Paying into works DC pension when above the LTA

Mick70

Dc pot will be well above the LTA (1.7M), with our works DC scheme the employer will double the employee contributions up to a maximum of 8% employee/ 16% employer . If employee pays in more than 8% the employer still stays at 16%.
I currently pay in 13%, employer 16%.
If well above LTA , is it advisable I still keep paying into the pension to get maximum employer contributions I.e reduce mine to 8% and still get employer 16% going forward . Should I leave it at 13% and employer 16%. OR should I stop paying into my pension now, bit confused what is best option to do. Have feeling answer is to still pay in but only up to the 8% to get maximum employer cont, but just wanted re assurance incase I’m wrong

Many thanks ,
Busy and confused Mick

Andrew31

Assuming you are a higher rate tax payer you put in £1 (0.60p net) and you get £3 in your pension. That £3 would then be taxable at 55% for PCLS or your 25% plus income tax at your marginal rate.

So in theory for 0.60p in you would get £1.35 back.

However, there is a lot more to it than this back of the fag packet calculation.

As you are a millionaire, i would suggest you pay for some proper advice!.

Gary1984

Keep paying 8% and continue to get the employer 16% contribution as it's free money even if you do pay extra tax on it.

E.g. you pay in £100 and your employer matches double this so an additional £200 putting £300 into your pension in total. When you come to start your pension you'll pay an extra 25% charge on this £300 if taking it as income so you still have £225 which only cost you your own £100 contribution. If you're a higher rate tax-payer now but will be basic-rate in retirement then the situation is even better.

However I wouldn't contribute more than the 8% as you'd only get £75 back for every £100 you contribute as you still pay the LTA charge but don't receive any matching employer contributions.

Triumph13

As you will amlomst certainly be a HRT payer in retirement with that pot size (unless you buy an expensive annuity) you'll be hit for 55% tax on anything further going into the pension when you take it out. The 8% to get 16% is still a no brainer, but anything else you put in is a very generous contribution to HM Government.

Mick70

Thank you for your replies . 8% contributions to get in the employer max of 16% will be the way ahead then.
Thanks ,
Mick.