Where to start

norsefox

I am 30-year old with insufficient pension preparation. My pension fund is worth around £6k entirely made up of People’s Pension contributions.

My position is that I am married, with a 25-year mortgage with my wife and now have an 8-month old daughter. Outstanding is around £300k at ~1.8%. We are in a good position with savings, with money split between Premium Bonds, S&S ISAs, and cash. It’s around £50k and could be better allocated but not a concern right now.

Fortunately I recently became a higher rate Scottish tax payer, and so I can now start to make up for lost time. My company only offers AE pensions, of which my contributions are maxed out (between qualifying limit and upper limit).

My intention is to leave that pension alone and let it do its thing. As it was of such little value I’ve had it on high risk for the last 5 years (up to 85% shares). I shall leave it there for the foreseeable.

I’m now in a position where I can allocate an annual £8k - £10k (net) into a pension, outwith AE (quite possibly more, but with a young daughter and a new house I don’t want to over-contribute at this stage). This would all qualify within my earnings subject to higher rate tax.

I have met with an IFA on a couple of occasions but the annual fees are somewhat deterring (£750 per year). I would only be looking for pension advice, as I’m comfortable with my other monetary management.

I have tried to research into SIPPs, personal pensions, and stakeholder pensions, but good advice and guidance is difficult to come by.

Are there next steps that can be shared, or am I best to pay a one-off fee to an IFA to advise on what pension option is best suited to me?

I should add that my wife is a lower rate taxpayer (just), 30 years old, but with pension funds worth around £60k and has a workplace pension contributing around 8% of her gross salary.

Dazed_and_confused

Fortunately I recently became a higher rate Scottish tax payer, and so I can now start to make up for lost time.

It sounds like you are going to start contributing to a "relief at source" pension.

If so then there is no additional fixed "pension" tax relief. The gross contribution (what you contribute plus the basic rate tax relief added by the pension company) increases the amount of basic rate tax you can pay. Which in turn reduces any higher rate tax payable. And/or intermediate rate for Scottish residents.

So if you are only paying a small of higher rate tax then the personal tax benefit is limited. But if you're massively over the higher rate threshold in Scotland then it won't necessarily be an issue.

norsefox

Dazed_and_confused wrote: »

It sounds like you are going to start contributing to a "relief at source" pension.

If so then there is no additional fixed "pension" tax relief. The gross contribution (what you contribute plus the basic rate tax relief added by the pension company) increases the amount of basic rate tax you can pay. Which in turn reduces any higher rate tax payable. And/or intermediate rate for Scottish residents.

So if you are only paying a small of higher rate tax then the personal tax benefit is limited. But if you're massively over the higher rate threshold in Scotland then it won't necessarily be an issue.

Sorry, I should have been clearer, my earnings are over £80k, so all contributions are part of higher rate tax earnings. I’ll have to submit a self-assesment for FYE 2019 - this will be the first time I’ve had to/been able to.

And yes, it’s a relief at source. Our company employs a minority (but sizeable) number of staff within distance of the NLW, so chooses not to operate a pension net pay arrangement due to the complexity of avoiding potential issues with NLW legislation. I’m working on them introducing two arrangements, but this won’t be soon.

Dazed_and_confused

One thing to be aware of, when you file your first return (for 2018:19 but filed during 2019:20) HMRC will usually amend your 2019:20 tax code to include an adjustment to reflect the higher rate tax relief due on pension contributions.

This is not to give you any tax relief due for 2018:19.

It is making the assumption that you will pay a similar amount again in the next tax year (2019:20).

The tax relief due for 2018:19 will be reflected in your Self Assessment calculation for 2018:19 (by increasing the basic rate tax band).

bostonerimus

Why not just increase your AE pension contributions, or just open a SIPP with one of the big platforms. Are you also maxing out your ISA contributions?

norsefox

Dazed_and_confused wrote: »

One thing to be aware of, when you file your first return (for 2018:19 but filed during 2019:20) HMRC will usually amend your 2019:20 tax code to include an adjustment to reflect the higher rate tax relief due on pension contributions.

This is not to give you any tax relief due for 2018:19.

It is making the assumption that you will pay a similar amount again in the next tax year (2019:20).

The tax relief due for 2018:19 will be reflected in your Self Assessment calculation for 2018:19 (by increasing the basic rate tax band).

Thanks for this. My earnings for 2020 will be significantly higher than 2019, and given my intention to increase my contributions (and that 2019 included only 3% AE employee contributions) there will be a significant difference between FYE 19 and FYE 20.

Realistically, will I need to wait until April 2021 before HMRC change my tax code to give the roughly accurate tax relief?

norsefox

bostonerimus wrote: »

Why not just increase your AE pension contributions, or just open a SIPP with one of the big platforms. Are you also maxing out your ISA contributions?

This is the question I’m pondering over. The People’s Pension charges haven’t been super competitive previously, but they are introducing a tiered system depending on fund values shortly.

They’re taking in £250m of contributions each month now, so they’ll have more options on what funds to invest in etc over the next few years. Is the People’s Pension a realistic option for someone to seriously focus their pension future on?

I don’t profress to be a guru in finances or investments, but I’m comfortable with researching funds and identifying what likely returns versus risk I can expect and what their respective charges are likely to be.

If I open a SIPP with one of the main providers, (and say for instance) put my pension investments in a fund like VG LF80, would that be a reasonable place to start?

Our S&S ISA contributions aren’t maxed out - mainly due to moving house and that my wife has been on statutory maternity pay for the last 9 months, which has probably cost us £20k - £25k over the period.

Once she’s back in August, even with childcare costs, we’ll be able to start saving properly again.

Dazed_and_confused

Realistically, will I need to wait until April 2021 before HMRC change my tax code to give the roughly accurate tax relief?

Your tax code is only ever a provisional attempt to collect the correct amount of tax.

If you file your 2018:19 tax return now HMRC will review your 2019:20 tax code and made any adjustment necessary but on the assumption you will pay similar amounts into your SIPP/personal/stakeholder pension again.

If you expect to pay more and want to receive some tax relief as you go along just give HMRC a more accurate estimate for 2019:20.

jamesd

norsefox wrote: »

Realistically, will I need to wait until April 2021 before HMRC change my tax code to give the roughly accurate tax relief?

You can tell HMRC online during the tax year to get changes. You can also file a tax return on 6 April 2020 to get any extra relief due for 2019-2020; there's a feature to give estimated amounts and adjust later if needed.

norsefox

jamesd wrote: »

You can tell HMRC online during the tax year to get changes. You can also file a tax return on 6 April 2020 to get any extra relief due for 2019-2020; there's a feature to give estimated amounts and adjust later if needed.

Good to know. Thanks

Marcon

norsefox wrote: »

And yes, it’s a relief at source. Our company employs a minority (but sizeable) number of staff within distance of the NLW, so chooses not to operate a pension net pay arrangement due to the complexity of avoiding potential issues with NLW legislation. I’m working on them introducing two arrangements, but this won’t be soon.

Doesn't make any difference in terms of NLW whether the company has a net pay or relief at source pension arrangement. NLW is based on gross earnings (i.e. ignoring tax). The only time an issue might arise is if a salary sacrifice arrangement is introduced, which would reduce an employee's earnings - that's where any impact would come.

Also worth bearing mind that a net pay arrangement (where pension contributions are taken off gross salary, and tax is then levied on salary after pension contributions have been deducted) is unhelpful to very low earners who don't pay any tax. They fare better under relief at source, where the pension provider can claim basic rate relief and add it to their 'pot' even if the individual doesn't earn enough to pay any tax.