Which is the better option for paying into a company pension?

cloud_dog

conradmum wrote: »

I'm not sure if they allow him to contribute more than what they will match.

He needs to ask. He needs to ensure they understand that he is not expecting them to match the higher contributions, and in reality there is no reason why they shouldn't allow him to contribute whatever amount/percentage he wants. I know some companies can be a little 'fixed' in their views.

conradmum wrote: »

So it makes sense to contribute his entire salary that falls into the higher rate tax band?

If he can afford it / doesn't need/want the cash. It is a very tax efficient way of building a retirement pot (SS / HRT etc).

EDIT: Just to add, if he has a primary goal to 'stuff' as much as he can in to pensions then even once he has used up his 40% earnings the lower 20% earnings band will save him 12% in NI contributions if done via SS; so, 32% savings. Not quite as good as 42% but still significant.

conradmum wrote: »

I wasn't sure if it would be better to also have a separate pension of his own. I don't know the performance of the company's pension scheme. Maybe an IFA would be able to offer a pension scheme that's likely to perform better?

As mentioned above, you are mixing two things:

1. The most tax efficient way to add to a pension
2. Consideration about the underlying pension fund performance

cloud_dog

In addition, if performance is such a big consideration, then you could simply consider transferring out the existing company scheme's pot of money in to a more flexible/more funds pension arrangement (assuming it is a DC scheme). and you could do this periodically once the works scheme reaches a certain level.

AnotherJoe

conradmum wrote: »

I'm not sure if they allow him to contribute more than what they will match. So it makes sense to contribute his entire salary that falls into the higher rate tax band? I wasn't sure if it would be better to also have a separate pension of his own. I don't know the performance of the company's pension scheme. Maybe an IFA would be able to offer a pension scheme that's likely to perform better?

They most likely will and if they do he'll get the NI bump as well,,

conradmum

Thanks everyone. It looks like salary sacrifice is the way to go, and to contribute as much as he can afford, which will reduce his NI contributions.

Marcon

cloud_dog wrote: »

In addition, if performance is such a big consideration, then you could simply consider transferring out the existing company scheme's pot of money in to a more flexible/more funds pension arrangement (assuming it is a DC scheme). and you could do this periodically once the works scheme reaches a certain level.

Be careful. Doing this is often treated by the employer as opting out of the pension scheme (even where it is a personal pension), and it could be up to the 3 years before he can 'opt in' again and get the benefit of employer contributions.

Alexland

Marcon wrote: »

Be careful. Doing this is often treated by the employer as opting out of the pension scheme (even where it is a personal pension), and it could be up to the 3 years before he can 'opt in' again and get the benefit of employer contributions.

It depends on the scheme rules but I have been doing partial transfers out of specified lump sums from my DC workplace pension into a SIPP every couple of years. It's too much hassle to be worth doing frequently or for small amounts. I salary sacrifice down to basic rate to retain child benefit then use some of the basic rate income to fill LISAs.

Alex

cloud_dog

Alexland wrote: »

It depends on the scheme rules but I have been doing partial transfers out of specified lump sums from my DC workplace pension into a SIPP every couple of years. It's too much hassle to be worth doing frequently or for small amounts. I salary sacrifice down to basic rate to retain child benefit then use some of the basic rate income to fill LISAs.

Alex

OP, partial is the important word I missed off my post, if you ever consider periodically moving money from the works scheme in to a personal scheme. But as Macron said, please check before undertaking anything.