Workplace vs private pension

mullygrubber

Hi there, I currently have a workplace pension and I was told by our employee benefits adviser that it wouldn't make sense to open a private pension and I should only save for pension purposes through my workplace pension as there as tax benefits etc. He was adamant that this was a 'no brainer'.

I thought I would get a second opinion. Is this true? I am sceptical and I believe there are probably quite a few variables to take into consideration.

Any guidance/advice would be much appreciated! Thank you

molerat

If it is by salary sacrifice then you receive the benefit of both tax and NI reduction. Other than that ensuring you contribute enough to get the maximum employer contribution is where the no brainer ends.

lisyloo

Salary sacrifice = income tax relief + employee NI relief + (optionally) employers No relief + (optionally) employers contribution
Private pension = income tax relief

We don’t know whether your employer does salary sacrifice or the two optional parts but your benefits advisor does so he is probably correct.

I would suggest you ask if it’s salary sacrifice and also if they pass on employers contributions in full or in part.
It might be a fantastic deal.

Sea_Shell

I've got both!! I pay 20% via Sal Sac and also pay separately into personal pension too. I've recently made a top up payment to max gross earnings, as I can't use the works one as it'll take me below NMW. But then I don't need my salary to live on.

Paul_Herring

To add to the chorus, its a 'no brainer' only if it's 'salary sacrifice'. Doubly so if they also give you some or all of their NI saving as well.

If it's only a net-pay arrangement, you only need to pay in the minimum required to get their maximum contribution. Any extra you pay in via their scheme is no better (or worse) than putting it in a private pension and getting the rebate.

There'd be less 'paperwork' your end if you don't already have a private pension already set up however, so there may be that. But that's not usually an overriding reason.

Albermarle

Also possibly your employer will have negotiated a low charging regime with the provider, which you might struggle to match opening your own private pension.

mullygrubber

Thanks very much for all your replies.

I have had a look and it does seem to be a 'salary exchange' arrangement from my gross salary before I have paid tax and NI. I also vaguely remember the adviser saying that my employer passes on their full relief to me but I'll double check that. However, regardless of that, I am presuming this means it is safe to forget opening my own private pension and contribute as much as I can into this scheme?

AnotherJoe

Almost certainly, yep. Only reason not to do it would be its invested in a lousy choice of funds. But they'd have to be really bad.

kidmugsy

mullygrubber wrote: »

I am presuming this means it is safe to forget opening my own private pension and contribute as much as I can into this scheme?

Yes; think of all that free money as giving you a defensive wall against trouble in the stock markets.

Marcon

Just to save possible confusion (or add to it!!)...a workplace pension, however it is set up, is often described as a private pension to distinguish it from state pensions, so don't be alarmed if you hear it called that.

If you open another pension for yourself, you'd still get tax benefits, but you wouldn't have an employer contribution or be able to contribute by salary sacrifice.

cloud_dog

For before tax contributions, for a basic rate (Enlgand) tax payer:

Normal: £100 in the pension (works or personal contribution from net pay), costs you £80 (reduces take home pay by £80).

Via Salary Sacrifice: £100 in the works pension, costs you £68 (reduces your take home pay by£68)