Pension advice for clueless late 30s

[Deleted User]

Hi -

I'm looking for some help if I can. We need to work out a long term plan for pensions and what we do from here. We had children young and have generally been dealing with childcare, redundancies, low pay etc etc and pensions have never been considered enough. Recently had a bit of a turnaround through hard work and hustling so need to give it focus now.

Current situation:
- Own home with good level of equity. Recent 'biggest' move and unlikely to look for any more on a mortgage at any point. Any move would be equal or less in value.
- No debt. Car lease for me. Owned car husband.
- Two children 12 & 15. Aware we need to be allocating funds to university / cars etc in the coming years.
- I'm employed. Averaging around £48k pa including bonuses. 5% pension contribution + employers basic contribution. Pot sitting around £26k currently.
- Husband s/e sole trader. Think he will start to average around £55k. Not currently contributing at all but want to find out the best option for this and most tax efficient.

Any advice on next steps forward would be appreciated for both myself and my husband.

2nd_time_buyer

It seems that you are in a good position to start increasing contributions as you have very decent incomes.

A rule of thumb for a comfortable retirement is to contribute a percentage of your salary equivalent to your pension starting age i.e. in your case around 30%. That probably seems quite a lot (and it probably is excessive) but ...

The first thing would be for your husband to contribute at least 5k to benefit from 40% tax relief.

Can you contribute to your pension via salary sacrifice? If so, that is probably the next best way to make contributions.

It would be worth you both opening a LISA if only to put a nominal amount in. This will give you further options. Although, on balance pensions might be slightly preferably for the time being (particularly if you can contribute via salary sacrifice)

MX5huggy

Your husband needs to make pension contributions to get his earnings below £50k this tax year so that you don’t have Child Benefit taken off you. 

[Deleted User]

2nd_time_buyer said:

It seems that you are in a good position to start increasing contributions as you have very decent incomes.

A rule of thumb for a comfortable retirement is to contribute a percentage of your salary equivalent to your pension starting age i.e. in your case around 30%. That probably seems quite a lot (and it probably is excessive) but ...

The first thing would be for your husband to contribute at least 5k to benefit from 40% tax relief.

Can you contribute to your pension via salary sacrifice? If so, that is probably the next best way to make contributions.

It would be worth you both opening a LISA if only to put a nominal amount in. This will give you further options. Although, on balance pensions might be slightly preferably for the time being (particularly if you can contribute via salary sacrifice)

Thanks for this.
I have asked regarding salary sacrifice and sent the info over etc but I seem to be banging my head up against a brick wall on the matter (v small company).

Is it best to sort my husband's contributes in one lump sum at the end of the tax year when we know what his final figures are and self assessment bill?

[Deleted User]

MX5huggy said:

Your husband needs to make pension contributions to get his earnings below £50k this tax year so that you don’t have Child Benefit taken off you. 

Thanks @MX5huggy. I didn't realise we would maintain child ben if pension contributions took us under £50k so that's definitely worth knowing.

2nd_time_buyer

MX5huggy said:

Your husband needs to make pension contributions to get his earnings below £50k this tax year so that you don’t have Child Benefit taken off you. 

Does this work? My understanding is that pension contributions do not reduce income/profit, which is what child benefit is based on.

.... unless contributions are via salary sacrifice.

2nd_time_buyer

Deleted_User said:

2nd_time_buyer said:

It seems that you are in a good position to start increasing contributions as you have very decent incomes.

A rule of thumb for a comfortable retirement is to contribute a percentage of your salary equivalent to your pension starting age i.e. in your case around 30%. That probably seems quite a lot (and it probably is excessive) but ...

The first thing would be for your husband to contribute at least 5k to benefit from 40% tax relief.

Can you contribute to your pension via salary sacrifice? If so, that is probably the next best way to make contributions.

It would be worth you both opening a LISA if only to put a nominal amount in. This will give you further options. Although, on balance pensions might be slightly preferably for the time being (particularly if you can contribute via salary sacrifice)

Thanks for this.
I have asked regarding salary sacrifice and sent the info over etc but I seem to be banging my head up against a brick wall on the matter (v small company).

The benefit to them is they save the employer national insurance which is going up to 15.05% in April. So even for a small employer the savings are not insignificant. So it is worth persevering with.

[Deleted User]

2nd_time_buyer said:

Deleted_User said:

2nd_time_buyer said:

It seems that you are in a good position to start increasing contributions as you have very decent incomes.

A rule of thumb for a comfortable retirement is to contribute a percentage of your salary equivalent to your pension starting age i.e. in your case around 30%. That probably seems quite a lot (and it probably is excessive) but ...

The first thing would be for your husband to contribute at least 5k to benefit from 40% tax relief.

Can you contribute to your pension via salary sacrifice? If so, that is probably the next best way to make contributions.

It would be worth you both opening a LISA if only to put a nominal amount in. This will give you further options. Although, on balance pensions might be slightly preferably for the time being (particularly if you can contribute via salary sacrifice)

Thanks for this.
I have asked regarding salary sacrifice and sent the info over etc but I seem to be banging my head up against a brick wall on the matter (v small company).

The benefit to them is they save the employer national insurance which is going up to 15.05% in April. So even for a small employer the savings are not insignificant. So it is worth persevering with.

I have explained this as well! I may try it again. I know it makes a lot of sense!

MX5huggy

2nd_time_buyer said:

MX5huggy said:

Your husband needs to make pension contributions to get his earnings below £50k this tax year so that you don’t have Child Benefit taken off you. 

Does this work? My understanding is that pension contributions do not reduce income/profit, which is what child benefit is based on.

.... unless contributions are via salary sacrifice.

The Child Benefit threshold is worked out use Adjusted Net Income so yes it works https://adviser.royallondon.com/technical-central/pensions/state-benefits-pension-manuals/child-benefit-avoiding-the-tax-charge/

jamesd

Deleted_User said:

- Husband s/e sole trader. Think he will start to average around £55k. Not currently contributing at all but want to find out the best option for this and most tax efficient.

Any advice on next steps forward would be appreciated for both myself and my husband.

Why isn't he a director/employee of his own limited company?

Pension contributions only limited by the annual allowance can be paid and reduce company profits and taxes, effectively a good form of salary sacrifice. It also has the advantage of limited liability, important to safeguard your home and assets if thee's any chance of a substantial uninsured legal judgement against the business.

Dazed_and_C0nfused

2nd_time_buyer said:

MX5huggy said:

Your husband needs to make pension contributions to get his earnings below £50k this tax year so that you don’t have Child Benefit taken off you. 

Does this work? My understanding is that pension contributions do not reduce income/profit, which is what child benefit is based on.

.... unless contributions are via salary sacrifice.

Net pay contributions reduce taxable income but someone who is self employed is going to be paying relief at source contributions.

These don't reduce taxable income (they increase the basic rate tax band) but they do reduce adjusted net income which is what the High Income Child Benefit Charge is based on.

This is very simplistic but if his only taxable income for a year was £55,000 profits from self employment and he paid £4,000 (net) into a relief at source pension (in the same tax year) then this would work out as follows,

Initial cost £4,000
Basic rate tax relief £1,000
Pension fund £5,000

Personal tax saving £946
HICBC avoided (for two kids) £1,827.80
Total personal tax/HICBC saving £2,773.80

Real cost of £5,000 pension fund = £1226.20