Better reducing workplace pension contribution in favour of Personal Pension?

jimjames

silvercue said:

I pay additional into the workplace pension via salary sacrifice.  So I pay 50% of my salary in before tax rather than 5%.  So I am paying very little income tax now.

If it's salary sacrifice then changing that to personal pension would be a very bad idea financially and you'll pay more NI.

silvercue said:

MX5huggy said:

P1Fanatic said:

Not sure where you are  getting the 25% from. Maybe you mean having to claim the difference between basic rate and the 45% (as only basic rate 20% 

It comes from when you pay into a SIPP 25% of that payment is then added by the provider as the tax relief from the Government.
eg pay in £4000 4 to 6 weeks later £1000 is added. It’s actually 20% tax relief on £5000 but that’s not how it shows up in reality. 

 I am not better off paying into personal pension rather than workplace pension (ignoring pension performance)

No, you'll be worse off. Salary sacrifice reduces the NI you pay, if you take the money and get tax relief on personal pension you'll pay more NI. Tax relief will work out much the same as tax saved but you might also find your employer gives you part of their NI saving too.

silvercue

Thanks everyone.   Very helpful all round!

Have a virtual drink on me!  

Albermarle

Apodemus said:

Should the OP not also be considering the actual details of the workplace pension?  For all we know from the above, it could come with guaranteed, salary-based levels of future pension income, spouse benefits, death-in-service benefits, indexing, provisions for redundancy etc.  None of which would be met by a SIPP.  On the other hand, the workplace may be in a risky industry and the pension scheme may be at more of a risk of default.   Also, the OP should investigate how each is likely to balance out if they choose to retire early, or need to for health reasons.

I think most replies have assumed that the OP just had a standard DC workplace pension, as that was the way it sounded, although not stated explicitly. The fact that they add 50% of their salary would mean that it it will not be a DB pension. So most likely it will have no associated benefits, although the OP may like to confirm that for completeness.

Apodemus

Albermarle said:

Apodemus said:

Should the OP not also be considering the actual details of the workplace pension?  For all we know from the above, it could come with guaranteed, salary-based levels of future pension income, spouse benefits, death-in-service benefits, indexing, provisions for redundancy etc.  None of which would be met by a SIPP.  On the other hand, the workplace may be in a risky industry and the pension scheme may be at more of a risk of default.   Also, the OP should investigate how each is likely to balance out if they choose to retire early, or need to for health reasons.

I think most replies have assumed that the OP just had a standard DC workplace pension, as that was the way it sounded, although not stated explicitly. The fact that they add 50% of their salary would mean that it it will not be a DB pension. So most likely it will have no associated benefits, although the OP may like to confirm that for completeness.

Quite so, we are all assuming.  My main point, though, is that there is so much more to this than simply the tax situation and this  may be one of these situations where one should be careful not to let the tax "tail" wag the pensions "dog" - although I sincerely hope that Silvercue doesn't have a dog of a pension! 

Shimrod

Apodemus said:

Albermarle said:

Apodemus said:

Should the OP not also be considering the actual details of the workplace pension?  For all we know from the above, it could come with guaranteed, salary-based levels of future pension income, spouse benefits, death-in-service benefits, indexing, provisions for redundancy etc.  None of which would be met by a SIPP.  On the other hand, the workplace may be in a risky industry and the pension scheme may be at more of a risk of default.   Also, the OP should investigate how each is likely to balance out if they choose to retire early, or need to for health reasons.

I think most replies have assumed that the OP just had a standard DC workplace pension, as that was the way it sounded, although not stated explicitly. The fact that they add 50% of their salary would mean that it it will not be a DB pension. So most likely it will have no associated benefits, although the OP may like to confirm that for completeness.

Quite so, we are all assuming.  My main point, though, is that there is so much more to this than simply the tax situation and this  may be one of these situations where one should be careful not to let the tax "tail" wag the pensions "dog" - although I sincerely hope that Silvercue doesn't have a dog of a pension! 

