Best option for (potentially) short term pension

msallen

Hi all

A bit of background: I changed employers 3 or 4 years ago to a very small company that isn't offering an auto enrolled pension until early 2017, so have not made any pension contributions since then. That's fine as I've put the spare cash to good use in the meantime. However I am now in a position to start paying into a pension again. My salary is about £50K.

I could just wait until my employer's scheme starts next year and save the cash (or put in an S&S ISA) in the interim, but I am considering starting my own pension now in order to benefit from maximum tax relief, and as an added benefit this would also bring my taxable salary down into basic rate territory and thus save me a bit extra in savings interest as that's likely to be between £500-£1000 this year.

I don't yet have any idea what will be offered by my employer, so (after contributing at least enough to get their maximum matching contribution) I may or may not wish to continue making payments into my new separate pension.

Thus any pension I start now has to be flexible enough that I could stop further contributions (or at least minimize down to perhaps £50pm if that allowed me to keep future options open) within a year.

That being the case I was thinking of a cheap percentage based fee SIPP such as Cavendish and just piling everything into a good passive option like Vanguard LS80.

Does this sound reasonable or would an off the shelf personal pension product be better. I'm not looking to actively DIY a portfolio (at this stage).

Many thanks for any thoughts you might have.

AnotherJoe

SIPP sounds very reasonable. Also check out Hargreaves Lansdown for the SIPP, if you google there are tables of who does best SIPPs for different amounts invested but with a SIPP (or at least the ones I've checked out) there's no comitment to put any particular amounts in on an ongoing basis.

msallen

Thanks AnotherJoe - I had a quick look at a comparison table and for the first year at least (with £10K or less in there) Cavendish looked the cheapest, but I'd be happy to be corrected on that.

A related question to follow up.

My intention for this tax year is to pay in just the amount above the earnings threshold for HR tax, thus getting the full 40% relief on as much as possible and taking my taxable earnings (just) below the threshold.

Using round figures for simplicity - am I correct in thinking that if my salary was £50K and I wanted to take my taxable earnings down to £42K then via an employer pension I would be looking to contribute £8K of my pre-tax salary, so to achieve the same result would I need to contribute £6400 (of my after tax income) to the pension? I believe this would automatically be increased to £8K in the pension with the addition of 20% tax relief and I would then get another 20% relief after claiming it from HMRC (and I assume this other 20% from HMRC would be paid via next years tax code would it?).

Thanks again

AlanP_2

Logic and maths looks fine to me so you end up with an £8k contribution at a net cost of £4.8k.

You don't need to wait until next tax year, just contact HMRC and tell them what you are contributing this tax year and they will adjust your code for this year.

FWIW we have a SIPP with Fidelity via Cavendish and I've found the support from Cavendish via email to be excellent with prompt, helpful replies.

msallen

Thanks AlanP. I've taken the plunge and opened an account with Cavendish.