New Job Pension, 40% Tax and current MoD pension

Bellfour

Hi everyone 

A little advice please?

I have just retired from the Army at 55 and my MoD pension will be 21k a year from now.  I have also managed to get a job that pays 50K  so my MoD pension will be taxed at 40%.

I have also been invited to join my new companies Pension and I can put in a minimum of 4% of my base salary and they will match it.

If I put in more per month say 10% will that reduce my taxable income and therefore reduce the amount I am paying in tax at the 40% rate?  If so should I just fire as much as I can into the pension? Or is there a sweet spot at a certain % input?

Hope I am making sense?

Many thank

Paul

Brie

Can you delay taking the MoD pension?  If you can and it increases in value that might be a handy thing.

Dazed_and_C0nfused

To fully understand how it will work you need to know what method is being used to get your 4% (or more) into the pension as they all work slightly differently.

The 3 usual methods are,

Net pay
Relief at source
Salary sacrifice

Bellfour

Brie said:

Can you delay taking the MoD pension?  If you can and it increases in value that might be a handy thing.

No choice unforttunately!

Dazed_and_C0nfused said:

To fully understand how it will work you need to know what method is being used to get your 4% (or more) into the pension as they all work slightly differently.

The 3 usual methods are,

Net pay
Relief at source
Salary sacrifice

Its Salary Exchange according to the booklet... Says its exempt Nat Ins or I can go onto the Governments Pension Plan  instead

Silvertabby

Bellfour said:

Brie said:

Can you delay taking the MoD pension?  If you can and it increases in value that might be a handy thing.

No choice unforttunately!

60% of something is better than 100% of nothing.

NannaH

Either pay the equivalent to the military pension into your work pension or open a Sipp and put it in there.  You will get 20% tax relief automatically and can claim the other 20% by self assessment ( as far as I’m aware). 
That’s what my husband will do in a couple of years.  

Albermarle

Its Salary Exchange according to the booklet... Says its exempt Nat Ins or I can go onto the Governments Pension Plan  instead

Presuming salary exchange is just another name for salary sacrifice, then much better to make additional pension contributions this way . Ideally enough to bring your overall taxable income down to £50K.

Not sure what you mean by 'or I can go onto the Governments pension plan instead'?

Do you mean the employer has a workplace pension, but offers you the alternative to add to another pension instead ? That would be unusual.

Can you give some more detail about both plans if that is the case ?

Pat38493

If it is salary exchange / salary sacrifice, then yes it will reduce effectively your taxable income.  Technically with salary exchange, your gross salary is reduced and the company makes contributions on your behalf, but the effect on income tax would be the same.

You should be able to contribute a good portion of your salary into your pension and you will get tax relief at the marginal rate - to avoid 40% tax you would need to get your total gross amount below about 50K.

The other issue you will run into is minimum wage - if you are using salary exchange, you cannot increase your pension contributions so much that it puts you below minimum wage, although you could ask your employer to change to the net income method (at the cost of having to also pay NI on the contributions).  However if your salary is 50K and your pension is 21K you could probably sacrifice enough to avoid 40% tax.

This assumes your employer hasn't set an arbitrary maximum on the pension contributions you can make.

xylophone

Do you mean that your new employer offers the choice of  either an occupational DB pension OR a DC pension (like NEST for example)?

Bellfour

xylophone said:

Do you mean that your new employer offers the choice of  either an occupational DB pension OR a DC pension (like NEST for example)?

Hi, Yes  the Company pension is minimum 4% from me and 4% from them or the Government one with 5% from me an 3% from them

Dazed_and_C0nfused

With a DB scheme the 4% + 4% is really meaningless.

You aren't building up a pot of money, your pension will be based on the scheme rules so important for you to have a read of those and understand what your 4% is buying.

Although I am a bit sceptical that it is going to be a DB scheme with that level of employer contributions.