Final salary pension ending

Therese1

Is it ok to pester😀? Any ideas?

Thank you!

kidmugsy

Therese1 wrote: »

Increasing my contribution by say 5%

Or

Making AVC's say £250 (half my current savings direct debit)

Or just sticking as I am with a decent savings pot and keep adding to that??

Oh one other question ...assuming I stay full time for now...would my adding to the pension as above make any actual difference to my gross salary for tax rate purposes? I know I'll pay less tax but I mean will my gross pay be reduced and therefore maybe take me out of the 40% band?? I'm close and it's the car and any (minimal no guarantee) bonus' tax that takes the biggest hit!!

(i) Do you contribute to your pension by Salary Sacrifice (sometimes called "smart" pensions, or something like that)? If so, contributing to a workplace scheme is likely to be a better bet than going on your own.

(ii) I'm not sure I see the point of an AVC once you are in your new DC pension, unless the AVC remains connected to your old DB pension and, for instance, would let you take your Tax-Free Lump Sum from the AVC, and accordingly let you draw more pension from the DB scheme.

(iii) Contributing to a pension is a pretty standard technique for avoiding paying 40% income tax.

Therese1

Thank you kidsmugsy!

Re the tax .... Would you mind if I ask what is probably a schoolgirl question?!

Re 40% tax.....

So I have upped my salary sacrifice by a further 10% ... My contribution is now 15% and employer 12% .... I can alter mine annually going forward but basically worked out so that it's same as I was saving .... I have a decent emerg fund.

So my questions ....

Is the tax then only worked out on my remaining salary which is now under the 40% band?? I don't have my payslip with me just now....but where is the company car benefit slotted in??

Sorry these might be stupid questions but now that I have started looking I want to understand it all a bit more!!

kinger101

It's rather hard for us to comment on how much more you'd need to contribute to a pension to avoid the 40% rate, as we don't know how much you're paid, and what car you have. Company cars are now taxed at a percentage of list price, based on how efficient they are and which fuel they use. The best thing you could do is speak directly to HR or payroll, to determine what strategies you might have.

You can use this tool to find out how the car BIK is calculated;

http://cccfcalculator.hmrc.gov.uk/CCF0.aspx

mgdavid

to add abit more:
the car BIK figure is knocked off the annual tax-free allowance, and the reflected in the PAYE code that your payroll office use.
So standard allowance is £10,000 and std code is 1000.
If the car BIK is £7500 p.a. then your allowance is reduced to £2500 and your code will be 250. Other benefits like Medical cover, Dental plan are treated the same way. Do you have your latest PAYE coding letter from HMRC handy?

Therese1

My tax code is 752L.....is that what you mean?

Car is Mini Cooper

top line is £3750/mth

kinger101

OK, I think based on the info you've provided, you currently pay some higher rate

Salary £45,000
BIK 2,480 (calculated from tax code)
Pension -2,250 (5 %)
Total 45,230

Per Allow -10,000

Taxable 35,230

£31,865 will be taxed at 20 %
£3,365 will be taxed at 40 %

Of course, I've not factored in interest, dividends or capital gains.

Paying in an additional 8% of your salary into a pension will put you back into BR .

Edit - just noticed you've already upped your contribution to 15 %, so think you're back at the basic rate.

Therese1

Thank you so much for doing these calculations....much appreciated!

Great news that I've dropped out of the 40% too😀

In a way I'm pleased this kick up the backside has come when I've still got time to do something...

mark55man

Therese1


Good advise already received. I went through exactly what you did about 3 years ago.


FS scheme 22 years service then into DC scheme with graduated employer contribution which I chose 4% they gave 8%, so 12% in all. I am higher into the HR band than you (but still well under 100K more's the pity), and 5 years older.


You have in front of you a challenge and an opportunity
* the challenge is that for many years you have glided along with you pension money going into exactly the right place, namely a big fat FS pension and now you have to do something different
* the opportunity provided by the DC is that it is more flexible - your FS would pretty much tie you in to a 65 retirement with little change of flexibility. so alongside a choice to invest in you r DC pension you also have other investment mechanisms (eg NISA)


The two things you have to think about now are
* what if anything you plan to do with your increased early retirement options (You may have now no intention of retiring early but it is easier with DC)
* how you are going to invest the money (what is your strategy) - within the DC world there is a wide range of choice but you are not limited to using pensions to save for your retirement


Some examples - it is a complete no brainer to invest 5% to get 12%. I am not sure it is such a no brainer to invest another 10% to no additional contribution - especially if not all of that is at 40%. If you are only getting 20% rebate, many would say you should invest in NISA - where you pay 20% on the way in, put nothing on the way out (under current rules). + One advantage of ISAs is that you don't have to wait until you are 55 to gain access to the money - and that is also a disadvantage.


The ISA and Pension are both just vehicles for your money - you have investment choices (often but not always the same in either). Here you have to balance the risk of investment loss against the greater returns available for greater risk. The most fundamental observation is to know what you are trying to receive “Worry about your own portfolio and whether it is reaching your goals, not about how someone else — with different resources, needs and risk tolerances — is reaching theirs"


There is so much more, and for me learning about the investment options and getting to understand money better than I have ever before was well worth the shock of losing my DB.


One final technical detail - when I changed over from DB and DC I was given the option to stay in the scheme but not accrue any more service (but my pension would track my salary) or to become deferred (as though I had left the company) with my pension tracking cost of living. In fact my salary has tracked cost of living, but because of some complicated internal factors I am much better off having chosen to become deferred. This is something you will have to explore and you should be given advice by the company - but please do not think that any choice you are given is obvious as there is a huge complexity and a wrong decision is not often reversible