Decisions about Pension

NAN63_2

Hi,

I am 44 years of age with no pension but have just started with a company where the employer contributes 3% of your salary. I am a 40% tax payer with about £900 disposable income at the end of each month. Should I pay in as much as I can into this pension to make up for the years I have missed? (The pension is with Standard Life) Looking at this website I should be paying 22% of my salary which works out at £1000 per month! Also, is it best to have two pensions funds i.e, spread my risk. What to do????!!!!

EdInvestor

IMho you should pay in enough to reduce your salary to the basic rate band (assuming this is also adequate to attract the full employer contribution.)

Then IMHO you should invest the balance of the 900 pounds into a maxi ISA ( up to 7k a year) in a range of funds, much the same as the pension.Use a discount broker wihich will rebate charges such as https://www.h-l.co.uk

This will give you two retirement income streams ( as well as your 2 state pensions) - the SL pension (taxable) and the ISA fund (tax free.) If it's beneficial , you can put a lump sum from the ISA into your pension closer to retirement: but you can't do it the other way round.

So best to keep all your options open: the actual investment returns can be the same regardless of the wrapper you use

NAN63_2

Hello

Thank you for your quick reply - just a couple of questions. What does IMHO stand for? Also, not sure how i could reduce my income to lower tax rate. If I am earning £54,700 gross I would have to make payments over a thousand a month to get my salary down to £34,000?? Excuse what may seem inane questions.

dunstonh

Looking at this website I should be paying 22% of my salary which works out at £1000 per month!

£1000pm will only cost you £600 net. If you are potentially in receipt of working/children's tax credits, you could get an increase in those with larger pension contributions which in effect increase the tax relief.

Also, is it best to have two pensions funds i.e, spread my risk.

A pension is just a tax wrapper. It doesn't have any investment risk. Where you invest the money is where the risk takes place and you should pick the funds to match your strategy and investment risk.