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Maximum salary contributions

blackwidowuk
Posts: 6 Forumite
Hi there,
It looks like I'm going to be offered a job at around 33k a year - and the pension contributions are pretty. The company will double whatever I put into my pension. The only thing I get really confused about is, how much would this allow me to put into my pension each year, and how much will they be able to put into my pension?
Thanks for reading.
It looks like I'm going to be offered a job at around 33k a year - and the pension contributions are pretty. The company will double whatever I put into my pension. The only thing I get really confused about is, how much would this allow me to put into my pension each year, and how much will they be able to put into my pension?
Thanks for reading.
0
Comments
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The company will have set a limit on the max they are prepared to double.0
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Thanks for the reply Andy.
What I meant was, based on a salary of £33k, if I were to put 10% of my salary into a pension, would that mean £3.3k per year, and they'd put £6.6k per year into the fund? Or are the figures taken after tax? Also is there a percentage limit on how much you can put into your pension? I remember it being 17.5% years ago, but I don't know if that still applies.0 -
The maximum amount that can go into your pension annually is £225,000. However, you only get tax relief upto your salary. So realisitically the contribution limit is 100% of your salary in your case.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0
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blackwidowuk wrote: »Also is there a percentage limit on how much you can put into your pension? I remember it being 17.5% years ago, but I don't know if that still applies.
No. Those old limits of 17.5/20% etc of your salary stopped a few years back. The new limits are several hundred thousand a year, up to a life time limit of 1.5 million or so. In other words, you could pay in more than your salary every year if you wanted (assuming your employers scheme permits it, which it won't)- But - you only get tax relief on money you've paid tax on.
If I were you, I'd be paying the maximum in that the employer will allow. Assuming you're a basic rate tax payer, then for every gross £1000 you pay in (£800 net from April) immediately becomes worth £3000 with your employers contributions. Then when you retire, you can take 25% of your pot back tax free, so from this £3000 you can get back £750. Therefore, in effect, your pension has cost you £50 per £1000 (£750 back from £800 put in, plus an annuity from the remaining £2250).
Bargain.
Cheers,
Judwin0 -
Hi.
Generally for an employers scheme your contributions are deducted before tax. So it is not that it is grossed up - it is simply never taxed in the first place. You can pay more than you salary in if you want - but you would have it to pay it direct yourself (probably via cheque) and then claim the tax back via self assessment.
The £225,000 is an allowance not a limit - you can put more in but you will subject to a punitive tax charge on the excess (whihc you have to pay it is not deducted from your pension) so is not going to be worthwhile.I have worked for 5 years as a Pension Administrator and then a further year in a non-administrator pension role. I am not (and never have been) an adviser. Do not take anything I say as advice, it is information given on the best of my knowledge.0 -
... you can take 25% of your pot back tax free, so from this £3000 you can get back £750. Therefore, in effect, your pension has cost you £50 per £1000 (£750 back from £800 put in, plus an annuity from the remaining £2250).
Bargain.
Actually, it's an even bigger bargain than you have described, because part of the 25% will contain the investment return. If invested well, the 25% you get back tax free could amount to 100% of your own contributions.Mortgage Free in 3 Years (Apr 2007 / Currently / Δ Difference)
[strike]● Interest Only Pt: £36,924.12 / £ - - - - 1.00 / Δ £36,923.12[/strike] - Paid off! Yay!!
● Home Extension: £48,468.07 / £44,435.42 / Δ £4032.65
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Total Mortgage Debt: £149,723.30 / £104,313.57 / Δ £45,409.730 -
Dithering_Dad wrote: »Actually, it's an even bigger bargain than you have described, because part of the 25% will contain the investment return. If invested well, the 25% you get back tax free could amount to 100% of your own contributions.
True, but I ignored growth because the comparison then depends on what you do with the £800 that you could have paid into the pension.
If you invest it in an SS ISA, then the growth of the ISA could be the same as the pension, so there is no net difference in the % growth.
In an ISA, the initial sum is £800, so the final pot is (£800 x growth).
In a pension, the initial sum is £3000, so the final pot is (£3000 x growth). From this you can get back a 25% lump sum (£750 x growth) , plus an annuity/drawdown of (£2250 x growth).
Therefore, the pension option 'cost's you (£50 x growth) for an annuity of (£2250 x growth)
As I said, bargain.
The other thing is that if you can get 'your' contributions paid by salary sacrifice, then you can save another 25% ish (13% employers NI and 12% employees NI). Therefore, 'your' contribution could be nearer £610, grossed up by the tax/NI man to £1000 ( +20% tax +12% NI +13% ENI), and matched by another £2000 from your employer.
Double bargain.
Of course, if you just spend the £800, then you'll end up much worse off.
Cheers,
Judwin0
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