Should I stop paying into my company pension?

616Engine

The last year or so have been good to my pensions and they are currently worth about £770k. I have about 7.5 years before I turn 55 so with 4% per year growth I will be over the £1m where I have to pay 50% on any withdrawals. I'm wondering if it's time to stop contributing as my company will pay 8% to me in cash (less tax and NI). I'm unfortunately in the 45% tax band. At the moment my base contribution from my company is 7.5% (with a 3% contribution for me). I contribution an extra 5% (so 8% in total) and they also match that with another %5 (so 12.5% in total). The total contribution to my pension is 20.5%. Seems to me taking the cash isn't a good idea since 45% tax plus NI will be more than 50% tax as withdrawal from the pension. Plus with the company contribution 5% for each 5% I get I'm getting 100% instant return on my investment?

Thank you for your help and advice.

ThinkingOutLoud_2

OK. I suspect thanks to the stellar market performance - there will be a few with the same consideration.

One thing to note is that after this year - the LTA is supposed to be increased in line with CPI - so if that hits the 2.8% claimed - that would mean your 4% growth guess would not necessarily threaten the LTA so soon.

The scale of matching contributions and tax relief is hard to ignore as you say.

I suspect you need to watch closely performance over the next years and keep considering this.

zagfles

I take it you're aware of the tapered annual allowance and have done your sums on that?

You seem to have got your sums wrong elsewhere - NI is 2% on earnings above the UEL (about £43k). So added to 45% makes 47%.

Plus the excess LTA charge is 55% not 50%. Or 25% plus income tax on withdrawal, which makes 55% if you pay 40% tax on withdrawals (it's compounded).

kidmugsy

I always wonder how people can earn enough money to pay 45% income tax and yet can't get their facts or their arithmetic right.

MEM62

kidmugsy wrote: »

I always wonder how people can earn enough money to pay 45% income tax and yet can't get their facts or their arithmetic right.

Why would you assume that all jobs that put you in the 45% tax bracket require an ability with mathematics or an understanding of tax calculations?

ThinkingOutLoud_2

MEM62 wrote: »

Why would you assume that all jobs that put you in the 45% tax bracket require an ability with mathematics or an understanding of tax calculations?

Very true. It is actually quite fascinating how many of the most successful people (in £ terms) are amazing at making money - but less able to count it in detail.

To cite one famous case - https://www.quora.com/How-good-in-math-is-Richard-Branson

I have no idea if Ed Sheeran or Lionel Messi or the Dalai Lama can talk pensions or solve quadratics - but that their talent and the value of their contribution is clear and yet cannot be summarised in terms of numbers alone.

On the other hand, those blessed with immense IQ, mathematical prowess occasionally also lack much emotional IQ. That doesn't make them poor humans beings either.

IMHO we should be wary of criticising folks for talents / skills we have - the world would be very boring if everyone was a MSE and this forum would not exist!

zagfles

ThinkingOutLoud wrote: »

Very true. It is actually quite fascinating how many of the most successful people (in £ terms) are amazing at making money - but less able to count it in detail.

To cite one famous case - https://www.quora.com/How-good-in-math-is-Richard-Branson

I have no idea if Ed Sheeran or Lionel Messi or the Dalai Lama can talk pensions or solve quadratics - but that their talent and the value of their contribution is clear and yet cannot be summarised in terms of numbers alone.

On the other hand, those blessed with immense IQ, mathematical prowess occasionally also lack much emotional IQ. That doesn't make them poor humans beings either.

IMHO we should be wary of criticising folks for talents / skills we have - the world would be very boring if everyone was a MSE and this forum would not exist!

This is true - I know a few highly paid people and their attention to detail is almost non existant - they are more 'strategists' who are brilliant at looking at the big picture and get others to worry about the nitty gritty.

In the case of the OP - pensions are very complex at that level of earnings, so he/she either needs to take the time to understand and get to grips with all the technicalities and rules, or get financial advice.

kidmugsy

MEM62 wrote: »

Why would you assume that all jobs that put you in the 45% tax bracket require an ability with mathematics or an understanding of tax calculations?

"mathematics"! It's primary school arithmetic. In the age of the calculator or spreadsheet. And if they can't hack primary school stuff they can afford an accountant.

OneInTheHat

yes be very aware of what zagfles has said

if you are earning £210,000 it's likely you can only contribute £10k into your pension this year. I have bumped into a few people who were totally unaware of the new tapering of the annual allowance. For every £2 you earn over £150k, the annual allowance of £40k gets tapered down to the £10k level.

616Engine

thank you for the useful advice. I was corrected by a colleague about the 55% v 50% afterwards. My maths is more than adequate. Thank you for asking. However, high rate tax player or not, I suspect that many like myself that have demanding jobs/family find being a pension/tax expert challenging. Hence my asking for advice here.

I going to continue contributing for a while yet. I'm not convinced this 'Trump Rally' has strong foundations.

Richard_Dyer

Re. "...my pensions and they are currently worth about £770k..."
By way of contrast. I will be 70 in 13 years from now and my pension prospects look bleak. My stakeholder pot with Legal & General is only work about £76k and my forecasted pension earnings is estimated to be £1,600 pa. Who could live on that. My contributions amount to around £8,000 pa but the value of my pot is only growing by half that amount. I'm basically loosing £4,500 a year by paying into a pension. Admittedly some of that money is company money and tax relief I would otherwise not have had, but it makes the whole thing seem rather pointless. In hindsight I wish I had never got involved with pensions. If I had invested all the money I've wasted on pension contributions into buying property, I would have been retired and livening a comfortable life on rental earnings at least 10 years ago.

Another contrast the company I work for matches my contributions only up to 6%. I'm one of the lucky ones (pah!). More recent recruits only get up to 1% !

If somebody stood the person who persuaded me that contracting out and buying into personal pensions and pie in the sky final salary schemes was a good idea, I'd punch them square in the face.