What to do with £1450 a month?

siross

Thanks, quite a bit to think about.

Sorry @Colsten. I missed your original question.

Currently I am in an opted out salary sacrifice scheme (Defined Benefit) with USS (I work for a University). My contributions are 6.5% currently but that will be going up to 8% with my employer upping their contribution to 18%

I've been reading a bit more on my pension and I can make an additional contribution to the Defined Contribution scheme, which is described as:

"The Defined Contribution (DC) section will provide an amount of money which is based on how much has been paid in by you and your employer during your membership, how those contributions are invested, and how well those investments have performed (after any relevant charges have been applied)"

DC comes into play automatically when earning over £55k. This doesn't apply to me. However, I can make additional contributions and if I pay "at least 1%" my employer matches it. Anything above 1% will not automatically be matched by my employer.

Pensions are a minefield and I haven't got a clue about them to be honest. I've been paying into 1 for around 9 years now.

~6 years in LGPS
~3 years (and counting) in USS

They are currently not linked.

KTF

LXdaddy wrote: »

You might be right but my reading of page 9 of the first link is that eligibility for the Monthly saver includes a requirement to have used the switching service.

Yes, the first link is the t&c that apply from April 6 so the clause would apply then.

lawriejones1

I remember when I used to work somewhere with 25% of my salary going into a pension. Happy days! I now stick aside 12% - 15% which seems reasonable. Hope so!

siross

Any ideas on the pension front vs savings?

From 1st April 2016 I will have a combined contribution of 26% going into my pension, 8% from me and 18% from my employer.

Thanks,

Simon

kidmugsy

siross wrote: »

Currently I am in an opted out salary sacrifice scheme (Defined Benefit) with USS (I work for a University). My contributions are 6.5% currently but that will be going up to 8% with my employer upping their contribution to 18%

Note that the 18% is nominal: the employer has eventually to put into the scheme whatever is required to fund your pension, until that employer either leaves the scheme or goes bust. In the event of the latter other employers in the scheme are then meant to pick up the slack.

siross wrote: »

I can make an additional contribution to the Defined Contribution scheme... if I pay "at least 1%" my employer matches it. Anything above 1% will not automatically be matched by my employer.

So contribute the 1% and harvest the employer's 1%. "Free money!" as everyone likes to say.

Then consider contributing more, because salary sacrifice is so tax-efficient. You might decide to use it while it's still available. (You might pause until the Budget on March 16th just in case there's an announcement that would influence your decision.) Weigh this potential extra pension contribution against the need for liquidity in view of your proposed house move. If sal sac survives, you could always make a bigger contribution after the house move and contribute just the 1% now.

With your pay rise, are you now a higher rate tax payer?

siross

kidmugsy wrote: »

Note that the 18% is nominal: the employer has eventually to put into the scheme whatever is required to fund your pension, until that employer either leaves the scheme or goes bust. In the event of the latter other employers in the scheme are then meant to pick up the slack.

So contribute the 1% and harvest the employer's 1%. "Free money!" as everyone likes to say.

Then consider contributing more, because salary sacrifice is so tax-efficient. You might decide to use it while it's still available. (You might pause until the Budget on March 16th just in case there's an announcement that would influence your decision.) Weigh this potential extra pension contribution against the need for liquidity in view of your proposed house move. If sal sac survives, you could always make a bigger contribution after the house move and contribute just the 1% now.

With your pay rise, are you now a higher rate tax payer?

Not sure I understand your first point regarding the 18% being nominal?

I'll have to do some sums and see how an extra 1% affects my monthly take home pay. I'm trying to balance being sensible for the future, saving for a house move and also living a life.

I am a higher rate tax payer now yes.

colsten

siross wrote: »

Pensions are a minefield and I haven't got a clue about them to be honest.

You don't want to wait until you retire to understand them better. The earlier you save more for your retirement, the more financially secure you are likely to be when you get there. You might also be able to retire earlier.

The additional 1% into your DC scheme sounds like a no-brainer, as kidmugsy has already commented, and other actions might be prudent. Essentially, you need to work back from how much you want to get in pension payments, for how many years. That will dictate how much you need to put aside now.

Lots of information available everywhere, e.g, on http://www.pensionsadvisoryservice.org.uk/. You might also benefit from a chat with an Independent Financial Advisor.

colsten

siross wrote: »

I am a higher rate tax payer now yes.

Depending on how much you are over the threshold, additional pension contributions could bring you back into BR tax territory. Also, every 60p you put into a pension will immediately be worth £1 under current legislation (which is now rumoured to remain unchanged in next week's budget). When you come to drawing your pension, 25% will be tax free, and the rest will be taxable at your then tax rate. Many people will be BR tax payers when they start drawing a pension.

jimjames

siross wrote: »

Not sure I understand your first point regarding the 18% being nominal?

You said it's a DB scheme so the employer has to fund it regardless of the % amount.

siross wrote: »

I'll have to do some sums and see how an extra 1% affects my monthly take home pay. I'm trying to balance being sensible for the future, saving for a house move and also living a life.

In your OP you have £1450 spare per month, surely you can use 1% from that to pay into pension and double it immediately?

siross

colsten wrote: »

You don't want to wait until you retire to understand them better. The earlier you save more for your retirement, the more financially secure you are likely to be when you get there. You might also be able to retire earlier.

The additional 1% into your DC scheme sounds like a no-brainer, as kidmugsy has already commented, and other actions might be prudent. Essentially, you need to work back from how much you want to get in pension payments, for how many years. That will dictate how much you need to put aside now.

Lots of information available everywhere, e.g, on http://www.pensionsadvisoryservice.org.uk/. You might also benefit from a chat with an Independent Financial Advisor.

Thanks, I think I might need to chat to an IFA, I haven't got a clue how much money I will want/need. It seems like a long, long way away but will probably be here before I know it.

colsten wrote: »

Depending on how much you are over the threshold, additional pension contributions could bring you back into BR tax territory. Also, every 60p you put into a pension will immediately be worth £1 under current legislation (which is now rumoured to remain unchanged in next week's budget). When you come to drawing your pension, 25% will be tax free, and the rest will be taxable at your then tax rate. Many people will be BR tax payers when they start drawing a pension.

I think I'm correct in saying that anything over £43,001 is 40% tax rate? Based on £11,000 at 0% and £32,001 at 20%. (Based on 2016 rates).

With that in mind I'm £9218 over the higher rate threshold in 2016...