Pension and Tax rebate

Simon11

71peyman71 said:

Thank you for the explanation. I think I understand now. 
And looking at my pension pot on my account, your calculation is about right.
I don't think I can ramp up my salsac to 70% though, as I will have hardly any income for monthly bills, mortgage etc. I have modest savings. My child maintenance payments will likely go up from autumn too.

I think you should have a really good look at your retirement plans, your desired income and what your pension forecast.

If you were able to salsac £20k to remove paying 40% tax, that would really give a huge boost to your pension and would have a marginal impact on your income. It is scary at first making a change, but once you make the adjustment you get used to the new lower income level.

Personally, I am low 30's and have just further increased my salsac to 28% (including employer) and I also chuck my bonus into the pension too, I am now aiming to get £40k into the pot for the next few years while the times are good.

71peyman71

JoeCrystal said:

71peyman71 said:

I use the salary calculator here https://www.thesalarycalculator.co.uk/salary.php

In the pension tab, the default is Auto-enrolment. Is this correct or should I check the Salary Sacrifice button? 
My take home is far lower with the latter!

The purpose behind that auto-enrolment option was to ignore the first £6,240 per year so the employee and employers' percentage contribution can be calculated above that up to a specific high amount. So a person earning £1,040 in a month can only expect £15.50 from their employer as bare minimum

Thanks. So the Salary Sacrifice option is correct. It decimates my net income though when I apply a 50% sacrifice.

71peyman71

Simon11 said:

71peyman71 said:

Thank you for the explanation. I think I understand now. 
And looking at my pension pot on my account, your calculation is about right.
I don't think I can ramp up my salsac to 70% though, as I will have hardly any income for monthly bills, mortgage etc. I have modest savings. My child maintenance payments will likely go up from autumn too.

I think you should have a really good look at your retirement plans, your desired income and what your pension forecast.

If you were able to salsac £20k to remove paying 40% tax, that would really give a huge boost to your pension and would have a marginal impact on your income. It is scary at first making a change, but once you make the adjustment you get used to the new lower income level.

Personally, I am low 30's and have just further increased my salsac to 28% (including employer) and I also chuck my bonus into the pension too, I am now aiming to get £40k into the pot for the next few years while the times are good.

Well you are very wise. I woke up to all this way too later. But I had lots of struggles, debts, commitments etc.
My plan is to bring my taxable salary down to 45K initially, then as my salary increases I can hopefully do more. I am nearly 50 and my pension pot is very small. 
The good thing is my current employer pays in 12%.  

Simon11

71peyman71 said:

Well you are very wise. I woke up to all this way too later. But I had lots of struggles, debts, commitments etc.

My plan is to bring my taxable salary down to 45K initially, then as my salary increases I can hopefully do more. I am nearly 50 and my pension pot is very small. 
The good thing is my current employer pays in 12%.  

Agreed, I am not sure many employers match or better 12% contribution!

ussdave

71peyman71 said:

JoeCrystal said:

71peyman71 said:

I use the salary calculator here https://www.thesalarycalculator.co.uk/salary.php

In the pension tab, the default is Auto-enrolment. Is this correct or should I check the Salary Sacrifice button? 
My take home is far lower with the latter!

The purpose behind that auto-enrolment option was to ignore the first £6,240 per year so the employee and employers' percentage contribution can be calculated above that up to a specific high amount. So a person earning £1,040 in a month can only expect £15.50 from their employer as bare minimum

Thanks. So the Salary Sacrifice option is correct. It decimates my net income though when I apply a 50% sacrifice.

Just go as high as you can whilst maintaining an income that works for you.  For me personally I've found more than 15% a bit too hard to swallow but I'm younger and on a lower wage at around the £55k mark.  My plan is to gradually increase it each year by just 1% or so.

Dazed_and_C0nfused

71peyman71 said:

JoeCrystal said:

71peyman71 said:

I use the salary calculator here https://www.thesalarycalculator.co.uk/salary.php

In the pension tab, the default is Auto-enrolment. Is this correct or should I check the Salary Sacrifice button? 
My take home is far lower with the latter!

The purpose behind that auto-enrolment option was to ignore the first £6,240 per year so the employee and employers' percentage contribution can be calculated above that up to a specific high amount. So a person earning £1,040 in a month can only expect £15.50 from their employer as bare minimum

Thanks. So the Salary Sacrifice option is correct. It decimates my net income though when I apply a 50% sacrifice.

