Arguments for/against paying into a pension

Albermarle

I also get quite a good company pension.

OP - Can you clarify the details on this ?

ex-pat_scot

Under normal circumstances, pension saving knocks most other saving vehicles into a cocked hat.

It is especially useful if you are a higher rate taxpayer (ie get higher rate relief) and expect to be basic rate payer in retirement.
It is also useful if you can salary sacrifice.

The cases where it might not be as useful:
1. if you exceed the Annual Allowance and cannot use any capacity from previous years.  Unless you are caught by taper rules, or have already flexibly accessed your pension (google MPAA), then you can contribute up to the lower of your salary or £40,000 pa.
Going above this will mean you don't get tax relief.

2. if you have or are likely to exceed Lifetime allowance. Currently £1.073m

3. if you are basic rate taxpayer now, yet expect to be HR taxpayer in retirement (a very unlikely scenario!)

4. if you need access to the money before your earliest access age (55 or 57, depending on how old you are)

There might be other very niche cases where pensions might not be sensible, such as odd residence / tax status points. For UK taxpayers in general pensions are a no-brainer.

dllive

Thanks all. Very useful and certainly gives me food for thought. Based on what youve all said (and obviously taking into account my own situation) I will be shuffling some money into a SIPP each year. 

The company pension I have is https://www.uss.co.uk/ . I will look into whether I can pay in using salary sacrifice (which perhaps saves me even more tax becuase my contributions will be from gross pay?)

MallyGirl

salary sacrifice saves you NI.
You do save tax too as the gross amount goes into the pension rather than the amount going into the pension getting the 20% tax credited and you having to claim the rest via a tax return/tax code. Overall the same tax is saved - it is just that some ends up in your bank account (via tax return/code) rather than in the pension (with sal sac)

michaels

Worth thinking about your spending as well as your income.  If you are only spending a small proportion then it may b that your income increases when you retire - perhaps this is fine and you know how you are going to spend the money but the idea of retirement saving is to give you the income you desire for the period you want to be retired, no point saving a pot that means you can spend 50k pa in retirement if you intend to carry on spending 30k pa.  As mentioned above, pensions can not be spent until 55/57 at earliest unlike taxed income savings.

Brie

400ixl said:

Does your company pension scheme allow you to make additional salary sacrifice payments? This may be the most tax efficient way of doing this rather than paying into a separate SIPP plan.

It may also be better to do this ahead of paying post tax into a S&S ISA, depending on whether you want to lock away that money or your current / planned pension contributions would take you over the lifetime allowance before you plan to retire.

Also - if your company scheme allows AVPs it may save you more as you are unlikely to pay fees which you would need to do with a SIPP.

ussdave

dllive said:

Thanks all. Very useful and certainly gives me food for thought. Based on what youve all said (and obviously taking into account my own situation) I will be shuffling some money into a SIPP each year. 

The company pension I have is https://www.uss.co.uk/ . I will look into whether I can pay in using salary sacrifice (which perhaps saves me even more tax becuase my contributions will be from gross pay?)

You should read through the other USS threads on here as there are additional options for you due to the fact the scheme is a hybrid with elements of DB (the "income builder" section) and DC (the "investment builder" section), which can be combined to further reduce the amount of tax you will ultimately pay.

Secret2ndAccount

What ussdave said!     You have an opportunity to get free money!

You and your employer are paying into the Defined Benefits part of your pension. Let's make up an example. When you come to retire, maybe your pension is 25k /yr.  This will come with a lump sum of 3x so 75k. However, HMRC rules permit you to take 25% of your pension tax free. If you do the math, your pension has a lifetime value of well over 1/2 million, so your tax free sum could be upwards of 125k (taxman permits 125k, but scheme rules offer only 75k). So, you make extra payments into the linked DC part of the USS scheme. Build up a pot of 50k, getting tax relief on all those contributions. Then you can take the whole pot out as a lump sum of 50k on the day you retire. Tax relief on the way in, and zero tax on the way out. Use it or lose it. It's free money. As close to a no-brainer as you can get.

Please check that this works in your personal circumstances. I'm just describing the rules as I observe them for a typical member of USS.
If your total lifetime pension is headed for 1 million, you need to read about Lifetime Allowance too.

dllive

Thanks all!

My plan was to shuffle money into my existing SIPP (to add to a very small amount I put in a few years ago) which is with Vanguard (LS100 passive tracker fund). However, its now apparent I should take advantage of the USS scheme instead.

I will look through the other USS threads and speak to the Pensions person at work and see how best to action this.

Are there any initial questions you think I should ask? (such as if I can make payments using salary sacrifice).

I shall look through the USS site and the other threads when I get time later this week.

Simes122

dllive said:

Thanks all!

My plan was to shuffle money into my existing SIPP (to add to a very small amount I put in a few years ago) which is with Vanguard (LS100 passive tracker fund). However, its now apparent I should take advantage of the USS scheme instead.

I will look through the other USS threads and speak to the Pensions person at work and see how best to action this.

Are there any initial questions you think I should ask? (such as if I can make payments using salary sacrifice).

I shall look through the USS site and the other threads when I get time later this week.

I'm in USS - for most Uni's you can salary sacrifice, and you can change your additional contributions to it directly yourself on the USS website and choose whether you make them via salary sacrifice or not.  If you are a HR taxpayer, you will save HR tax and NI by doing so - so this is much better than doing it via your own SIPP.

You can salary sacrifice into your pension as much as you like, as long as you pay yourself minimum wage.   But what you have to remember, is that automatically, you will already have 9.8% contributions taken from your gross salary, to cover your DB contribution up to the £40k earnings cap, and 9.8% of everything above that will go to your DC pot.  So you need to work out what contribution - on top of - that 9.8% you wish to make via salary sacrifice.   In my case I do 60%, but I think the max amount can vary by institution.  As USSDave has mentioned, the fact that its a hybrid scheme can be very beneficial when it comes to taking your tax free sum at the end (another reason not to use a separate SIPP).   Also for many funds in the USS scheme there are no charges.   While it's not as good as it was, the USS scheme is definitely a better option than SIPPs or ISAs for an HR taxpayer who can live within the constraints of accessing the funds that brings.