Pension or ISA...?

Albermarle

artyboy said:

Oh hell, I'm officially a muppet. Having gone into my works pension portal today to make the adjustments, it turns out I totally miscalculated... the £24k I was going to reduce my contribution to, turns out to be the amount my employer contributes... but only if I contribute on top (yes I know it's all 'employer contributions' with salary sacrifice, but you know what I mean...)

So the upshot is that it make absolutely no sense to reduce, except by a tiny bit, that's hardly going to help the ISA situation.

Oh well, drawing board time. Might just can it for this year, should have enough coming out of a sharesave scheme in 23/24 that will cover our ISAs. Somehow I suspect we'll work it out 

In any case with employer paying £24K + your contributions into a pension, even with LTA issues, it is unlikely you will be sleeping on the streets 

HCIMbtw

dunstonh said:

Arty I would definitely check the point about protected rights to access at 55 with each of the providers. 

Protected rights no longer exist.  Any protected rights were automatically changed to non-protected rights.

Help me understand your point here sorry as it is concerning. 

Feedback from my work pension scheme is that my contributions to my pension for the past 10 years will be accessible from 55 due to a protected pension age on the pension, I got this feedback in december 2021. 

By way of publicly available info, Aegon have the following tab - https://www.aegon.co.uk/news/pension-ages.html and the following flow chart https://www.aegon.co.uk/content/dam/ukpaw/hidden/NMPA-flowchart.pdf which would indicate still that protected pension age of 55 can exist for pensions opened prior to November 2021

dunstonh

Feedback from my work pension scheme is that my contributions to my pension for the past 10 years will be accessible from 55 due to a protected pension age on the pension, I got this feedback in december 2021. 

That is the protected pension age.  Not protected rights.   Two different things.   Your earlier post said:
  

Arty I would definitely check the point about protected rights to access at 55 with each of the providers. 

Protected rights access used to be age 60 but was reduced in 2006 to match non-protected rights (which increased from 50 to 55).    Then in 2012, protected rights were abolished and reclassified as non-protected rights.  Although some providers cannot amend their software easily and still have a split and refer to it as former protected rights - but it's still non-protected rights.

Protected rights was the fund that was built up from being contracted out of SERPS/S2P.

Protected pension age is to do with the increase to age 57

HCIMbtw

dunstonh said:

Feedback from my work pension scheme is that my contributions to my pension for the past 10 years will be accessible from 55 due to a protected pension age on the pension, I got this feedback in december 2021. 

That is the protected pension age.  Not protected rights.   Two different things.   Your earlier post said:
  

Arty I would definitely check the point about protected rights to access at 55 with each of the providers. 

Protected rights access used to be age 60 but was reduced in 2006 to match non-protected rights (which increased from 50 to 55).    Then in 2012, protected rights were abolished and reclassified as non-protected rights.  Although some providers cannot amend their software easily and still have a split and refer to it as former protected rights - but it's still non-protected rights.

Protected rights was the fund that was built up from being contracted out of SERPS/S2P.

Protected pension age is to do with the increase to age 57

Thanks for clearing up, so many different terms in this space, but as long as I have my protected pension age. 

Just have enough in my 55 pot to bridge to 57 when I will be able to access a different pot I am now building... 

artyboy

Albermarle said:

artyboy said:

Oh hell, I'm officially a muppet. Having gone into my works pension portal today to make the adjustments, it turns out I totally miscalculated... the £24k I was going to reduce my contribution to, turns out to be the amount my employer contributes... but only if I contribute on top (yes I know it's all 'employer contributions' with salary sacrifice, but you know what I mean...)

So the upshot is that it make absolutely no sense to reduce, except by a tiny bit, that's hardly going to help the ISA situation.

Oh well, drawing board time. Might just can it for this year, should have enough coming out of a sharesave scheme in 23/24 that will cover our ISAs. Somehow I suspect we'll work it out 

In any case with employer paying £24K + your contributions into a pension, even with LTA issues, it is unlikely you will be sleeping on the streets 

No agreed, it's not like the underside of Waterloo Bridge beckons for me. Although with my apparent inability to do basic maths any more, who knows what the future holds 

Anyway, have decided to reduce contributions a little bit, to the level that just gets the max. from my employer - because if I assume I'll already end up over LTA - and will be paying BR tax on drawdown - there's going to be no net gain of putting any more than that in. 

And before anyone mentions it, I'm ignoring investment performance as I could also achieve that outside the pension wrapper.

artyboy

So this could end up being the thread that wouldn't die, but guess what, I've just found another option!

Turns out that my employer has come up with an alternative for people that are approaching LTA. This is to opt out of the pension completely (and become a 'deferred member'), and they will just pay the core and matching contributions through payroll.

Right now I'm at about 87% of LTA (of which DC counts for 82% and DB about 5%). My rough maths suggests that even if my existing DC only grew at ~2% PA (ignoring inflation!), then by the time I'm 57, I'd be over LTA - of course the LTA allowance could be generously increased after the current freeze ends in 2026, but I'm sceptical...

Whereas if I take the pension allowance as a salary addition, even after tax I'd net enough to fill my ISA.

It also comes with a fringe benefit that I could do a bit more pension consolidation - I'm not a huge fan of my works one as it has very few fund choices and with limited diversification.

So to me it sounds like that's the sensible move - but as someone that's shovelled every penny possible into pensions for many years now, it does make me a bit nervous that I'm missing something or not doing the right thing.

Maybe I'm just after reassurance here, but does this make sense as a plan? I recognise there's investment risk here and in 7 years I could still be well below LTA, but as I'm drawing down, I'll be invested for the longer term, so that wouldn't be a disaster.

thanks
Arty

Albermarle

Will you not be paying 40% tax on the added salary? Including on the employers contribution? If so you are not really gaining anything.

artyboy

Albermarle said:

Will you not be paying 40% tax on the added salary? Including on the employers contribution? If so you are not really gaining anything.

Hmm.... in fact in reality it's 48.25% including NI, so I guess there is a slight loss versus 40% if drawn down above LTA. So that is a consideration. Thanks for making me check my maths...

Albermarle

artyboy said:

Albermarle said:

Will you not be paying 40% tax on the added salary? Including on the employers contribution? If so you are not really gaining anything.

Hmm.... in fact in reality it's 48.25% including NI, so I guess there is a slight loss versus 40% if drawn down above LTA. So that is a consideration. Thanks for making me check my maths...

Also it would be money lost now and permanently. Whereas any LTA charge can be mitigated a little ( as discussed earlier in the thread) or at least delayed.

artyboy

Albermarle said:

artyboy said:

Albermarle said:

Will you not be paying 40% tax on the added salary? Including on the employers contribution? If so you are not really gaining anything.

Hmm.... in fact in reality it's 48.25% including NI, so I guess there is a slight loss versus 40% if drawn down above LTA. So that is a consideration. Thanks for making me check my maths...

Also it would be money lost now and permanently. Whereas any LTA charge can be mitigated a little ( as discussed earlier in the thread) or at least delayed.

Yes, but the my primary objective here is to build up a larger buffer that's accessible before 57, to facilitate earlier retirement. So it's really a call as to whether that's worth accepting an effective 8.25% charge...