Help - increased contributions question

Set1

Current higher rate tax payer - How do I understand if an increase in contribution to personal pension is a good move?
Net contribution is £235 being offered to increase by another £166.
What should I be looking at to work out if this increase is something I should do?
Thanks

xylophone

http://www.hmrc.gov.uk/incometax/relief-pension.htm

Set1

So is it always prudent to increase contributions, as the company increases their contributions.

molerat

It is always worth paying whatever you need to get the maximum employer contribution. Whether it is worth contributing to the company pension beyond that point is another question altogether.

dunstonh

Set1 wrote: »

So is it always prudent to increase contributions, as the company increases their contributions.

You are asking if it is prudent to increase your savings/investments. Does that really need an answer?

Anything you put aside for a rainy day, medium term and long term is a good thing.

Set1

The increase would be to 10% gross employer contribution from 5.2% - money cost is £166 net
I presume it is a minefield as to whether the company pension is a good performer.
Just want to make sure it's not money down the drain, i.e. would property be a better bet, guess that's a big question!

Set1

Well I guess people thought that putting money into investments was a good idea when they bought endowments in the 80's!

dunstonh

Well I guess people thought that putting money into investments was a good idea when they bought endowments in the 80's!

Most endowments paid out figures in excess of cash savings. The problem with most wasnt what they made. It was target growth rates that were unrealistic. You cannot really compare products of that era with modern options available today.

I presume it is a minefield as to whether the company pension is a good performer.

The pension doesnt make any money. The investment funds you choose do that.

Just want to make sure it's not money down the drain, i.e. would property be a better bet, guess that's a big question!

Property does not benefit from free money from employer, higher rate tax relief and no CGT to pay. Most conventional equity based investments have exceeded property returns over most medium to long term timescales.

atush

You need to put as much in, as will get you the max employers contributions.

On top of that, you probably want to put in as much income above your 40% threshold as is left after you take into acct the current pension contribs. If this should be in your employers scheme, or a seperate one will depend on many things incl charges, funds available, and salary sacrifice.

A BTL would not give you employer's contribs, nor 40% tax relief so would not be a good choice in this context.

Set1

I would be looking/hoping that the £166 per month x 10-15 years would give me a better return than investment in a property. I suppose the increased "free" money from the employer would outweigh my return on a property, which I would see as doubling over that time scale?

dunstonh

Set1 wrote: »

I would be looking/hoping that the £166 per month x 10-15 years would give me a better return than investment in a property. I suppose the increased "free" money from the employer would outweigh my return on a property, which I would see as doubling over that time scale?

It is highly unlikely property would double in price in that time period. It is also highly unlikely a regular contribution would double the amount paid in as well. However, if you want to treat the tax relief on the pension at 40% as extra free money then doubling of your personal net contribution is certainly plausible on the pension.