Should I pay into a pension at all?

grey_gym_sock

jbmadd wrote: »

One thing I find with these forums is that you tend to get very different opinions on different parts of the forum. The problem is, if you post in the pensions area, you end up with a bit of a one-sided view.

i'd have to say that i find the quality of debate about investment a bit higher in pensions forum than in savings & investments

and my inclination has always been to prefer accessible investments (i.e. ISAs and unwrapped) to pensions, and i still have more in accessible investments than in pensions.

matching contributions are (as has been said repeatedly) the best reason to pay into a pension. it can also be well worth doing if you get tax relief at higher rates (40%+) on your contributions. there's much less point with only 20% relief.

bigadaj

grey_gym_sock wrote: »

i'd have to say that i find the quality of debate about investment a bit higher in pensions forum than in savings & investments

and my inclination has always been to prefer accessible investments (i.e. ISAs and unwrapped) to pensions, and i still have more in accessible investments than in pensions.

matching contributions are (as has been said repeatedly) the best reason to pay into a pension. it can also be well worth doing if you get tax relief at higher rates (40%+) on your contributions. there's much less point with only 20% relief.

Though salary sacrifice makes a big difference if you pay basic rate tax, indeed getting full employers NI benefit can mean its a better deal for a standard rate taxpayer than for a higher rate one.

Thrugelmir

grey_gym_sock wrote: »

and my inclination has always been to prefer accessible investments (i.e. ISAs and unwrapped) to pensions, and i still have more in accessible investments than in pensions.

The lack of access for many is a huge benefit. So easy to raid that pot for a wedding, a holiday, a car etc. Discipline is what most people lack. Tomorrow is another gone. One day less to save.

Also for many. Annuities will still play a major part in post retirement income. A fluctuating stock market isn't the most comfortable place to be invested when there's no longer an opportunity to rebuild capital.

katsu

bigadaj wrote: »

Though salary sacrifice makes a big difference if you pay basic rate tax, indeed getting full employers NI benefit can mean its a better deal for a standard rate taxpayer than for a higher rate one.

this is an interesting point I don't quite grasp your logic on the NI benefit (I assume you mean If the employer also contributes the NI saving to the employee's pension scheme) as I can't see why the employee's tax rate makes that a better deal fora basic than higher rate tax payer.

What am I misunderstanding?

Triumph13

HRT with no salary sacrifice get 40% back

Basic rate with salary sacrifice and employer passing on savings gets 20% tax plus 12% Employee's plus 13.8% Employer's NI

bigadaj

Triumph13 wrote: »

HRT with no salary sacrifice get 40% back

Basic rate with salary sacrifice and employer passing on savings gets 20% tax plus 12% Employee's plus 13.8% Employer's NI

Also if the hrt does salary sacrifice with no NI employer contribution then 42% as opposed to basic rate with employers NI gets 45-46%.

Obviously not directly comparable but reinforces the point of looking at the exact details and conditions rather than typical examples.

Triumph13

bigadaj wrote: »

Also if the hrt does salary sacrifice with no NI employer contribution then 42% as opposed to basic rate with employers NI gets 45-46%.

Sorry to be picky bigadaj, but I don't think that quite stacks up.

In your first example a £58 cash 'investment' gets turned into £100 - an uplift of 72%. In your second £68 gets turned into £113.80 - an uplift of 67%. Only if the 40% payer has no salary sacrifice can the 20% payer beat it.