Can I confirm my thinking around addn Pension contributions vs salary?

mark_cycling00

Are are of the clever people on here able to spot things I haven't considered in this?
Have tried to include the key facts and objectives

I have a salary sacrifice company pension.
 - Company matches my contributions up to 10%
 - I can add a varying amount of my salary (5-100%), for simplicity let's say I can add up to £40,000 a year without breaching the minimum wage (which I believe would stop me adding more)
 - some of my salary now is in the 40% tax band

I have some cash after a fixed-rate savings ended. For simplicity let's say this is £100,000
I have S&S ISAs which I consider to be part of my retirement income: let's say £100,000 again
I'm aiming to have another £100,000 (minimum) added to my pension before retirement. That would be about £250,000 
I intend to work for 20+ years but will reach the typical retirement age in 15 years. I have no expectations of taking early retirement!
Have home, no mortgage

It seems to me that there is some gain to living off the cash and adding to pension via salary sacrifice. e.g. £20,000 a year for 4 years (4x20 + 20 company contrib = 100)
 - Tax+NI saved would be 32-35%? 
 - This is much higher than what I'd expect to earn in savings and ISAs?
 - adding to pension from cash has a lower gain that via salary sacrifice

Problems to consider:
* extra money is locked up in Pension. Cannot obtain until age 57?
* need spare cash for emergencies (I'd still have £20,000 or so at year 4)
* If need a bigger amount of cash would need to tap into S&S ISA after year 4
* I might pay tax on pension income when a pensioner where as I would not on the income from ISAs? Not sure what my situation would be
* I might not use my yearly ISA allowance by putting cash in pension 

Are there other things to consider or things I've got wrong? 
Many thanks!

dunstonh

* extra money is locked up in Pension. Cannot obtain until age 57?

But some of your contributions would result in 40% relief (and with salary sacrifice, an NI reduction as well).   Putting that in context, £10,000 in the pension would only cost you £6000.

* I might pay tax on pension income when a pensioner where as I would not on the income from ISAs? Not sure what my situation would be

Pension still trumps ISA, even as a basic rate taxpayer, let alone a higher rate.   As a basic rate taxpayer in retirement, you will pay an effective 15% income tax on pension withdrawals.   If you got basic rate relief, that is a net gain of 6.25% on your contribution compared to an ISA.   With higher rate relief, its even better.

* I might not use my yearly ISA allowance by putting cash in pension 

Doesn't matter.  You wont use your pension allowance if you put into an ISA.  It works both ways.

Albermarle

You have pretty much nailed it. If you have spare cash that you will not need until retirement it makes sense to add to pension, and even better if by salary sacrifice.

 I might pay tax on pension income when a pensioner where as I would not on the income from ISAs? Not sure what my situation would be
Someone who is a 20% taxpayer in employment and a 20% taxpayer in retirement, makes a minimum tax gain of 6.25% ( due to the 25% tax free lump sum ) If you get 40% tax relief and pay 20% tax in retirement then it is a much bigger gain. Paying 40% tax in retirement is relatively rare and of course in retirement you still get the personal tax allowance that can be utilised.

I intend to work for 20+ years but will reach the typical retirement age in 15 years. I have no expectations of taking early retirement!
Not sure what you mean by typical retirement age. I believe the average is 62.

It makes a difference how well the investments in the pension perform, inflation etc . Also in 10 years time, working another 10 years may seem less of a good idea.

mark_cycling00

Thanks very much. 
Yes by "typical retirement age" I was thinking about when people tend to retire rather than the state pension age

Meaning that; although I may leave my current industry about this time, I would continue to work for another 10 or so, in some capacity to avoid tapping into the pension until my 70s.