how to calculate optimal pension contributions..

kevshed

Hi,

I realise this is likely a complex question - but wanted to just sound out if worth pursuing or not...

I have an income of approx 130k a year and am looking to try and balance my pension contributions in order to reduce my tax bill...

As a single earner - my personal allowance is zero... and whilst i do contribute around 20% to my pension - i wanted to see if there was a positive impact to increasing this (at hope of recouping some person allowance) without impacting my monthly net income...

i.e. reduce tax by increasing pension, without impact to monthly take home pay (retirement benefit vs HMRC benefit!)

is this something worth exploring in more detail ? my spreadsheet experiments were inconclusive - but im sure some advisers here have dealt with others in my circumstances.

tx !

jem16

kevshed wrote: »

is this something worth exploring in more detail ? my spreadsheet experiments were inconclusive - but im sure some advisers here have dealt with others in my circumstances.

tx !

Definitely worth exploring. If you can get your income below £100k you will get back all of your personal allowance. So you're not only gaining that but tax relief on the pension contribution.

chrisbur

The following link gives a chart for marginal rates of tax/NI
http://www.telegraph.co.uk/finance/personalfinance/tax/11544301/The-chart-that-shows-there-are-12-rates-of-income-tax.html

As you lowered your income you would first be reducing tax/NI to 42% so your after tax/NI earnings would go down by 58%. You then come to the 62% marginal rate as you regain the personal allowance so then after tax/NI earnings would go down by 38%. Once that is passed you are back to 42% marginal rate so again after tax/NI earnings down by 58%.

chrisbur

jem16 wrote: »

Definitely worth exploring. If you can get your income below £100k you will get back all of your personal allowance. So you're not only gaining that but tax relief on the pension contribution.

By my admittedly very rough calculations reducing income from £130000 to £100000 would result in a reduction to post tax/NI pay of around £1000 a month.

kevshed

thanks all - ok i'll take a closer look at this... appreciate all the replies.. thanks !