Pension Newbie

Ljc80_2

I have been contributing to a work scheme pension for last 5 years to which employer also pays in - Standard Life Passive Plus III Pension Fund

Currently the value of this is at £26.5k

During this time I have also saved up £70-80k in an ISA.

Given the measly rates for ISAs i have started looking into saving into my Pension - something i should probably have looked at before i know.

If I start making payments each month to pension rather than ISA savings, is this a good way to go?

I read that if i deposit £80, my the amount credited is £100 due to tax relief? Is this therefore effectively a savings rate of 20%?

Currently a higher rate of tax payer.

MallyGirl

As a higher rate tax payer you get the 20% tax relief but you also get a raised threshold before you start paying 40% so for some of the contributions you effectively get 40% relief (20% in pay packet, 20% into pension). Someone else will be along to explain this better shortly I am sure 

Mutton_Geoff

Generally pensions are not "savings" accounts but investments. Values can and do go down as well as up depending on your choices. An ISA is funded with tax paid money but tax free for gains/withdrawals. A pension is funded by tax free money but is taxed at your marginal rate (which could still be zero) on drawdown.

The "measly" rate for your ISA assumes it's a cash ISA. Your pension is unlikely to be a cash investment. There is no reason for you not to switch your ISA to exactly the same investments you might choose for your pension, especially if you don't need the money for 7-10 years.

Albermarle

I just answered your other thread.
Regarding the higher rate tax relief, you have to claim this back from HMRC seperately and any owed will be paid back to you ( not directly to the pension.)
Being a higher rate taxpayer makes investing more in a pension doubly attractive as it effectively costs you £60 to get £100.
However you can not claim back more higher rate relief than higher rate tax you actually pay .

Steve182

Ljc80_2 said:

I have been contributing to a work scheme pension for last 5 years to which employer also pays in - Standard Life Passive Plus III Pension Fund

Currently the value of this is at £26.5k

During this time I have also saved up £70-80k in an ISA.

Given the measly rates for ISAs i have started looking into saving into my Pension - something i should probably have looked at before i know.

If I start making payments each month to pension rather than ISA savings, is this a good way to go?

I read that if i deposit £80, my the amount credited is £100 due to tax relief? Is this therefore effectively a savings rate of 20%?

Currently a higher rate of tax payer.

I would be a higher rate taxpayer except I salary sacrifice into my SIPP to the point where my taxable income including BIK drops to £50K. That saves me 40% tax on my full the pension contribution. 

Additionally this allows me to retain child benefit which would otherwise be lost altogether for incomes > £60K

Also, your ISA does not have to provide a measly interest rate. You can transfer it to a stocks/shares ISA and invest it into similar funds as your pension if you wish.

 

TVAS

To be honest there is not much difference. ISA no tax benefits going in but tax free going out. Pension tax benefits going in but taxable going out and restricted until you reach the minimum pension age which is now 10 years before the state pension age. The state pension age is increasing. What is the ISA saving for? As you are a 40% tax payer it does make sense to pay more into pension. Do you have a mortgage? If you can reduce debt like that whilst young you can save more during your working life and you seem to be a good saver so well done. So chuck some more into your pension. Consider repaying a mortgage or buying a property. Having the whole of your ISA portfolio in cash is not a good idea, you need some exposure to equities, tracker funds (cheap) and Vanguard have cheap costs. Well done for saving so much and good luck.

BuildTheWall

Have u checked if you can increase your pension contributions by requesting a higher deduction from the salary? That way you can save NI too. 

Albermarle

BuildTheWall said:

Have u checked if you can increase your pension contributions by requesting a higher deduction from the salary? That way you can save NI too. 

That only applies if the employer operates a salary sacrifice scheme for pension contributions . Many do not.

Ljc80_2

TVAS said:

To be honest there is not much difference. ISA no tax benefits going in but tax free going out. Pension tax benefits going in but taxable going out and restricted until you reach the minimum pension age which is now 10 years before the state pension age. The state pension age is increasing. What is the ISA saving for? As you are a 40% tax payer it does make sense to pay more into pension. Do you have a mortgage? If you can reduce debt like that whilst young you can save more during your working life and you seem to be a good saver so well done. So chuck some more into your pension. Consider repaying a mortgage or buying a property. Having the whole of your ISA portfolio in cash is not a good idea, you need some exposure to equities, tracker funds (cheap) and Vanguard have cheap costs. Well done for saving so much and good luck.

ThanksTVAS, I had been a bit down on saving the last couple of days as I had got the impression id done it all wrong without much in Pensions or any in a S&S ISA.
When I got current job with more disposable income to save I started putting it all into an ISA, no real reason except the rate seemed good.
I have mortgage of 30k with another 14k after getting some work done on house - both low tracker rates.

I am currently saving for a bit of work on house to be done in April, so after that I think my plan is to increase pension contributions off salary, overpay mortgage ( think I could have it pretty much gone in 2/3 years) and open some form of S&S ISA/Vangaurd type thingy and put a bit in each month. Hopefully that sounds good and its spreading things out a bit.