Medium vs long-term savings and investments

Alexland

MDMD said:
I haven’t done any calculations to prove this out but it might be even more beneficial to not do the large pension payments (i.e. reducing pay right down) in the month the bonus is paid

Yes if the bonus happens early enough in the tax year it might be a good opportunity to take lots of money at 2% NI and then spend the next months making high pension contributions to save 12% NI.
Of course to do this trick you need to consider the cashflow implications of not being paid very much for some months. We only spend about half our take home pay so it really only affects our rate of ISA/LISA conttibutions during the tax year which are already affected by when regular savers mature. Lots of spinning plates.

kinger101

TheAble said:

Any chance someone could give a worked example on how you can get the 12% NI saving? This is something I had no idea about. Many thanks in advance!

It happens automatically to many people with a basic salary of £50K or less who receive a bonus that would otherwise take them over £50K.  E.g let's assume someone earns £50K basic, plus £10K annual bonus in March.  They save 20% of their basic salary into a pension via SS (reducing their basic to £40,000).  The NI savings are 12 % for months one to eleven, (and on the first £4,167 EUL - £792 PT at month twelve).  Their total salary would have been £60K without the SS, but as it's now reduced to £50K, the £10K they've put into their pension would have otherwise been taxed at 40%.

 

mullygrubber

This is really useful stuff all. Thanks for sharing your thoughts!

I think I have some thinking/planning to do but I'm going to read Smarter Investing by Tim Hale first. I've been told that's a good place to start

BrookeCurtis

Thanks for all the useful information!