When to stop paying into a pension?

MallyGirl

kinger101 said:

There's an argument to be made of using LISA if you're eligible for SS and will only get basic rate relief on pension contributions.  On paper, you end up as the same net position (both effectively a 25% uplift), but (a) LISA will not contribute to LTA, and (b) there's more certainty with the LISA as it's not dependent on the tax regime in the future.

SS gets you NI relief too

Clive_Woody

I would keep paying into your pension, to maximise employer contributions, as you have no idea what the LTA might be when you come to retire. As mentioned it's worth also looking at investing in an ISA now, to give it time to grow and have funds outside of a pension wrapper.

kinger101

MallyGirl said:

kinger101 said:

There's an argument to be made of using LISA if you're eligible for SS and will only get basic rate relief on pension contributions.  On paper, you end up as the same net position (both effectively a 25% uplift), but (a) LISA will not contribute to LTA, and (b) there's more certainty with the LISA as it's not dependent on the tax regime in the future.

SS gets you NI relief too

It does, but:

Each £1 in the pension pot costs 68 p, as there is 20 p income tax relief and 12 % NI relief.  However, When the pension is withdrawn, income tax is paid.  With 25% tax free and the remained taxed at 20%, you only get 85 pence when it's drawn, not the full £1.
85 p / 68 p = 1.25.

If £1 is put into a LISA, you get a 25% bonus.  £1.25 / £1 = 1.25.

 

Bemma

kinger101 said:

MallyGirl said:

kinger101 said:

There's an argument to be made of using LISA if you're eligible for SS and will only get basic rate relief on pension contributions.  On paper, you end up as the same net position (both effectively a 25% uplift), but (a) LISA will not contribute to LTA, and (b) there's more certainty with the LISA as it's not dependent on the tax regime in the future.

SS gets you NI relief too

It does, but:

Each £1 in the pension pot costs 68 p, as there is 20 p income tax relief and 12 % NI relief.  However, When the pension is withdrawn, income tax is paid.  With 25% tax free and the remained taxed at 20%, you only get 85 pence when it's drawn, not the full £1.
85 p / 68 p = 1.25.

If £1 is put into a LISA, you get a 25% bonus.  £1.25 / £1 = 1.25.

 

Totally correct, but two other factors to consider for some…

Some people get employer NI with SS.  I get 7% added.
SS:
(85% of 107p) / 68p = 133.75p

Also, some people may have spare personal allowance.  The 15% tax is the worst case (unless you have a very large pension income), it could be 0%.
107p / 68p = 157p

Realistically someone would be paying between 0%-15% tax in retirement.  I plan on having many years at 0%.
It’s moot for me, I'm too old for a LISA, but these two factors should be considered for some… especially if the employer adds more (13.8%) of NI, up to 168p for every £ for a BR tax payer.

kinger101

Bemma said:

kinger101 said:

MallyGirl said:

kinger101 said:

There's an argument to be made of using LISA if you're eligible for SS and will only get basic rate relief on pension contributions.  On paper, you end up as the same net position (both effectively a 25% uplift), but (a) LISA will not contribute to LTA, and (b) there's more certainty with the LISA as it's not dependent on the tax regime in the future.

SS gets you NI relief too

It does, but:

Each £1 in the pension pot costs 68 p, as there is 20 p income tax relief and 12 % NI relief.  However, When the pension is withdrawn, income tax is paid.  With 25% tax free and the remained taxed at 20%, you only get 85 pence when it's drawn, not the full £1.
85 p / 68 p = 1.25.

If £1 is put into a LISA, you get a 25% bonus.  £1.25 / £1 = 1.25.

 

Totally correct, but two other factors to consider for some…

Some people get employer NI with SS.  I get 7% added.
SS:
(85% of 107p) / 68p = 133.75p

Also, some people may have spare personal allowance.  The 15% tax is the worst case (unless you have a very large pension income), it could be 0%.
107p / 68p = 157p

Realistically someone would be paying between 0%-15% tax in retirement.  I plan on having many years at 0%.
It’s moot for me, I'm too old for a LISA, but these two factors should be considered for some… especially if the employer adds more (13.8%) of NI, up to 168p for every £ for a BR tax payer.

You're right, but in OP's case, it looks like no spare personal allowance.  For tax planning, it's always best to think of marginal rates.  So it's 0% or 15% for basic rate tax payers (assuming nothing changes), not 0% to 15%.

Wish my employer would pass on some of their NI saving.  

steampowered

Over a 17 year time period, it is very possible that:
- The £1m cap will be increased. Remember £1m today will be worth a lot more than £1m in 17 years' time.
- Relief on pension contributions might be restricted to the basic rate.

Personally, I would continue putting cash into the pension, as that is the most tax efficient vehicle available to you right now, so you might as well make the most of it.

Albermarle

Plus if you go over the cap but only  by a relatively small amount ( say by 10%) the extra tax to pay is not that large in relation to the pension and all the tax relief you have gained .