Additional pension contibutions or savings account?

Nellienoonoo

Hi All
I,m new on this so I hope I post it ok...
I,m 54 and paying into a salsry sacrifice scheme along side my company pension and  I have recently been told it would probably be better to pay that money into a savings plan because I will get taxed on my pension when I come to draw it out.  I,ll not be retiring until I,m 67, unless I win the lottery 🙄!! My question is what should I do as I have no idea if I,ll get taxed on savings too?  Any advice much appreciated.
Thanks

Marcon

Nellienoonoo said:

Hi All
I,m new on this so I hope I post it ok...
I,m 54 and paying into a salsry sacrifice scheme along side my company pension and  I have recently been told it would probably be better to pay that money into a savings plan because I will get taxed on my pension when I come to draw it out.  I,ll not be retiring until I,m 67, unless I win the lottery 🙄!! My question is what should I do as I have no idea if I,ll get taxed on savings too?  Any advice much appreciated.
Thanks

Been told by whom? Someone who knows what they're talking about and your particular situation...?

If you pay into a savings plan, you don't get tax relief on contributions. Pay into a pension, and you do get tax relief, so more money on which to build up investment returns. 

Not sure what you mean by 'paying into a salsry sacrifice scheme along side my company pension' but if you mean paying into a savings plan instead of the pension, remember that your employer almost certainly won't contribute to a savings scheme - and if they do, you are likely to be taxed on the employer contribution as a benefit in kind.

Nellienoonoo

Hi Marcon. It was a reputable financal advisor I thought.  Is that not right? 

Albermarle

Pension contributions gain tax relief and this is more than any tax you will pay when you withdraw from the pension, so there is a net gain. The exact amount varies depending on various factors with your employment, income in retirement etc.
If you are saving for retirement, pension is nearly always better than savings etc.
Although having some cash savings as well is recommended for emergencies etc

To get a good retirement income, you need to build up quite a large amount in your pension pot, so for most people increasing contributions as much as you can afford is a good idea. Maybe the company will match increased contributions up to a point

I,m 54 and paying into a salsry sacrifice scheme along side my company pension
Normally a salary sacrifice scheme is how you make your contributions to the company pension, not a separate item??

dunstonh

  I have recently been told it would probably be better to pay that money into a savings plan because I will get taxed on my pension when I come to draw it out.

Whoever, told you that doesn't have a clue how these things work.  So, they are best ignored.

Hi Marcon. It was a reputable financal advisor I thought.  Is that not right? 

Not very reputable.  They are wrong.   And they are probably in breach of their regulatory permissions as telling someone to opt out of a workplace pension requires additional specialist permissions. Only 1 in 10 advisers have those permissions 

What you are being told is so incorrect that this adviser should face disciplinary action.  You should complain to their employer/firm.

Being in a workplace pension gives you an employer contribution, that is free money.  Yes you will be taxed at an effective rate of 15% above your personal allowance but it was free money to begin with.    85% of the free money plus, tax free growth is better than zero (which is what you would have if you opted out).

Your own contribution avoids tax and NI.    You are taxed at an effective rate of 15% on withdrawals but you gained more than that in tax saved on the contributions by not paying tax and national insurance on it.

Albermarle

Nellienoonoo said:

Hi Marcon. It was a reputable financal advisor I thought.  Is that not right? 

The advice is so bad that I suspect that you have been maybe talking to someone who was not really a financial advisor. Where they recommended by anyone, have a local office ?
Or did you maybe answer an ad on Fakebook , or somewhere similar?

Steve_666_

Think the saving plan must be an ISA, and the poster a 20% not 40% tax payer. Then the gains are the NI contributions saved, verse the flexibility of the ISA

Marcon

Steve_666_ said:

Think the saving plan must be an ISA, and the poster a 20% not 40% tax payer. Then the gains are the NI contributions saved, verse the flexibility of the ISA

No tax relief (or mandatory employer contributions) to an ISA, so rather more at stake if OP opts out of the pension scheme...

retiringtoosoon

Name the advisor please.

MallyGirl

There are a lot of comments above which seem to think OP has been advised to leave their pension scheme. That is not how I read it.
They have an AVC alongside the pension and it is that AVC that is in question. Although my pension is not a DB one my employer still classifies any extra I pay above my 5% (that gets the 10% from them) as an AVC.
The advice to switch from sal sac into a savings plan is still poor as OP would get at least a 6.25% benefit from saving 20% tax and 12% NI on the way in and then paying 20% on 75% of it on the way out of a pension/AVC. If a higher rate tax payer then the benefit could be much more if paying basic rate in retirement.

Nellienoonoo

Wow.  My mind is totally blown by the comments given.  I was never told to leave my work pension but maybe look at putting my additional money into a savings plan as I,m going to get taxed on my salary sacrife scheme