The OP does say they would reduce the overpayments into the work scheme and not leave it completely. This would retain any enhanced life assurance that would typically come with a work-based pension. If it was a salary-linked pension I would expect the conversation to be around buying extra years rather than simple overpayments.

The OP might also want to check whether the company shares some or all of it's NI saving from salary sacrifice - if it does then that makes the 50% contribution into the company pension very worthwhile.

techno12

Shimrod said:

The OP might also want to check whether the company shares some or all of it's NI saving from salary sacrifice - if it does then that makes the 50% contribution into the company pension very worthwhile.

Indeed. My company only pays in the statutory 3%, but does give all their NI saving to my pot. So I'm sacrificing 57% currently to compensate for their low level of contributions.

P1Fanatic

Shimrod said:

Apodemus said:

Albermarle said:

Apodemus said:

Should the OP not also be considering the actual details of the workplace pension?  For all we know from the above, it could come with guaranteed, salary-based levels of future pension income, spouse benefits, death-in-service benefits, indexing, provisions for redundancy etc.  None of which would be met by a SIPP.  On the other hand, the workplace may be in a risky industry and the pension scheme may be at more of a risk of default.   Also, the OP should investigate how each is likely to balance out if they choose to retire early, or need to for health reasons.

I think most replies have assumed that the OP just had a standard DC workplace pension, as that was the way it sounded, although not stated explicitly. The fact that they add 50% of their salary would mean that it it will not be a DB pension. So most likely it will have no associated benefits, although the OP may like to confirm that for completeness.

Quite so, we are all assuming.  My main point, though, is that there is so much more to this than simply the tax situation and this  may be one of these situations where one should be careful not to let the tax "tail" wag the pensions "dog" - although I sincerely hope that Silvercue doesn't have a dog of a pension! 

The OP does say they would reduce the overpayments into the work scheme and not leave it completely. This would retain any enhanced life assurance that would typically come with a work-based pension. If it was a salary-linked pension I would expect the conversation to be around buying extra years rather than simple overpayments.

The OP might also want to check whether the company shares some or all of it's NI saving from salary sacrifice - if it does then that makes the 50% contribution into the company pension very worthwhile.

Are things like Life Assurance normally linked to Pensions? My companies Life Assurance (Death / Critical Illness) is totally separate as I understand it i.e. separate expressions of wish forms for nominating beneficiaries for pension and Life Assurance payout.

cloud_dog

techno12 said:

Shimrod said:

The OP might also want to check whether the company shares some or all of it's NI saving from salary sacrifice - if it does then that makes the 50% contribution into the company pension very worthwhile.

Indeed. My company only pays in the statutory 3%, but does give all their NI saving to my pot. So I'm sacrificing 57% currently to compensate for their low level of contributions.

Wish my company did that

So, another 13.8%!!!

If your associated contribution level was £100, that would cost you £58, but £113.80 would end up in the account (for a cost of £58), a 96% uplift in your take home pay cost.  What is not to like?

TiVo_Lad

Don't forget to look at the costs of the two schemes as well as the investment choices. Depending on the size of the scheme and the pensions provider, your employer may have been able to negotiate lower charges than your personal pension. Thus, on a like for like basis, one scheme may be cheaper from a charges perspective. Obviously, there are additional things to consider, as others have pointed out, but the scheme charges can sometimes be forgotten.

In my own situation, my workplace scheme is far better than a personal scheme because of the NI kickback and the much lower charges, but for others that might not be the case.

P1Fanatic

TiVo_Lad said:

Don't forget to look at the costs of the two schemes as well as the investment choices. Depending on the size of the scheme and the pensions provider, your employer may have been able to negotiate lower charges than your personal pension. Thus, on a like for like basis, one scheme may be cheaper from a charges perspective. Obviously, there are additional things to consider, as others have pointed out, but the scheme charges can sometimes be forgotten.

In my own situation, my workplace scheme is far better than a personal scheme because of the NI kickback and the much lower charges, but for others that might not be the case.

Good point and its similar for my company. I noticed in my SW pension that I was getting credited each month and it was basically them refunding additional fund units because of the lower mgmt fee they charge vs standard charge.