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

Albermarle

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

40% tax relief on pension contributions is very generous and costs the Treasury Billions. You should join that party and fill your boots before one day it gets abolished/changed.
Your employer may match increased contributions up to a point. If they do then even more free money.
9% going into your pension in your 40's is too low anyhow.

So everything points to significantly increased pension contributions.

After that you need to have a look at how your pension is invested. It may or may not be suitable for you. After having a look feel free to ask questions, look for pointers etc

Marcon

jimbobsi said:

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)

Have you suggested to your employer that salary sacrifice would be a good way to go, given the NI savings for both employer and employee?

MEM62

jimbobsi said:

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.

Your future self will be most grateful for that decision  :-)

Albermarle

jimbobsi said:

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.

You will be able to come back to the forum when you are older, and join the debates about early retirement and how to spend your pension pot !

Dazed_and_C0nfused

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

As it's not salary sacrifice there is a very strong likelyhood that it will be paid under the relief at source (RAS) method and in that case it won't reduce your taxable income.

You would get basic rate tax relief added to your contributions so for every £100 contributed you would eventually see £125 in your pension fund.

And it increases your basic rate band so you could pay more tax at 20% and less at 40%.

And it also reduces your adjusted net income which is used for calculating HICBC and the tapered Personal Allowance.

So most likely not a benefit in the way you maybe expected but still very tax efficient.

Jonesy1977

MEM62 said:

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.  

Very true, it is scary when you run the calculators! We have just upped my wife’s through Salary Sacrifice to 35% (both 46) and even combined with my higher contributions it is going to be a long slog!

Albermarle

Jonesy1977 said:

MEM62 said:

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.  

Very true, it is scary when you run the calculators! We have just upped my wife’s through Salary Sacrifice to 35% (both 46) and even combined with my higher contributions it is going to be a long slog!

You have to hope for a nice long positive upturn in the markets.
It is surprising how quick your pots can grow when you combine high % contributions with growth in the investments in the pension(s).