Personal Pension Contributions

george4064

Update:

Now 28, same mortgage and same salary. I can indeed salary sacrifice above the amounts in the OP but just without any further employer contributions.

Pensions now look this this:

SIPP = £8k all invested in HSBC MSCI World UCITS ETF (Ticker HMWO)

DC Pension = £14k about 90% in L&G World ex UK Equity Index and 10% L&G UK Equity Index tracker.

Currently contributing about £750 pm into DC Pension in total. I also have used (and will continue to) partially sacrifice bonuses I get to my pension.

I've played around with pension calculators (mainly HL's) to see what my projected pension pot will be worth in total, however if I tweak the annualized performance figures up a bit I see the projected value exceeding the LTA.

Should I be worried about this? I feel that its so far away it doesnt really matter, but would rather sort something now than later when it might be much more difficult (or costly!) to rectify.

I admit, I'm not an expert on the LTA but would like to learn more about it so I can carry on as normal without thinking about it!

Clive_Woody

george4064 wrote: »

Update:

Now 28, same mortgage and same salary. I can indeed salary sacrifice above the amounts in the OP but just without any further employer contributions.

Pensions now look this this:

SIPP = £8k all invested in HSBC MSCI World UCITS ETF (Ticker HMWO)

DC Pension = £14k about 90% in L&G World ex UK Equity Index and 10% L&G UK Equity Index tracker.

Currently contributing about £750 pm into DC Pension in total. I also have used (and will continue to) partially sacrifice bonuses I get to my pension.

I've played around with pension calculators (mainly HL's) to see what my projected pension pot will be worth in total, however if I tweak the annualized performance figures up a bit I see the projected value exceeding the LTA.

Should I be worried about this? I feel that its so far away it doesnt really matter, but would rather sort something now than later when it might be much more difficult (or costly!) to rectify.

I admit, I'm not an expert on the LTA but would like to learn more about it so I can carry on as normal without thinking about it!

Given your age and where you are in the journey, I wouldn't worry too much about LTA. Worst case with this is you exceed it and pay tax, not a bad problem to have.

Given the timescale until you can take a pension the rules could have changed completely (have a look at what the LTA used to be).

My advice would be to keep paying as much as possible into your pension and keep an eye on it to check it's growing nicely.

foofi22

Is it just me that finds it odd your employer offers to contribute more to your pension as you get older?

ffacoffipawb

foofi22 wrote: »

Is it just me that finds it odd your employer offers to contribute more to your pension as you get older?

Arguably it fails the age discrimination laws?

Albermarle

I admit, I'm not an expert on the LTA but would like to learn more about it so I can carry on as normal without thinking about it!

Maybe look at it another way - If you reach the LTA then you will be better off than the vast majority of other people and if the price for that is to pay a bit more tax then that is not the end of the world.
Without getting in to too much detail: the LTA only applies when you take the pension benefits ( which is often in stages) not when your accumulated funds reach the LTA limit.
Also you only pay extra tax above the LTA limit , not on everything.

george4064

foofi22 wrote: »

Is it just me that finds it odd your employer offers to contribute more to your pension as you get older?

I thought it was standard across most companies?

Turtle

george4064 wrote: »

I thought it was standard across most companies?

Not for mine, but the company contribution is a lot more generous than yours. They also increase it a bit each year. I've never worked anywhere else so I don't know what the 'norm' might be, or even if there is one.

german_keeper

ffacoffipawb wrote: »

Arguably it fails the age discrimination laws?

I do struggle a bit with all things legal but I tend to agree with you. Mind you the employer contribution to the Civil Service DC scheme, Partnership, starts at 8% for those under 31 and gradually increases with age to a max of 14.75% for those over 46. I can't believe the government would fall foul of age discrimination legislation when it comes to pensions. Oh, hang on a minute...............

TN1984

george4064 wrote: »

I've played around with pension calculators (mainly HL's) to see what my projected pension pot will be worth in total, however if I tweak the annualized performance figures up a bit I see the projected value exceeding the LTA.

Should I be worried about this? I feel that its so far away it doesnt really matter, but would rather sort something now than later when it might be much more difficult (or costly!) to rectify.

I admit, I'm not an expert on the LTA but would like to learn more about it so I can carry on as normal without thinking about it!

When you say the projections exceed the LTA, is that the LTA as it is now or the LTA indexed with inflation between now and when you retire? As it is currently increasing by inflation each April, it will be a lot higher when you hit retirement (subject as always to further legislation changes).

Either way, I really would not worry about it for the foreseeable future, and would just keep contributing as much as you can afford. You can always revisit it later on when you've built up a more significant fund and review the position then if necessary, but so much can change between now and then, both legislation wise and personally, e.g. if your circumstances change and you can't contribute for a while or growth is not as high as expected.

It's also worth remembering it is not a cliff edge, you only pay a charge on the excess, and even then only when you crystallise benefits with 0% LTA remaining, which is likely to be even further into retirement.

hugheskevi

Is it just me that finds it odd your employer offers to contribute more to your pension as you get older?

Arguably it fails the age discrimination laws?

There is a specific exemption from the Equality Act for pension contributions - see this link.

Mind you the employer contribution to the Civil Service DC scheme, Partnership, starts at 8% for those under 31 and gradually increases with age to a max of 14.75% for those over 46.

This just reflects the Defined Benefit (DB) scheme. DBs schemes are usually more favourable for older workers, but the Civil Service alpha scheme is especially favourable (due to high accrual rate and low revaluation, which is far better for older workers, to the detriment of younger workers given the 2015 schemes were permitted to trade-off revaluation and accrual rate - the Civil Service chose to maximise accrual rate and minimise revaluation).

Am I right in saying that when I move into the higher rate tax band I should up my pension contributions to 'bring me back' to the standard rate band?

Personally, I would say yes. At the moment you have access to relief at 32% (20% income tax, 12% NICs) plus anything your employer may share from their NICs saving from salary sacrifice. As a higher rate taxpayer you get 42% plus any employer addition.

Given your salary and age, it is quite likely you will at some point soon be both a higher rate taxpayer and eligible for Child Benefit, which gets tapered away from £50K. Contributing to keep salary to £50K at that time would be very beneficial.

I always have taken the belief that I should maximise the benefit of employer contribution matching and the rest into S&S ISA.

S&S ISA can reasonably be considered as a waiting room to moving the funds (indirectly, via contributing to a pension from salary and using the ISA funds for spending) into a pension when contributions would be more favourable from a tax and means-tested benefit perspective.

However, 32% relief is decent, and perhaps in future only 20% would be on the table if you changed employer to one that didn't offer salary sacrifice and didn't become a higher rate taxpayer, so there is a bit of risk from not taking what is on offer now.