What to do with £1450 a month?

kidmugsy

siross wrote: »

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

(i) Do you mean that after allowing for the sal sac your 15/16 income still has £9218 exposed to 40% tax?

(ii) Would I be right to assume that it's now too late in the tax year for you to use the DC scheme, or sal sac, to avoid that 40% tax?

(iii) If the answer to the latter question is "yes", would you have any objection to opening a personal pension of some kind to allow you to avoid that 40% tax?

(iv) By what date do you have to arrange your sal sac details for the 16/17 tax year?

(v) Under sal sac, does your employer contribute to your pension any of the employer's NIC (national insurance contribution) that is avoided?

(vi) If you were later to opt for early retirement, would your DC pension pot be available to you separately from your DB pension?

atush

siross wrote: »

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

AS I said previously, up your pension into the DC scheme.

Alice_Holt

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."

Totally agree - I was lucky enough to take early retirement / redundancy at 51. I now work part-time in the charity sector doing a job I enjoy and helping others. My (low) salary supplements my occupational pension.
Putting the maximum I could (then 15%) into my pension made it possible to volunteer at this charity and then subsquently get a job which I am proud to do.

siross

kidmugsy wrote: »

(i) Do you mean that after allowing for the sal sac your 15/16 income still has £9218 exposed to 40% tax?

I forgot to account for salary sacrifice, doh! I get paid £52219 gross. Minus 8% contribution (salary sacrifice) that equals £48041 post SS

That means £5040 of my wage is subject to 40% tax? If my maths is correct. That's 2016/17 figures, my 2015/16 wage subject to 40% will be slightly higher as my contribution is only 6.5% and higher rates of tax kick in slightly sooner

Having said that, I've only been a higher rate tax payer since my wage increase in November 2015 so for 5 months up to the end of March

(ii) Would I be right to assume that it's now too late in the tax year for you to use the DC scheme, or sal sac, to avoid that 40% tax?

I really don't know to be honest, it's a question I can ask though? Would I have to contribute every penny over the higher rate threshold prior to April?

(iii) If the answer to the latter question is "yes", would you have any objection to opening a personal pension of some kind to allow you to avoid that 40% tax?

I've never thought about it, what exactly would be the benefit? Saving of 20% tax on the wage that hits the higher threshold?

(iv) By what date do you have to arrange your sal sac details for the 16/17 tax year?

Again, no idea sorry

(v) Under sal sac, does your employer contribute to your pension any of the employer's NIC (national insurance contribution) that is avoided?

Again I don't know, I'm starting to sound like a complete fool now.

(vi) If you were later to opt for early retirement, would your DC pension pot be available to you separately from your DB pension?

From what I understand yes, they are different pots. Not sure if they're treated differently upon retirement though

Hi @kidmugsy, please see comments in red.

atush wrote: »

AS I said previously, up your pension into the DC scheme.

Thanks, I'm trying to have a chat with the University pension people to get a bit more advice.

Alice_Holt wrote: »

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."

Totally agree - I was lucky enough to take early retirement / redundancy at 51. I now work part-time in the charity sector doing a job I enjoy and helping others. My (low) salary supplements my occupational pension.
Putting the maximum I could (then 15%) into my pension made it possible to volunteer at this charity and then subsquently get a job which I am proud to do.

I'm starting to think that I'm not as financially savvy as I once thought I was. I've always contributed to a pension, because of my Dad's advice but I've always saw it as an inconvenience rather than an investment. I think this is partly down to only just turning 30 and an ever increasing retirement age.

I would love to retire early and have the opportunity to do a job I love. My Dad never reached retirement age, we lost him December '14. I don't want to follow in those footsteps.

kidmugsy

siross wrote: »

Would I have to contribute every penny over the higher rate threshold prior to April?

Yes, by April 5th at the latest. It's not hard. You calculate how much is exposed to 40% tax in 15/16, multiply that by 0.8, and contribute that amount to a chosen provider. We use Hargreaves Lansdown's SIPP (self invested personal pension): their service is excellent and their charges are reasonable for total pots of less than about £40k or so. They claim back half the tax rebate and add it to the pot; you phone HMRC and claim back the other half, which goes into your bank account. Be sure to tell HMRC your gross contribution, i.e. the number before you multiplied by 0.8.

Give HL a ring: they'll accept the money over the phone from your debit card. Or, just to make sure, compare their prices and service with a couple of other providers e.g. Cavendish Online and AJ Bell Youinvest.

After you and HL have received the rebates from HMRC, you'll find that you've got £100 in your "pot" for every £60 of after-tax earnings you've given up.

In future tax years, e.g. 16/17 onwards, it will probably be more effective to use the salary sacrifice because of the advantage in terms of NICs; that's why it's worth getting the answers to some of my other questions. In other words, is it already too late to set up some more sal sac into the DC scheme for 16/17?

If you want to retire early the answer is to build up "money purchase" pensions, such as your DC section and a SIPP, so that you can live off those while you wait for your DB pension and State Pension to become available. It's also worth getting the 40% tax rebate while it's available: I wouldn't bet on its surviving far beyond the 2020 general election, whoever wins it.

Anyway, once your money is in a pension "pot" you can take a breather while you consider what to invest it in. Take a year if that's what you need to build up the confidence to make a choice.

atush

This year, open a sippa s described. then speak to your employers HR about their options. But dont miss this year's contribution while waiting for them to pull their finger out?

after all, as you pay HRT, 100 into a pension is only going to cost you 60.

Cisco001

Before consider putting money in pension, I will ask how much money do you need for moving in 2-3 years time?

BTW, when say you need to move, do you mean buying a new house?

Bear in mind once you put it to pension, you can't take it out until pension age.