Pension Planning for future

Dazed_and_C0nfused

twopointfour1980 said:

Am I thinking this through right?

If I contribute 15% through employer pension this would leave me with take home of 4,224 per month

To get back to 50k for child benefit I would need to contribute 28k per year to my employer pension which would then be grossed up by 20% to 35k.

This would mean I have 3,462 take home salary.

This is a difference of 763 pounds.

Child 1 benefit Equals 1248 per year
Child 2 benefit Equals 826.80

Total child benefit equals 2074.80 which is 173 per month.

Plus on a self assessment I could then claim an additional 20% tax relief of 7000 on tax return. Not sure if this would be paid out or adjusted on my tax code? - I think you can elect if I remember rightly?
The 7k is 584 per month

584 plus the 173 comes back very close to the 763 less on higher contributions.

This means overall that I'm actually no worse off despite putting in 33% to my pension?!  Just the timing of the 7k to factor in as I guess that would be January 2025 assuming that I start in the next month or two.

Haven't got as far as pension comparison yet on the %'s but wanted to see if my logic made sense?

In the overall scheme of things it might not be a deal breaker but you don't get a fixed extra 20% in higher rate tax relief.

If your taxable earnings are £85k then you wil be paying higher rate tax on £34,730 so higher rate will be (slightly) limited by this.

But there can be other benefits.  You may become eligible for an increased saving nil rate band (£1,000 instead of £500) and, if relevant, also be eligible for Marriage Allowance (worth £252).

Don't forget your taxable income would remain £85,000 as RAS contributions increase your basic rate band, not reduce your taxable income.

They do reduce your adjusted net income, which is what HICBC is based on.

Mutton_Geoff

Albermarle said:

 I don't have a particularly high risk appetite.

With a timescale of over 20 years, this will probably restrict what returns /pension you can get.

And if the pension is planned/designed to last say 30 years, then a third of it won't be needed until at least 40+ years from now. It would be foolish not to have this invested at a reasonable risk level to avoid getting beaten by inflation.

twopointfour1980

Mutton_Geoff said:

Albermarle said:

 I don't have a particularly high risk appetite.

With a timescale of over 20 years, this will probably restrict what returns /pension you can get.

And if the pension is planned/designed to last say 30 years, then a third of it won't be needed until at least 40+ years from now. It would be foolish not to have this invested at a reasonable risk level to avoid getting beaten by inflation.

Can you give me an idea of what would be classed as reasonable risk? I appreciate you can't give specific advice but I'm guessing stocks and shares are reasonable risk? Presume it's more to do with the fund types such as FTSE100 vs more risky indexes?

twopointfour1980

Dazed_and_C0nfused said:

twopointfour1980 said:

Am I thinking this through right?

If I contribute 15% through employer pension this would leave me with take home of 4,224 per month

To get back to 50k for child benefit I would need to contribute 28k per year to my employer pension which would then be grossed up by 20% to 35k.

This would mean I have 3,462 take home salary.

This is a difference of 763 pounds.

Child 1 benefit Equals 1248 per year
Child 2 benefit Equals 826.80

Total child benefit equals 2074.80 which is 173 per month.

Plus on a self assessment I could then claim an additional 20% tax relief of 7000 on tax return. Not sure if this would be paid out or adjusted on my tax code? - I think you can elect if I remember rightly?
The 7k is 584 per month

584 plus the 173 comes back very close to the 763 less on higher contributions.

This means overall that I'm actually no worse off despite putting in 33% to my pension?!  Just the timing of the 7k to factor in as I guess that would be January 2025 assuming that I start in the next month or two.

Haven't got as far as pension comparison yet on the %'s but wanted to see if my logic made sense?

In the overall scheme of things it might not be a deal breaker but you don't get a fixed extra 20% in higher rate tax relief.

If your taxable earnings are £85k then you wil be paying higher rate tax on £34,730 so higher rate will be (slightly) limited by this.

But there can be other benefits.  You may become eligible for an increased saving nil rate band (£1,000 instead of £500) and, if relevant, also be eligible for Marriage Allowance (worth £252).

Don't forget your taxable income would remain £85,000 as RAS contributions increase your basic rate band, not reduce your taxable income.

They do reduce your adjusted net income, which is what HICBC is based on.

Thanks although I'm still not sure I'm 100% clear on the RAS part.

To keep it simple, lets' say I put £34,730 in to my pension this year to 05.04.2024. I get 20% tax relief at source and then have to claim the additional 20% in my tax return by 31.01.2025? When I put in this claim, would I then receive £6,946 as a cash rebate or would my basic rate band be increased the following tax year or can i elect how to receive?

Thank you
 

Albermarle

I'm paying into a DB, my CARE is historic.

Presume from your other comments , you mean DC ?

Can you give me an idea of what would be classed as reasonable risk? I appreciate you can't give specific advice but I'm guessing stocks and shares are reasonable risk? Presume it's more to do with the fund types such as FTSE100 vs more risky indexes

For the large majority of pension investments = funds containing many different shares and some bonds.

In very simple terms the larger % of shares, the more risk but with more potential growth . In reality for these mainstream funds , risk really means volatility and this should even out over a long period of time.

Normally it is better to have funds with a global outlook, as FTSE 100 has been a relatively poor performer, compared to the US for example.