But it is a more tax efficient way of getting that amount of money into your pension scheme.

If you paid it yourself even with the benefit of pension tax relief you would be worse off.

Albermarle

71peyman71 said:

Simon11 said:

71peyman71 said:

Thank you for the explanation. I think I understand now. 
And looking at my pension pot on my account, your calculation is about right.
I don't think I can ramp up my salsac to 70% though, as I will have hardly any income for monthly bills, mortgage etc. I have modest savings. My child maintenance payments will likely go up from autumn too.

I think you should have a really good look at your retirement plans, your desired income and what your pension forecast.

If you were able to salsac £20k to remove paying 40% tax, that would really give a huge boost to your pension and would have a marginal impact on your income. It is scary at first making a change, but once you make the adjustment you get used to the new lower income level.

Personally, I am low 30's and have just further increased my salsac to 28% (including employer) and I also chuck my bonus into the pension too, I am now aiming to get £40k into the pot for the next few years while the times are good.

Well you are very wise. I woke up to all this way too later. But I had lots of struggles, debts, commitments etc.
My plan is to bring my taxable salary down to 45K initially, then as my salary increases I can hopefully do more. I am nearly 50 and my pension pot is very small. 
The good thing is my current employer pays in 12%.  

If you salary sacrifice down to the point where you pay no 40% tax . Then in simple terms adding £20K to your pension will only cost you £12K in reduction in take home pay . So £8K 'free money' + around the same for your employer . Altogether £28K a year going into your pension. If you work for another say 13/15 years and with some investment growth , your pot will not be so small anymore .

Once your contributions have been increased and the pot starts to get bigger, then you need to look closely at how the pot is invested ( or take in an interest in it anyhow ) as this will have a long term effect as well. 

71peyman71

Albermarle said:

71peyman71 said:

Simon11 said:

71peyman71 said:

Thank you for the explanation. I think I understand now. 
And looking at my pension pot on my account, your calculation is about right.
I don't think I can ramp up my salsac to 70% though, as I will have hardly any income for monthly bills, mortgage etc. I have modest savings. My child maintenance payments will likely go up from autumn too.

I think you should have a really good look at your retirement plans, your desired income and what your pension forecast.

If you were able to salsac £20k to remove paying 40% tax, that would really give a huge boost to your pension and would have a marginal impact on your income. It is scary at first making a change, but once you make the adjustment you get used to the new lower income level.

Personally, I am low 30's and have just further increased my salsac to 28% (including employer) and I also chuck my bonus into the pension too, I am now aiming to get £40k into the pot for the next few years while the times are good.

Well you are very wise. I woke up to all this way too later. But I had lots of struggles, debts, commitments etc.
My plan is to bring my taxable salary down to 45K initially, then as my salary increases I can hopefully do more. I am nearly 50 and my pension pot is very small. 
The good thing is my current employer pays in 12%.  

If you salary sacrifice down to the point where you pay no 40% tax . Then in simple terms adding £20K to your pension will only cost you £12K in reduction in take home pay . So £8K 'free money' + around the same for your employer . Altogether £28K a year going into your pension. If you work for another say 13/15 years and with some investment growth , your pot will not be so small anymore .

Once your contributions have been increased and the pot starts to get bigger, then you need to look closely at how the pot is invested ( or take in an interest in it anyhow ) as this will have a long term effect as well. 

Thanks, so to reduce down to where I pay no 40% tax, I must reduce my taxable income to below £50,271? If so, this is not so bad as I thought. 
I am using the salary calculator site to see how much I should pay https://www.thesalarycalculator.co.uk/salary.php
 

QrizB

71peyman71 said:

Thank you for the explanation. I think I understand now. 
And looking at my pension pot on my account, your calculation is about right.
I don't think I can ramp up my salsac to 70% though, as I will have hardly any income for monthly bills, mortgage etc. I have modest savings. My child maintenance payments will likely go up from autumn too.

Don't worry if you can't salsac down to minimum wage, I can't afford to do that either

When you said you were thinking of a lump sum contribution I didn't know if you meant £100 or £100k, so wanted to cover all the bases!