Max out pension this tax year?

Pat38493

I am going to be 55 in January next year.

I am not sure what the future holds next year as I foresee 3 options
- Possible but not very likely redundancy early to mid next year.
- Moving to either 4 days a week or 3 days a week working, subsidized by putting my DB pension into payment (allows me also to keep up enough pension contributions in 24/25 to get the employer contributions).
- Carry on working for another year or two paying in the max possible into pension.

I won't really know which scenario is coming until late this year or early next year.

I have about 12K of spare cash in a couple of savings accounts.  

I am just about to increase my employer pension contributions to 62% salary sacrifice, which is roughly the rate needed to a) max out my 60K allowance and b) Run down my spare cash nearly to zero by the end of the tax year.

My employer allows me to change the % salary sacrifice as often as I want (at least they haven't complained yet).

Does anyone want to tell me this is a bad idea?  To me it seems like a no brainer.  

In the case I am running out of cash and I carry on working and I don't want to make any pension withdrawals from TFC, I will simply back off on the contributions back to about 25% at the start of the next tax year.

The counter argument is that I won't have an emergency fund outside the pension wrapper, but I don't think I really need one at this stage (other than credit cards and overdraft facilities which are not utilized at the moment).

QrizB

If you have CCs to delay "emergency" payments for a month, and can change your Sal Sac promptly enough that you can increase your take-home pay to settle the CC bill, I agree that you're only taking a small risk by not having an emergency fund for a year. But don't let the DFW board know!

So yes, it sounds like a reasonable thing to do.

El_Torro

I'm a great believer in having an adequate emergency fund. Sometimes you don't know what you need the money for until you actually need it. However if you're happy with this then I don't see much else to object about. 

It sounds like your gross salary is just under £100k, so if you contribute £60k some of what you contribute will only get 20% tax relief, not 40%. Maybe only contribute enough to be just under the 40% tax band? Of course with salary sacrifice you're not just saving on income tax, but on NI as well. 

Overall your plan doesn't sound too crazy. You know better than us if you can afford to lock away so much of your income into your pension.

Pat38493

El_Torro said:

I'm a great believer in having an adequate emergency fund. Sometimes you don't know what you need the money for until you actually need it. However if you're happy with this then I don't see much else to object about. 

It sounds like your gross salary is just under £100k, so if you contribute £60k some of what you contribute will only get 20% tax relief, not 40%. Maybe only contribute enough to be just under the 40% tax band? Of course with salary sacrifice you're not just saving on income tax, but on NI as well. 

Overall your plan doesn't sound too crazy. You know better than us if you can afford to lock away so much of your income into your pension.

I had already considered that but since the contributions were on a lower % up to now during the year (and I got a bonus in April) I will still get 40% tax relief on all of the pension contributions.