Nationwide 5% v Pension contribution v Stocks & shares ISA v Cash ISA

gadgetmind

It's hard to answer your question because which is the best option depends on many factors. Pension is tax efficient but restrictive, S&S ISAs are great if investing with a 5-10 year window, and cash has its place but you seem to have enough on hand.

YorkshireBoy

spexs wrote: »

Fair comment. Thanks. But the pension benefit is an attraction £6,250 for £3,750.

Is there a reason you can't put the whole £5K in your pension?

longtermplanner

Have you considered paying it off your mortgage? That effectively gives you a tax free savings rate of whatever the mortgage rate is. (Of course if you are one of the lucky ones who grabbed a low base rate tracker for life, you could get more interest elsewhere.)

innovate

spexs wrote: »

Fair comment. Thanks. But the pension benefit is an attraction £6,250 for £3,750.

You have offered an explanation for the £6,250 but where do the £3,750 come from?

Also, you would get higher rates tax relief provided you haven't yet maxed the allowance for the year.

However, eventually you will have to pay tax on all but 25% of the value when you come to draw your pension.

spexs

innovate wrote: »

You have offered an explanation for the £6,250 but where do the £3,750 come from? 6250 - 40% of 6250 = 3750.

Also, you would get higher rates tax relief provided you haven't yet maxed the allowance for the year. Not maxed. If only!

However, eventually you will have to pay tax on all but 25% of the value when you come to draw your pension. But at basic rate.

spexs

YorkshireBoy wrote: »

Is there a reason you can't put the whole £5K in your pension?

The whole £5k would be going into the pension.

innovate

spexs wrote: »

6250 - 40% of 6250 = 3750.

You got some sort of double-counting of the tax relief going on? And mixing up of basic and higher rate? This calculation looks very wrong. O4Us numbers look a lot more sensible to me.

westy22

spexs calculations are correct for a 40% taxpayer. A £6,250 gross contribution to his pension would cost him £5,000 and then, as a HR tax payer, he would be able to claim back a further £1,250 from HMRC.

http://www.hl.co.uk/pensions/interactive-calculators/tax-relief-calculator

spexs

innovate wrote: »

You got some sort of double-counting of the tax relief going on? And mixing up of basic and higher rate? This calculation looks very wrong. O4Us numbers look a lot more sensible to me.

I put in £5,000. The government tops it up with £1,250. I claim a further £,1250 on my SA return. Total in pension fund £5,000 + £1,250 = £6,250. I pay out £5,000 and get a tax refund of £1,250 = net cost £3,750.

YorkshireBoy

spexs wrote: »

I put in £5,000. The government tops it up with £1,250. I claim a further £,1250 on my SA return. Total in pension fund £5,000 + £1,250 = £6,250. I pay out £5,000 and get a tax refund of £1,250 = net cost £3,750.

Then why not beef up your contribution to take this refund into account, so your net position is the whole £5K invested?