Pension Scheme advice

masscrazy

We have till Friday to decide on the opting into the "you pay they pay" 5% me and 5% them

Or

3% them only.

I'm not entirely sure what to do.

Is it possible to opt-in later in a few months, or at anniversary.

mgdavid

the 5 + 5 sounds like a no-brainer. Unless you are also contributing into other pension plans it's probably sub-optimal but you have to start somewhere.

Triumph13

When / if you get a chance to change your mind will be down to the rules of the individual scheme and should be included in the documentation.


If you can possibly afford it, then the 5 plus 5 is going to be the best way to go. Assuming you are a basic rate tax payer every £100 net you put in gets turned into £175 (£25 tax relief and £50 from the extra 2% employer's contribution). You won't get a better investment deal than that. You should also bear in mind that a total contribution rate of 3% is not going to buy you a comfortable retirement.

masscrazy

Thanks for the info.

I guess 5 + 5 is the best option. Will find out whether its an option to change to 5+5 later, that would be better for me right now.

PeacefulWaters

If you want to be poor in retirement stick with 0%+3%.

If you want half a chance when older pay in more.

atush

Do a full MSE and a spending diary.

Cut waste out of your spending to afford the 5% (which is really only 4% to you as 1% will be tax relief unless this is salary sacrifice).

masscrazy

atush wrote: »

Do a full MSE and a spending diary.

Cut waste out of your spending to afford the 5% (which is really only 4% to you as 1% will be tax relief unless this is salary sacrifice).

Quite a bit of jargon I dont understand here.

What is doing a full MSE?

Salary sacrifice not happening (if i understood the term correctly).

I suppose 5+5 makes sense. Problem is im already paying too much tax due to have property income (they take tax from my salary before submitting tax return, not sure why) and i'm paying 220 NI and 100 student loan. All in all about 800£ gone before I even see my salary. Then add another 100ish for the pension and that is depressing.

I'm in the 20% tax bracket and quite a ways off being at 40% tax bracket fyi.

Dunnit

There are threads on this site which help you manage your budget. In the pensions section there is a tendency for advice being centred round taking advantage of free money by spending less on other things.

I understand that paying into a pension will decrease the amount you have to repay towards your student loan making pension contributions even more attractive.

bowlhead99

masscrazy wrote: »

Problem is im already paying too much tax due to have property income (they take tax from my salary before submitting tax return, not sure why) and i'm paying 220 NI and 100 student loan. All in all about 800£ gone before I even see my salary. Then add another 100ish for the pension and that is depressing.

It doesn't need to be depressing if you change your mindset. For example, you are using up your salary income to take a chunk of tax that you owe on your property business. By taking tax from your PAYE, it means you don't need to keep spending as much money from your property income to settle taxes and can keep more of the property money free and clear to invest in paying down a mortgage or just spending on stuff. So, that does not cost you a penny, you simply pay out of one income stream instead of the other.

Similarly if you add 100 for the pension and think you are spending £100 on something that you don't benefit from, you'll rightly feel depressed. But if you instead think that you were giving up £125 of gross pay before tax (which only costs you £100 after tax) in exchange for a pension investment that contains £125 of your contributions AND £125 of free money from your employer, that is a great investment.

Giving up roughly £100 a month (if that's the right number for your salary) gives you a pot of money increasing by £250 every month. The alternative is to only get three fifths of the money from your employer and no tax break. So in this example you would have £100 more cash in your hand and a pension pot of £75 from the employer contribution. That would be £175 every month.

Clearly if money is tight and you feel you are giving away too much in taxes etc, then you want all the advantages you can find. Getting an investment of £250 instead of £100 cash and £75 investment, is a useful bonus. Think of it as a pay rise - it's free money from your employer that you wouldn't otherwise get.

Also, when you are talking to mates at work about this before the Friday deadline, if some of them are not going to go for the 5% match, just say to them "don't you want the free money??". Eventually the penny will drop, with the smarter ones.

atush

masscrazy wrote: »

Quite a bit of jargon I dont understand here.

What is doing a full MSE?

Salary sacrifice not happening (if i understood the term correctly).

I suppose 5+5 makes sense. Problem is im already paying too much tax due to have property income (they take tax from my salary before submitting tax return, not sure why) and i'm paying 220 NI and 100 student loan. All in all about 800£ gone before I even see my salary. Then add another 100ish for the pension and that is depressing.

I'm in the 20% tax bracket and quite a ways off being at 40% tax bracket fyi.

given you found your way to this website, I'd guess (obv wrongly) you've read more of Martin advice? It means do a check of every outgoing bill like insurance, utilities etc and make you you are getting the best deal

Salary sacrifice saves the company money, too bad.

And yes paying tax on property income is a pain, which is why pensions can be better for retirement than BTL?

Your pension should not be depressing. Because if 100 is 5%, then your 100 will cost you 80, plus your employer will add 100. So you will be getting 200 in your pension at a cost to you of 80. how can that be depressing?

masscrazy

Thank you bowlhead99 for the explanation it makes alot of sense. I suppose I should think of it as a long term investment which I will see benefit of in a long long time. And will I even get to see it.

Am I right to assume this is pretty safe? Could there be an instance where Standard Life go under and all the money with them is lost?

@Atush - what is BTL...