Army Pension & Salary Sacrifice

Saab_Man_62

Good Evening All, been lurking for an age, but need some enlightenment.

Background: Age 54, Current salary of 55K+car & a DB HM Forces monthly pension of 688 (did 22 years). I have just increased my payment into company pension via salary sacrifice to 15% + 6% company contribution (pot at 90K to date)

In less than 6 months i will be receiving my "full" forces pension of approx 1500 a month, increasing by yearly cpi, I realise than I will be losing a big proportion of this pension at 40% tax, as i currently already do.

We do not require this extra pension income at the moment so rather than just saving (6 mths cash fund already put to one side) would it be a good idea to increase the salary sacrifice % up to match this pension increase to save on the 40% tax? Or is there a better, more tax efficient way to use this extra income.

I have no intention of retiring until at the earliest 60.
Thanks for any input.

Mistermeaner

Nail on head. Increase your salary sacrifice.

Sounds like you will be well provisioned for in retirement. Well done

Linton

Putting your army pension income into your salary sacrifice pension would be the most tax efficient way of using the unneeded income.

Mistermeaner

Linton wrote: »

Putting your army pension income into your salary sacrifice pension would be the most tax efficient way of using the unneeded income.

Could you expand

To my understanding it would be messier if not impossible to direct income from another source into a workplace ss scheme. Tax etc w would have to be reclaimed separately.

Also because pension income is subject to tax only (and not ni) would it not be best to reduce earned income rather than pension income. Ie keep it simple and just put more salary into the ss pension and keep the pension income as is.

molerat

Put the equivalent of your AFPS pension into your current pension via salary sacrifice.

Bootsox

molerat wrote: »

Put the equivalent of your AFPS pension into your current pension via salary sacrifice.

Using salary sacrifice will also reduce NICs (2% @ 40%, plus possible share of employer's NI savings).

Saab_Man_62

Thanks Guys, just as I thought.

We pay the pension increase amount, straight out of my salary into the company pension.

The other half wanted to pay it straight off the mortgage (8 years left) but i believe it financially makes more sense going into the pension and benefit from the 25% tax free to pay any outstanding mortgage at 60.

Mistermeaner

Yes yes and yes. As a high rate tax payer you save 40% on salary sacrifice contributions so pay the mortgage off later out of lump sum

atush

If you can, i'd put in all of your income over 43K

13Kent

Sorry to jump on this thread, but would someone mind explaining exactly how this works as hubby is in a similar position, he has a salary which is just hitting the 40% tax rate, but he also gets a monthly pension of which he loses 40% to the tax man before it goes into the bank. He is paying into a company pension (he thinks he's paying the most he can pay in pension contributions via his salary but maybe it's just the top amount that the company matches so he might be able to contribute more). If he was able to put more into his company pension how would that affect the amount of money he actually gets each month as we can't afford a drop in the amount that actually goes into the bank each month.

We have also lost our child benefit this year as his pension has put his income over the limit.

Hope that makes sense! Thanks in advance.

jem16

13Kent wrote: »

If he was able to put more into his company pension how would that affect the amount of money he actually gets each month as we can't afford a drop in the amount that actually goes into the bank each month.

The main advantage is that you get a lot more in your pension as you get 40% tax relief on it as opposed to 20% tax relief. It's not specifically going to help you avoid a drop in income if you cannot afford to make the pension contribution.