Should I pay more into my workplace pension now I'm paid more?

jimbobsi

Hi everyone. First time poster, so let's see how this goes.

I'm very fortunate to have received a pay rise to £70,000 recently. I contribute 5% into the workplace pension (that's the minimum) and my employer contributes 4%.

I also pay £500 a month into my ISA which I do after I have been paid.

Something doesn't feel right here to me. Would I be right in suggesting that I should pay £500 more a month into my workplace pension instead of the ISA (I can't do both) as that would come out before tax and my employer would also then also contribute?

My current 5% contribution = £291.67 + £500 additional

So would this mean my taxable income would be £60,500?

Thank you for any help. 
Jim

Marcon

jimbobsi said:

Hi everyone. First time poster, so let's see how this goes.

I'm very fortunate to have received a pay rise to £70,000 recently. I contribute 5% into the workplace pension (that's the minimum) and my employer contributes 4%.

I also pay £500 a month into my ISA which I do after I have been paid.

Something doesn't feel right here to me. Would I be right in suggesting that I should pay £500 more a month into my workplace pension instead of the ISA (I can't do both) as that would come out before tax and my employer would also then also contribute?

My current 5% contribution = £291.67 + £500 additional

So would this mean my taxable income would be £60,500?

Thank you for any help. 
Jim

How are your own contributions made - by salary sacrifice, by deduction from your salary before tax is applied, or out of your net salary? 

Whether your employer contributes more if you pay more depends on the rules of your particular scheme. You'd need to check the information you have about the scheme (or look online if the pension provider has a website for your scheme).

r6mile

I think it's unlikely that your employer would increase their contribution - though some do match up to a certain percentage, so worth checking.

The benefit of a pension is that you get tax relief, which as you are a higher-rate 40% taxpayer is significant. Basically, £1 into your pension actually costs you 60p (or perhaps 58p, if your pension is run under a Salary Sacrifice arrangement, it's worth checking).

In you case, £500pcm net would actually put £833pcm into your pension. So you can see how beneficial the tax relief is. Though do keep in mind this money will be locked away until your late 50s. 

UrbanAchiever

Depends on how old you are, at what age you want to retire, and how much is currently in your pension pot.

For me, I have a decent chunk in my pension and want to retire 4 years before I can access my pension. So whilst I still contribute a good amount to my pension to get my employer match and to benefit from income tax savings, I also want to build up my ISA, to bridge the gap between retirement and accessing my pension at 57.

Dazed_and_C0nfused

Would this be using salary sacrifice?

Steve_666_

Pension or ISA for a 20% tax payer is a choice based on flexibility, do you expect to need the money before pension age? However for a 40% tax payer spare cash into a pension rather than an ISA is a winner but a trade off in flexibility

Pat38493

Steve_666_ said:

Pension or ISA for a 20% tax payer is a choice based on flexibility, do you expect to need the money before pension age? However for a 40% tax payer spare cash into a pension rather than an ISA is a winner but a trade off in flexibility

The case is not as strong, but from what I understand even if you are a 20% taxpayer, there is still an advantage to paying into the pension due to the 25% tax free cash element on withdrawal, and also that if you are investing long term, you will get the growth on the tax that you have delayed paying.

jimbobsi

Hi all. Wow. Thank you for your comments and taking the time to get back to me.

It's not a salary sacrifice and I'm in my 40s so happy to wait until I can take it in my 50s (or even later)

I'm toying with the idea of paying in 15% instead of the minimum of 5%. So this will be £10,500 contributed a year instead of £3,500 (not inc my employers contribution)

I believe the impact of this on my monthly take home pay (after tax/NI/pension) will be that I'll have £3612 instead of £3962. £350 less, but £583.33 more will have gone into my pension. 

MEM62

jimbobsi said:

I'm very fortunate to have received a pay rise to £70,000 recently. I contribute 5% into the workplace pension (that's the minimum) and my employer contributes 4%.

I also pay £500 a month into my ISA which I do after I have been paid.

Unless you have high levels of debt or really high living expenses you are paying nowhere near enough into your pension.  (Use a pension calculator to see what your current levels of contribution will give you as a pot / income in retirement)  I would be considering paying 15 or even 20% into your pension and continuing the contribution to your ISA.  

R_P_W

jimbobsi said:

Hi everyone. First time poster, so let's see how this goes.

I'm very fortunate to have received a pay rise to £70,000 recently. I contribute 5% into the workplace pension (that's the minimum) and my employer contributes 4%.

I also pay £500 a month into my ISA which I do after I have been paid.

Something doesn't feel right here to me. Would I be right in suggesting that I should pay £500 more a month into my workplace pension instead of the ISA (I can't do both) as that would come out before tax and my employer would also then also contribute?

My current 5% contribution = £291.67 + £500 additional

So would this mean my taxable income would be £60,500?

Thank you for any help. 
Jim

How old are you ?  How much do you have in terms of a pension pot at the moment?  When do you want to retire and on what level of income?

I'm in a position very similar to yours salary wise, I'm paying in 10% pension and my employer matches it.  I have some debt that I'm paying off, which I'll do by end of the year although its low interest %.  I have 6 months emergency fund.  I'm paying into a S&S ISA at £500 a month.  Debating whether to up my pension, which maths wise makes sense although at 41 I have ~£260k pot and on current contributions £1100 a month is being added.  I'm tempted to up my ISA contributions at the end of this year to give me more flexibility in 10-12 years time.

jimbobsi

I've made the decision. I'm going to up my workplace pension contribution to 15% and see how I get on with that, and to make sure I still have enough for everything else I need to pay for. Thank you all for your input.