Overpay mortgage like mad & work on pension later?

gadgetmind

Westminster wrote: »

I am just starting a 60k job in January where the employer will match contributions up to 5% which seems like a no-brainer to me so I'll stick my 5% in too.

You may want to make sure that you contribute enough to keep child benefit, if not losing anyway due to partner.

Back of a fag packet suggests 17% contributions, which should still leave you enough income to do some overpayment.

You could go further and avoid any 40% but that's your call.

Does your company do Salary Sacrifice?

kidmugsy

The 40% tax relief on pensions might well be abandoned soon. I'd use it while it exists: contribute enough to your pension to avoid 40% income tax. If/when the rules change, revisit the decision.


If your income for 2015-16 doesn't make you a higher rate payer then by all means favour the mortgage (after contributing to your occupational scheme). Then revisit the decision in 2016-17 when you will presumably be a higher rate taxpayer.

atush

I agree. In your case as a HRTaxpayer, i'd whack up my pension contributions to keep 100% of CB, and to gain the higher rate relief.

If your OH works, and earns basic rate, they can overpay. If they are not earning, they can still put 2880/3600 into a pension each year, and should claim the CB (even if it is taxed to 0) as this gives the NI contributions.

How HR relief works (if not salary sacrifice) is that you get basic rate relief added, and the extra relief as a refund (or they just lower your tax code and you get to keep more each month).

Westminster

Thanks for the input guys.

gadgetmind

You're welcome, and I hope "the extra digit" arrives as planned. It's a good career milestone, and for me was when I started to think "Hmmm, maybe I do know what I'm on about?"

Happier_Me

If I then contribute £1000 pm, I only lose £600 from my net income (making it £2838.75) and HMRC adds another £400 to make a total monthly contribution of £1000?

Can all this get done as PAYE or do I have to do some kind of self-assessment claim at the end of the financial year?

Worth checking with your pension provider but I think the 40% tax relief gets automatically added to your pension pot now.

With 5% pension contributions and childcare vouchers, paying an extra £1000 pm should pretty much take you out of the 40% tax bracket at a cost of £600 to you. So that's £1k saved each month, £400 of which would have gone to the tax man and you still have £2k spare. And you get to keep all your child benefit.

gadgetmind

Happier_Me wrote: »

Worth checking with your pension provider but I think the 40% tax relief gets automatically added to your pension pot now.

Only if your employer lets you use Salary Sacrifice. For a Personal Pension or SIPP, the pension provider has no idea of your tax affairs so always claims back 25% of what you put in.

Snakey

I'm sticking as much as I can into my pension while it's still tax-efficient. Thanks to salary sacrifice, this year is the first year that I'm going to be paying higher rate tax despite having had a higher-rate salary (on paper) since about 2001, which has been very satisfiying over the years.

There was a consultation on doing nasty things to people's pensions, which closed on 30 September. Listen out for the Autumn Statement on 25 November. If they're on the ball, they might well have an outline ready - with dates. The Telegraph was saying yesterday that higher rate tax relief might stop as early as next 6 April, although my personal opinion is that this is b0ll0cks as I don't see how all the supporting infrastructure can be put in place at such short notice.

I am also trying to pay down my mortgage. This isn't because it makes financial sense vs investments, it's a risk/comfort thing - I had job issues last year which made me realise how vulnerable having £160k of debt makes you. I ended up back in employment when really I wanted to go freelance, simply because I didn't feel I could take the risk. If your other half also works then that gives you more security than I have as a single person, as it's unlikely that you'd both lose your jobs at once and neither of you would be able to find another.

atush

With SS, every 100 into your pension is costing you only 58.

Snakey

Even less if they give you an uplift for the employer NIC saving. I get 113.8 into my pension at a cost of 58. God knows how long I'd have to leave that 58 in a S&S ISA before it even got up to the initial 113.8 (although being taxed vs not taxed on the way out also needs to be considered, but then you are only taxed on 75% of it, but then the rules will probably change and there's also the lifetime allowance to consider... I normally stop thinking about it at around this time, before I implode).