers,
Joe

jamesd

Start with 8% to your employer pension.

Is that a salary sacrifice or smart pension or any similar sort of wording, where the 8% is paid by reducing your gross salary so you don't have to pay employee NI as well as not having the income tax deducted?

For a work scheme it's quite common for it to be 8% before tax is deducted, so you get the 40% higher rate tax relief immediately each month instead of having to get HMRC to adjust your tax code or wait until you file a tax return.

If you were to make the contribution out of your net pay into a personal scheme, you'd pay in £80 and that would be topped up to £100 inside the pension. You'd get the other £20 in the form of a refund or lower tax code from HMRC. So the net cost to you would be £60 to get £100 in the pension. Same as the employer way, except the money arrives later and you lose the chance to have it done by salary sacrifice and also save NI.

There are some possible reasons not to want to use the employer scheme. Maybe it only has unsuitable investments and no way to transfer the money out from time to time. That sort of thing can make it a better deal not to take the employer money sometimes. Fortunately these situations are uncommon, I know of only two at the moment, NEST and Morrissons, both mainly for middle aged and younger employees.

atush

You get full tax relief on your pension at your 40% rate on your contribs whichever pension they go in to (unless your salary is so high your contribs would be more than 50K per annum (or 40k In years to come). The thing is, your only get lower rate tax AUTOMATICALLY added to your pension pot.

To get the rest, you claim it back from HMRC either by informing them and they change it via your tax code, or via self assessment.

In your case, over and above your employer's matching contributions, I would base where I put my pension by the CHARGES of the pensions concerned and the range of investments they offer for you to choose from. I would imagine, one will be better than the other but as you haven't given us details only you know this.

If you haven't been claiming back your HR tax for some years, you may have to contact HMRC and perhaps an accountant for advice.

bigadaj

The last reply is likely to be somewhat misleading, in most cases the deduction will be from gross salary by the employers, so reducing the taxable pay and naturally getting the highest rate of tax relief. There may be exceptions and it is always worth checking with the employer, and also going for salary sacrifice at the same time for the extra 2% contribution plus potentially some or all of the employers ni contribution.

The one thing the op would need to check is that if he completes tax return and has other taxable income then if his contributions drop below the higher rate then he may need to claim back the tax rather than pay higher rate on savings, investment income etc

atush

Not somewhat misleading, pensions are quite often are set up that way.

In many cases, pensions are only set up for basic rate tax, and aren't on salary sacrifice which is better I agree. but not the norm for HRT.

Tesco_Tom

I am in a similar position, however my pension contributions are taken after tax. The 20% relief is automatically claimed by the pension scheme and a quick phone call to HMRC was enough to get a nice cheque in the post for the tax rebate, without the need to complete a SA form.

There seems to be a limit to the value that they can deal with in this way, but I am not sure what that level is.