Two hopefully simple questions

cathybird

I currently save 8% of my income into my company pension. My employer matches this with contributions of 16%. I could make additional voluntary contributions amounting to up to 15% of my income. My employer would not match this.

I'm also at the mo aiming to max out my Isa allowance every year from now till when I retire, but am I right that making the additional pension contributions is a no-brainer in terms of tax-efficient saving? ... If so, which should I be making the priority - the Isa, or voluntary pension contributions?

Apologies if this has been asked before - I couldn't seem to find an answer when I did a search on the forum.

dunstonh

I could make additional voluntary contributions amounting to up to 15% of my income. My employer would not match this.

Thats an old limit that was abolished in 2006. Are you sure it is still the case? (it may be that your scheme hasnt updated since then). Also, in most cases nowadays, AVCs are not the best option. Some exceptions apply (and when they apply, they are usually worth it - e.g. ability to take tax free cash from AVC instead of main scheme).

am I right that making the additional pension contributions is a no-brainer in terms of tax-efficient saving?

No. Stakeholder, PPP or SIPP could apply as could unwrapped investments or investment bond depending on your objectives and income.

cathybird

Thanks, dunstonh. I'm quite sure 15% is the limit - I spoke on the phone to someone from the pension provider about a week ago after receiving some info about AVCs in the mail. So I should check with them about whether I could take tax-free cash from the AVCs (presumably after retirement)?

My objective is simply to save for retirement as efficiently as I can, and save as much as I can, in a manner that allows the investments to grow as much as I can manage Why would a personal pension, which would involve platform costs, be a better option? ... I had looked at taking out a SIPP but was cautioned by another poster on MSE about the potentially high fees. I'm a higher-rate taxpayer btw, and would still be one even after the AVCs.

dunstonh

Why would a personal pension, which would involve platform costs, be a better option?

Could be cheaper. Not linked to main scheme (and if yours is using obsolete rules, you may need or find flexibility useful) and potentially different investment options.

I had looked at taking out a SIPP but was cautioned by another poster on MSE about the potentially high fees.

Personal pensions are typically the cheapest option for mainstream. SIPPs, if you limit yourself to certain investments can be cheaper but generically, SIPPs are more expensive.

So I should check with them about whether I could take tax-free cash from the AVCs (presumably after retirement)?

At retirement. Not after. Yes, this is one of the most important things to find out.

cathybird

OK. Many, many thanks, dunstonh. I have to say that the range of funds the company pension offers is okay but not fantastic so a little flexibility, if it was offered by another option, wouldn't go astray. Are there any other issues I should raise with the company pension providers about AVCs that you feel I really should know about before making a decision? ... Or is the tax-free cash basically the main thing? ...

atush

AVC s have 2 great pluses, in that- if they:


A let you take your tax free lump sum from them instead of commuting valuable FS indexed pension and:


B let you use salary sacrifice (as you save Nics as well as income tax).


If your Avcs don't do either of these, you could be better off with a PP/sipp

cathybird

Thanks atush. I will definitely check about the tax-free lump sum. I know I could use salary sacrifice with the company AVCs, but am slightly reluctant to commit myself to that in that I'm still not sure whether I should be giving priority to the Isa (which also allows a bit more flexibility in terms of what I pay into it when).

atush

Well PP and ISas do allow you to retire earlier than your scheme age- what is your scheme age? Will you want to retire earlier than that?

mark55man

The way in which PP / SIPP / ISA can help retire early is that you can build up a pot that allows a lump sum and/or income from it from age 55 whereas taking income from a FS 10 years early could incur an early redemption penalty (typically 3-5% a year). Most people are reluctant to take that hit - but for some, like those seriously expecting a shorter life span than normal it may be a good idea.


There is a long thread on ISAs vs Pensions but as a higher rate taxpayer if you can wait until 55 I think the argument swings towards pensions especially given some of the "tricks" you can play with the lump sums (although there are limits)

Basically ISAs are built up using taxed money and paid pack free of tax and pensions are build up with untaxed money and taxed on the way out.

cathybird

My scheme age is 62 and I would love to retire earlier than that, but it may not be possible. I know you can shift the scheme age around a bit but am not sure if it can be brought forward. I can certainly wait until 55 - that age is not so far away for me.

It does not help that I emigrated to the UK halfway through my working life, since I will now not be paid a full state pension by either the UK or by Australia, should I choose to go back there (which I won't). I've lost track of my pension funds in Australia but last time I tried to track them down I was told I couldn't transfer them into a pension of my own since there was no guarantee that I wouldn't retire in Australia. I should at least try to find out what's out there in terms of funds - I know I have some.

cathybird

I must say that I wouldn't be looking to take out a lump sum, except for the purposes of reinvestment.