Is my pot looking ok?

P911TRS

Anonymous101 said:

MaxiRobriguez said:

Cammywatson033 said:

So what I’ve said might have been a bit misleading, sorry.

I'm surprised you got two pages worth of people rushing to congratulate, because the figures looked wild to me without doing any calculations!

FWIW, to generate a £250k pot on those contributions by 35 then you'll have had to had entered the workforce at 18, on the same salary you are now (ie, touching higher rate taxpayer), with the 10%/16% contributions applying throughout, and on top of that consistent returns on the portfolio of 5% a year, over a timeframe which includes both great recession and Coronavirus knocks.

For comparison sake, what I suspect is going to ring true for far more people (on this forum at least) is my scenario. I started work after uni at 21, joined a grad scheme paying a very average wage. I didn't contribute for the first two years of work because I couldn't afford to. Now 32, so ten years on - I've upped contributions from a £400 a month to £1,000 a month halfway through that timeframe and more recently over the last few months been able to up to £2,300 a month (taking advantage of HRT breaks, and because I dont need the cashflow). My current portfolio is £65k, after being knocked down a bit in recent months.

I think I've done OK. If anyone has over £100k in their pension by 35, I'd say you're doing well. It takes a lot of effort nowadays to get to that. £250k figure at 35 was ludicrous for a DC pension!

I'd agree with you on everything you say. My experience is very similar to yours. I'm 38 now and having continued to take advantage of the HRT relief have increased by pension contributions by 100% of any pay rises I've in the last 4 years. I contributed close to the £40k limit for the first time last year.... and my pension is still short of £200k. 

Can you explain to me what HRT relief is? I’m a higher rate tax payer, would this benefit me?

P911TRS

Albermarle said:

Thanks for this, I do have a log in so I will go In and have a look. Is it easy to change the investment? Is it a matter of looking at different options and they will tell me rates of return or whatever?

Yes it is easy to change investments and you do not have to change 100% . Just as an example you could move 50% of the current fund, with 30% to one new fund and 20% to another .

The fund info will not tell you a projected rate of return . You can see the historical performance and it will have a risk rating , usually one to seven. Also there will be info about what and where the fund is invested in .

Have a good look and if more questions then come back. 

Great, I’ll have a look and see if I can make sense of it 

swindiff

I know Nationwide contribute 16% if the employee contributes 7%

Anonymous101

Cammywatson033 said:

Anonymous101 said:

MaxiRobriguez said:

Cammywatson033 said:

So what I’ve said might have been a bit misleading, sorry.

I'm surprised you got two pages worth of people rushing to congratulate, because the figures looked wild to me without doing any calculations!

FWIW, to generate a £250k pot on those contributions by 35 then you'll have had to had entered the workforce at 18, on the same salary you are now (ie, touching higher rate taxpayer), with the 10%/16% contributions applying throughout, and on top of that consistent returns on the portfolio of 5% a year, over a timeframe which includes both great recession and Coronavirus knocks.

For comparison sake, what I suspect is going to ring true for far more people (on this forum at least) is my scenario. I started work after uni at 21, joined a grad scheme paying a very average wage. I didn't contribute for the first two years of work because I couldn't afford to. Now 32, so ten years on - I've upped contributions from a £400 a month to £1,000 a month halfway through that timeframe and more recently over the last few months been able to up to £2,300 a month (taking advantage of HRT breaks, and because I dont need the cashflow). My current portfolio is £65k, after being knocked down a bit in recent months.

I think I've done OK. If anyone has over £100k in their pension by 35, I'd say you're doing well. It takes a lot of effort nowadays to get to that. £250k figure at 35 was ludicrous for a DC pension!

I'd agree with you on everything you say. My experience is very similar to yours. I'm 38 now and having continued to take advantage of the HRT relief have increased by pension contributions by 100% of any pay rises I've in the last 4 years. I contributed close to the £40k limit for the first time last year.... and my pension is still short of £200k. 

Can you explain to me what HRT relief is? I’m a higher rate tax payer, would this benefit me?

Higher Rate Tax relief on pensions. As with all pension contributions tax relief can be applied. 20% for basic rate tax payer, 40% for higher rate payers.
Strategy depends on how you contribute to your pension scheme. If like me its through Salary sacrifice then contributions are made pretax so you benefit from both tax and N.I. savings. In Sal Sac works by reducing your salary so you don't ever pay these on the contributions and therfore don't have to claim the additional 20% higher rate tax back as you would in a regular SIPP.
My strategy started fairly simply by making sure my taxable income never exceeded the higher rate threshold. This has recently evolved into front loading the contributions to make use of the fact that unlike tax, N.I. contributions are calculated monthly and can't be applied retrospectively. So any monthly income which is below the higher rate threshold benefits from 12% NI relief vs the 2% relief against the higher rate contributions if I spread evenly over the year. So say I was contributing 20% of salary over the year, I now contribute 30% for the first 6 months and 10% for the latter 6 months.

Albermarle

Can you explain to me what HRT relief is? I’m a higher rate tax payer, would this benefit me?

If you pay HRT then you can claim back HRT on pension contributions - a very good deal.

Whether you have to do anything to get this relief depends on how your employer takes your pension contributions from your pay packet.

https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/tax-relief-and-contributions

MaxiRobriguez

"Will it benefit me" = Yes.

For every £1 of salary you are taking as income, you only end up with 58p of it.

If you decide to put those £1s in your pension instead then you will, at worse, end up with 98p of it, because you are able to claim the income tax back (SIPP), or avoid both income tax and NI in the first place (salary sacrifice).

The crux is with putting the £1s into your pension is that you can't access that money until you're 58, so it is a trade off between additional money and access to it.

And that 58 figure may also increase before you get to it as well, for an additional risk. 

P911TRS

Ok, I know for a fact that I am enrolled in a salary sacrifice scheme at work 

P911TRS

And I’ve just checked a payslip, my pension contributions are deducted before tax is taken 

MaxiRobriguez

Then you can dodge both Income and NI Tax on any additional pension contributions you make from here.

As a working example, I've pushed the boat out and salary sacrifice (same scheme as yours) £1,999 a month into my pension from my salary. If I decided to stop paying into my pension and get it in my pay packet each month then I would only actually see £1,159 of it.

It's purely up to you how far you can and want to push it. The further you are from accessing the money, the more risky it is to plough loads into it, because there's no certainty what the government will do in terms of age of access or taxing drawdown etc in the long future. However, if you're very close to 58, it may well be worth pushing the boat out as far as you can with your contributions, even so far as extending any outstanding mortgages to make up for the shortfall in cashflow until that point, because avoiding that 42% is significant. 

As a second working example, I'm 32, so ages from retirement yet, and the £1,999 sacrifice takes me down to minimum wage. I'm using my bonus as my main source of income on top of this and then an offset mortgage to further support monthly cashflow, so the LTV is creeping up slowly. For now, I prefer the 42% dodge than paying 1.5% more on the additional mortgage. In future may need to adapt it slightly if want to move house for example, but for now it's OK predominantly because I have the security of equity in the property (via the offset mortgage).

Anonymous101

Cammywatson033 said:

And I’ve just checked a payslip, my pension contributions are deducted before tax is taken 

So first step for me would be to contribute everything I earned above the higher rate threshold into the pension via sal sac.
If you earn £60k then you should be contributing 17% (16.66% rounded up) in order that you do not pay any higher rate tax. You employer contributions would be on top of this and prob capped at their 16%.