Pension Contributions and Tax Relief – Which Company?

Mogley

Here goes….:eek:
I have very little experience with investing but like many newbies on here, I have read many threads to improve my knowledge and have started to get an interest in how best to utilise unspent money.
I have recently moved jobs (8 months ago) and I have been setup in my new company’s workplace pension with Scottish Widows. I also have a Worksave pension with L&G from my previous employer. No contributions are being made into this one.
My company contributes 3% of my salary and I contribute 8%. My 8% benefits from salary sacrifice for student loan and NI benefits.
The Scottish Widdows pension has 1% charges on a high risk portfolio “Pension Portfolio One (Series 2)”. It is 100% equity fund investing in many countries and sectors . I’m stuck with 1% charge whichever portfolio I go with as it is through my company. I chose a high risk portfolio on joining as I’m 35 so have some time on my hands.
However my L&G Worksave Pension has a range of funds which have charges between 0.15% and 0.4%. I can manage this pension fund online within the limits of L&G’s range of funds. I have recently balanced this pension pot to suit my needs.
My new salary takes me into the 40% tax bracket (even with salary sacrifice) starting this tax year and I am not fully aware of what the consequences will be for any additional pension contributions.
I would like to know if I am doing the right thing by paying more into my Scottish Widows Pension monthly via salary sacrifice or should I pay the minimum to get my employers contribution and put the difference towards my L&G pension (or another one in future) and wait for the additional tax relief at the end of the year?
I am reasonably good at excel but can’t get my head around how best to work this out because I’m not fully aware of how tax returns work yet (if I do decide to pay more into L&G).
Over to you guys. Thanks in advance.

dunstonh

Can you use a different font next time. That text is very small on a large screen monitor.

Also, this would have been better in the pension section but dont worry as most contributors in there also look here.

The Scottish Widdows pension has 1% charges on a high risk portfolio “Pension Portfolio One (Series 2)”. It is 100% equity fund investing in many countries and sectors . I’m stuck with 1% charge whichever portfolio I go with as it is through my company. I chose a high risk portfolio on joining as I’m 35 so have some time on my hands.

Are you sure it is 1%? Auto-enrolment schemes have a 0.75% cap on default options and the internal SW funds would be just that.

It may have been 1% when it started but it should be on 0.75% or lower by now.

However my L&G Worksave Pension has a range of funds which have charges between 0.15% and 0.4%. I can manage this pension fund online within the limits of L&G’s range of funds. I have recently balanced this pension pot to suit my need

Are those charges on top of a base charge? It is quite common to see personal pensions at 0.4% as total charge but 0.15% as total charge is rare unless it is a very large occupational pension (rather than a group personal pension). The L&G worksave pension does have multiple charges which include additional charges on top of the base charge depending on teh funds/assets you choose to invest in.

I would like to know if I am doing the right thing by paying more into my Scottish Widows Pension monthly via salary sacrifice or should I pay the minimum to get my employers contribution and put the difference towards my L&G pension (or another one in future) and wait for the additional tax relief at the end of the year?

Is the L&G pension still available for you to top up? A lot of workplace schemes end the ability to increment when you leave. They often require conversion to an individual scheme to do that. That is often just an internal adjustment that makes no difference but on an employer subsidised scheme, it would normally make a difference.

Are you able to use salary sacrifice for the additional payments?

bigadaj

Salary sacrifice are relatively more valuable to standard rate taxpayers than higher rate taxpayers, as you get 20% plus 12% as opposed to 40% plus 2%. One critical element for comparison is does the employer give you some or all of their NI savings? If yes then probably worth staying with the comoany scheme, if not then I'd reduce to get the maximum employer contribution and put the rest of your contributions into another pension where the charges are lower.

If contributing elsewhere you just state the numbers on your tax return, you can contact Hmrc and get your tax code amended, or actually do it yourself on their online system midway through the year.

Mogley

@ dunstonh. Thanks and point taken about font. It's small on my screen too!!

I'll have to check the charges again on SW but it maybe due to me chosing a non-standard higher risk fund. I hope it is 0.75%.

I knew there was a reason to post on here. I have just checked the L&G pension and there is no option to add my own contributions!! Should I be looking at setting up my own SIPP or continue contributing as much as I can to SW?

@bigadaj. Thanks. Employer takes all their NI savings!

With amending my tax code, does that mean I can then contribute the same monthly amount as I would by sacrificing my salary each month? My point being, the earlier the money is in the pension, the more potential return.

bigadaj

It won't make any difference to the gross amount you contribute, but would mean you'd get the net pay more quickly, if you didn't change your tax code you'd pay more tax until April and then get the balance back then, either as a lump sum or amending the tax code for the next tax year.

Mogley

Thanks for the info on tax relief. I'll do some research on pensions and charges and put that into a calculator to work out what's best to do with the additional money I can sacrifice.