Money Purchase Scheme help please?

dunstonh

2. Yes, he is an HRT payer now but will not be once he retires.

Even better then as my figures assumed higher rate tax payer in retirement.

His contribution is 5% and the company's is 10%

You said they pay 6% earlier and thats what I used in my calc. 10% makes the pension even better.

The new scheme could easily push him into higher rate tax in retirement, depending on what he gets in state pension, and whether or not his main pension is index linked.This would lose much of the benefit.

So? Its better to earn the money and pay tax on some of it than not earn the money at all. As the figures above show, even at higher rate tax,the pension is the best option.

We suggested that it would be more beneficial to invest the 5% in ISAs. Obviously, we were wrong but are still playing with all the figures everyone has given us and we are still not convinced that the money scheme is the answer!

OK, 15% is going into the pension but its only costing 3% due to tax relief and employer contribution.

So, lets re-do the figures using your amendment.

Savings account remains unchanged :
40,000@3%= £1200 a year. Over 8 years @ 5% that gives a value of £12,043.

40,000@15%= £6000 a year. Over 8 years @ 5% that gives a value of £60,195.
25% tax free cash from the pension at that point = £15048 plus an income of £2708 a year.

£2708 a year with basic rate tax deducted is £2166. With higher rate deducted it is £1624

So, the pension gives a higher lump sum and a guaranteed income for life of £1624 assuming higher rate tax on the lot or £2166 if basic rate.

Judwin

The way I see it is this : For every £1000 that ends up in his final penson pot

£666 comes from his employer
£133 comes from the tax man
£200 comes from is pocket

Then when he retires, he can take 25% of the pot totally tax free. So he'll get £250 back for every £200 he put in - and an annuity for life on the remaining 75% (£45p/a per £750 @ 6% anuity rates).

If he opts out, he'll only have the £200 to put into an ISA, which he'll get back tax free when he cashes it in.

He's barking if he doesn't join IMHO.

Cheers,
Judwin

INSPIRED

Thank you to everyone who has contributed and apologies for the silence - I visited the site last night, forgetting that it was closed. There has not been an opportunity to reply today but I hope to be back tomorrow.

Once again, many thanks to everyone.

INSPIRED

I have not been able to post a reply for sometime due to ill health so please accept my apologies but, most of all, my gratitude to you all for the education.

We are proceeding with the pension plan.

My problem is that having been stung badly with endowment policies, I have no trust in financial institutions and subscribe to the money under the mattress philosophy...well, almost!