Pension health

pensionConfusion

Hello Everyone,
I want to confirm some plans I have made wrt my financial situation going forward. I want to confirm if the numbers I have are correct. I am 43. Not a high rate tax payer.
Currently I have 245000 in savings
A mortgage of 162000
A pension pot of 0
Monthly mortgage payment of 1428 + 500 over-payment. 12 years left
Monthly family in-comings of 6000
Monthly outgoings of 5000 (including mortgage)
Regular savings accounts + holidays 1000/month

I am looking at below plan.
Pay off Mortgage.
Put 2000/ month into my pension.

Or is there a better way of using the Savings money I have?

Thank you for reading

BoGoF

You have a lot of catching up to do pension wise. Rather than pay off the mortgage you would be better paying the maximum you can into a pension starting now to a) get the benefit of tax relief and b) maximise growth.

What rate is your mortgage?
Are you self-employed that you have no pension provision?
£5000 outgoings per month seems awfully high? Anywhere you can cut back on?

pensionConfusion

Thank you for your reply.
I have just started employment. My company contributes 6.5% in pension.
I earn 35000/year. I was thinking of putting all my pay in the pension. So I calculate 37275 going into the pension pot/year. 37275 in pension pot >> 27336 take home pay
5000 monthly outgoing is high but I am being a bit pessimistic. It cannot come down by a lot I am afraid.

BoGoF

Does your employer offer salary sacrifice or match any personal contributions you make?

Not following your calculations re £37225 to £27336?

MallyGirl

you cannot put more in the pension than you earn.
If sal sac you cannot go take yourself below the minimum wage

pensionConfusion

Thanks MallyGirl.
So what is the maximum I can put in per month? what is min. wage/year, 12500?
So (35000 - min wage)/12 + company contribution?

pensionConfusion

BoGoF wrote: »

Does your employer offer salary sacrifice or match any personal contributions you make?

Not following your calculations re £37225 to £27336?

Please ignore those numbers. I was assuming I can put all my pay in pension

Dazed_and_confused

You probably can, just not through salary sacrifice and/or your employers scheme.

And don't forget the thing with salary sacrifice is that you aren't contributing to a pension.

You are agreeing to a reduced salary in return for your employer contributing. That is why there is pension tax relief with salary sacrifice. The tax (and National Insurance) saving comes from you not being taxed on the salary you have given up.

pensionConfusion

Do these calculations make sense. And can i do it
I pay/sacrifice 62% of my salary in pension. So (35000/12) * 0.62 = 1808
So total in pension contribution per month = 1808 + 189 (6.5% company contribution) = 1997
I get paid 1048 (after tax) instead of 2278 so am getting 1230 less.
Over a year I am adding 23964 to my pension pot by sacrificing 14760.

AlanP_2

I think you need to look at the bigger picture.

You have a spouse / partner by the sounds of it to get £6k p/m family income so don't just look at your own situation, do it in it's entirety.

What is the overall pension situation?

£245,000 in savings is a lot and you can make good use of that to pay in to your, and / or spouses, pension thus getting the tax relief even if neither of you gets an NI saving through Salary Sacrifice.

Aim to keep ~6/12 months essential outgoings as an emergency fund in case one of you loses your job or is off ill for a long time with minimal sick pay etc. If you both work for same organisation, or in same industry, go closer to 12 month amount as a "bad event" could affect you both. If entirely different industries then 6 months might be OK.

The remainder can be fed into your pension by increasing contributions and living off the savings.

What is your mortgage rate / term? Any benefit to be gained by paying a lump sum off that to get a lower interest rate due to reduced Loan To Value?

When do you hope to retire, and on what level of income in retirement?

Are you both on schedule for full State Pensions?

Any need /plans to assist children with Uni fees / house deposit etc?


Essentially what do you want to achieve overall over what timescale, then look at your options to get there.

For a non SS pension you save the tax you would have paid so every £100 in the pot equates to £80 reduction in take home salary down to the £12.5k personal tax allowance level of done through employer scheme.

If SS is on offer you also save the 12% NI, so £100 in pot equates to £68 reduction in take home, but you can't go below National Minimum Wage level as it becomes an Employer Contribution with you accepting a reduced salary and legally they must pay you NMW or more. Some employers will also add a portion of their NI savings to your pot so an even greater benefit.

So find out if you, or other half, can benefit from SS as that will influence the route to go down. Similarly are you both contributing enough to attract the maximum employer contribution on offer?

£5k outgoings, excluding mortgage is high even though you say you are being pessimistic so sounds like you have opportunities there to make savings unless you are committed to school fees / have other debts, subsidising elderly relatives or similar.

AlanP_2

pensionConfusion wrote: »

Do these calculations make sense. And can i do it
I pay/sacrifice 62% of my salary in pension. So (35000/12) * 0.62 = 1808
So total in pension contribution per month = 1808 + 189 (6.5% company contribution) = 1997
I get paid 1048 (after tax) instead of 2278 so am getting 1230 less.
Over a year I am adding 23964 to my pension pot by sacrificing 14760.

Does your employer offer a SS scheme?

If they do then it is a factor of 0.68 (20% tax and 12% NI) not 0.62.