Maximising net worth

cut_costs_not_grass

I want to understand what would be the best way to maximize net worth gains with pension contributions. 

My base is £57,000 with 5% bonus making a total of around £60,000. Employer matches 4% pension contributions. However, the fund the employer invests in has high Annual Charge of 0.47% (for example, similar target retirement funds from Blackrock or Vanguard have only, 0.21 - 0.24% respectively). I would much rather contribute only 4% to match employers contribution and invest on my own, but at the same time I'm conscious about Pension Tax Relief and HMRC Pension and don't want to lose these.

So, my question is - what's the best contribution % I should go for that would maximize the gains?

I appreciate this question might be tough, and hence would be thankful for any guidance.

NoMore

Well the best % to maximise gains would be 100% of your salary into your pension, but I guess you don't actually mean maximise.

Albermarle

However, the fund the employer invests in has high Annual Charge of 0.47% (for example, similar target retirement funds from Blackrock or Vanguard have only, 0.21 - 0.24% respectively)

The Blackrock and Vanguard funds will also have a platform charge , which typically will bring them to 0.4% to 0.5% in total.

Your employer fund MAY not have this charge, as it MAY be included in the 0.47%.

For some perspective, 0.47% all in, would not be classed as a high charge. Many people pay up to 2 %, although that is high !

Dazed_and_C0nfused

From a tax (and NI) saving perspective the best option is salary sacrifice.

You don't get any pension tax relief but avoid paying 20/21/40/41% tax in the first place.  And you avoid paying 3.25% or 13.25% NI as well.

The other advantage is you never have to deal with HMRC as you aren't making pension contributions, you are giving up salary in return for extra employer contributions.

But as you refer to your own contributions, in the context of your employer's scheme, does that mean salary sacrifice isn't an option?

[Deleted User]

Is there any way to move funds into a more reasonable investment vehicle AFTER the employer contributes his bit? Surely they don’t force you to keep your pension money in one particular expensive fund without providing alternatives? 

Linton

The difference between 0.47% charges and 0.24% is relatively small compared with such factors as what funds you are actually invested in and how much you contribute.

Also you need to check what the charges cover.  For example if your personal pension were to be  held in a mainstream SIPP there will be additional platform charges whereas for your employers pension there may not.  Something else to check is whether the employers scheme gets better rates than those stated in the general fund documentation.

Do you currently pay for your pension under salary sacrifice?  If so the NI gain will exceed any difference in charges.  Otherwise the amount of tax you save will be the same unless, possibly, you are intending to pay sufficient pension to avoid tax all together.

So you may have a fair bit of research to do before concluding that a move to a private pension would be better.

Depending on your age and whether you plan to go into drawdown a target retirement fund may not be the bext option.  What are the current fund allocations into equity and non-equity?  Perhaps there is the opportunity to go for higher risk investments with potentially higher returns.

A 4% personal contribution is very low.  Hoave you worked out how much you need to contribute to meet your planned retirement date and  expenditure level?

I suggest you focus on getting the investments optimised and the contribution high enough to meet your retirement objectives before worrying about the 2nd level details.