over pay work pension or start sipp

berserker

My work pension scheme contributes 4 % so not something to miss out on. But the scheme has annual charges at 0.85% with no cap.
Its with scottish equity and they charge extra for other peoples funds within the portfolio.

im looking to over pay by a further 8%. My concern is if I put all of this into the work fund. The charges are going to stack up quickly Especially if I want to acheive the asset allocation im looking for.

So I think im better off to contribute the minimum for maximum work contribution. And asset allocate as best i can within the fund. E.g ftse tracker and dev world trackers.

Then pay rest into a sipp and use the sipp for the rest of the allocation. Plus annual balancing of portfolio in sipp.

Again main reason for this is to target well managed funds and keep charges to a minimum.

Any help would be appreciated

B

atush

Is your work pension salary sacrifice? What rate of tax do you pay?

what is the total charges for te funds you want to hold in the sipp of choice?

xylophone

You might have a look at the list here and do some research.

http://www.money.co.uk/pensions/personal-pension-plans.htm

http://www.moneywise.co.uk/pensions/managing-your-pension/how-to-choose-your-pension-funds

http://monevator.com/cheapest-pension-diy/

berserker

Dont think pension is salary sacrafice. Tax band is higher.
Aim for annual charge of 0.3%

jamesd

Since it's not salary sacrifice just go ahead with the two pension approach.

You might also consider mentioning to HR that they are missing a chance to save some money for both the firm and employees by not using salary sacrifice. Next tax year my employer is going to pretty much pay for their employer match of some of my contributions with the gains from them keeping half of the employer saving on all of my pension much larger contributions.

eastcorkram

Not wishing to hijack, but seems silly to start another thread when I was going to ask something similar !

I read on here about how important it is to save into a pension. I also hear about how you should make the most of the employers contribution and so on. But then I hear some people talking about saving too much into a pension.

My employer will sadly only pay 2.5%. I currently pay 20%. I should point out that I'm not really doing this to get a pension as such. It is too late for that with this scheme really. I have been in it a year, and am 55. I just thought it was a good way of saving. Basic pay is about 32000, and the pension is salary sacrifice. Over time and bonus take the salary to about 44000, and tax code is 500L.

The scheme is with HL (sipp) and at the moment it goes into four different funds. I know nothing about such things, and they were just advised to me at the start. They seem to be doing OK at the moment.

So....is it Ok to pay in the 20%?? Seems better than just saving it into a bank.

xylophone

Tax band is higher.

And as you pay tax at higher rate, check out the tax reclaim position.

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

xylophone

tax code is 500L.

Are you receiving income over and above your salary?

What does your notice of coding show?

eastcorkram

xylophone wrote: »

Are you receiving income over and above your salary?

What does your notice of coding show?

the tax code is what it is due to BIK (accomodation mon to fri).

jamesd

eastcorkram, since your pension is salary sacrifice the NI saving makes it the best initial pension deal you can get, particularly given the very wide choice of investments available from HL. Since you are 55 years old you are no longer restricted in ability to access the money.

I suggest that you urgently place at least some of your pot into capped income drawdown. This is because it will allow you to take out the 25% tax free lump sum and also each tax year the GAD limit amount from the rest. If you wait until after 6 April 2015 you will not have this option any more, instead being able to use only flexi-access drawdown and get the 25% but without being able to take out a Pound more without triggering a reduction in the annual pension contribution allowance from 40k to 10k. Then I suggest that you take the GAD limit amount as regular monthly income and use it to help fund higher salary sacrifice pension contributions. You can add more to the capped drawdown pot later, provided you beat the deadline to start it no later than 5 April 2015. The GAD limit for February at age 55 is 6.15% of the 75% pot each year. Doing this gets you a low cost tax gain each year that increases over time as you move more into drawdown each year.

Because you can at any time choose to use flexi-access drawdown and because of the combined income tax and NI relief it makes sense to move much of your other savings into the pension via salary sacrifice.

You can also recycle the pension lump sum into pension contributions if you like. There's a restriction on how much but given the amounts that you have paid in so far it seems unlikely that you would exceed the 1% of the lifetime allowance test, which is £12,500 of lump sum taken within a 12 month period. It seems unlikely that your future contributions could generate a larger lump sum than this as well, so you can effectively ignore the limit.

Notice the big difference between what I'm telling you - with salary sacrifice and near to or over age 55 - and what I wrote to berserker, who isn't using salary sacrifice and where I presumed not being close to 55 because no age information was given.

berserker

xylophone wrote: »

And as you pay tax at higher rate, check out the tax reclaim position.

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

Thx guys yeah I, m thinking best approach is to claim tax relief back and put into sipp.
I have looked at the funds available from company scheme and there is sufficient good ones for me to allocate assets to and leave enough for rebalancing in the sipp.

Eastcorkram. Its worth you reviewing some of the threads listed. Especially the monevator one. Main reason for me to split funds is to reduce the charges on my pension. Due to company picking pension scheme. So might be worth checking how much they are charging you in pension scheme vs what you get elsewhere. Especially as you are looking at pure return and not compounding.

Theres also some good posts out there for pension schemes post retirement and asset allocation you may find interesting