Company pension contributions and ISA money

Waldorf_Statler

bowlhead's 4th paragraph is key. you could move savings into your pension now and count the tax relief as upside. however the earliest you could access will be around 57 years of age - at which point you would likely still be working and probably earning above the 40% tax threshold from the sounds of your situation. Therefore if you drew this pension at 57 years of age it would count as income and be subject to your tax rate.

If you don't need the money until you actually retire then it's a good idea to do as you suggest as you'd probably draw it at 20% tax rate.

I'm actually in a similar situation. I have thus far refrained from doing it because I know that I will want to move house within the next 10 years. So diverting an extra £10k a year into a pension (instead of savings) would restrict what I could afford to buy. For me the decision is about lifestyle rather than finances.

fifeken

bowlhead99 wrote: »

But as above you do have to work it through all the way to the end to see what tax you save. In the example above, after taking out a 25% tax-free lump sum and getting net £2720 in retirement, it was not a massive amount more than just getting the £2560 from the ISA. Looks like about 6% more money. So if you borrowed money for a few years to help fund it and incurred interest charges, you're eating into that gain.

That maths was excluding your healthy NI savings so the gains can be really quite substantial, but borrowing money to make more pension contributions than you can really afford, just like borrowing money to make other types of investments, is quite risky, and if the money you borrowed is stuck in a pension scheme that can't be accessed for decades, you could get yourself into a mess. I don't want to dwell on that and take this thread off topic because there was another thread in the last couple of days on it.

Thanks for the reply. I've quoted just part of it here as that seems the bit I was unsure of, but you and others have done the arithmetic and I'm more comfortable with it now.


The addition of the NI reduction (which I didn't realise about when I started the thread) make it much more attractive, and I just have to satisfy myself that I still have enough accessible savings in case I need them.