Please sanity check my knowledge of AVC's benefits

Quorden

Hope someone can inform me if my somewhat limited knowledge in respect of AVC's is correct before I consider changing my current investment plans such as they are.

For the past eighteen months I've maxed out my DC work pension to 20% of base salary, with my company adding in another 10%, this is about 30k per annum. In the same period I've also begun putting money into a S&S ISA. Due to a change in the work pension I can now add up to 100% of my base salary in AVC's and I can change this amount every month, which as I'm 50% commission based would allow me to divert extra money directly into my pension in good commission months rather than putting my net pay into an ISA, am a higher rate tax payer.

So my thinking is that from a contribution point of view, I need to consider filling up my pension allowance first (think it is 40k, though not sure if this includes the company contribution) before I start paying into an ISA? Appreciate some of the differences between the two but given that I'm 52 putting it into a pension first rather than an ISA doesn't concern me and as they both have given roughly the same returns it's not as if there is much to tell between them to date.

Hopefully enough information here for someone to give a general opinion on which maybe best, would be most appreciated as the more I learn about savings, pensions etc the more I realise I need to learn even more.

zagfles

Yes the £40k annual allowance includes employer contributions, and if you have any unused allowance from the previous 3 years you can carry forwards (assuming you were in a pension scheme). You can use an annual allowance calculator eg https://www.hl.co.uk/pensions/contributions/carry-forward-rule/annual-allowance-calculator

How are the AVCs taken? There are differences that would affect what you can do/how much you can contribute/the best way to contribute. 3 possiblities:

1) "net pay" - pension conts taken before tax, so your taxable income is reduced, but you still pay NI on the full income.

2) "Salary sacrifice" where you accept a reduced salary and your employer makes the contributions. This saves NI as well as tax.

3) RAS - "relief at source" where pension conts are taken from after-tax pay, and the pension co claims basic rate relief, and you have to claim higher rate relief from HMRC.

Quorden

Thanks zagfles for looking at this. So the scheme reads that by default all contributions are made through salary sacrifice. Also appreciate the extra reading on the carry forwards, will look into.

zagfles

With sal sac, rather than contributing more in high pay months, it can be better to contribute more in low pay months as discussed here: https://forums.moneysavingexpert.com/discussion/6159536/salary-sacrifice-to-lower-tax-bracket/p1

But you can't go below min wage (around £1500 a month assuming 40h week).

Quorden

zagfles said:

With sal sac, rather than contributing more in high pay months, it can be better to contribute more in low pay months as discussed here: https://forums.moneysavingexpert.com/discussion/6159536/salary-sacrifice-to-lower-tax-bracket/p1

But you can't go below min wage (around £1500 a month assuming 40h week).

That's an interesting post, thanks for taking the time to dig it out, though confess it took more than a few read throughs to understand but think I got there in the end. If I've understood it correctly (?) then if I would need to sal sac enough to bring me into the BR NI band which would be more achievable on low commission months, bearing in mind the need to keep above the minimum wage.