Sudden salary increase from 40k to 60k - increase pension contributions

[Deleted User]

Hi all, as title suggests, I'm being promoted with a significant salary increase. I'm in Scotland and no student loans or any other deductions. I'm 40, single, no kids.  5 years left on mortgage which is £800/m. No plans to upsize. 

Up until now, I've only been putting in the statutory minimum of 4% into my current employer's pension (BC&E People's Pension) and have been putting my other savings into my ISA/NS&I/cash savings. I also have a SIPP (Vanguard) from consolidating previous pots growing away in the background.

My company do not match your contribution if you increase it, they only put in the statutory minimum of 3%

And then I was getting basic tax relief on top. 

But now I want to make sure I put in the portion of my salary where I benefit from the 40% tax relief.  But I don't want to put in more than that as I want to build up my ISA as well because I can take that at any time eg retire early.

Should I make the additional contributions to my employer's pension or to my SIPP? How much should I contribute to benefit from the higher tax relief but no more?

I hope that makes sense and thanks. 

dunstonh

But now I want to make sure I put in the portion of my salary where I benefit from the 40% tax relief.  But I don't want to put in more than that as I want to build up my ISA as well because I can take that at any time eg retire early.

By retire early, are we to assume you mean earlier than age 58?

mark_cycling00

I *think* that if you contribute through payroll as salary sacrifice into your employers pension then you save paying NI and income tax 

Whereas if you add to your sipp you only save the income tax

See what other people on here say as I'm no expert but it's what I was told and what I do.

[Deleted User]

dunstonh said:

But now I want to make sure I put in the portion of my salary where I benefit from the 40% tax relief.  But I don't want to put in more than that as I want to build up my ISA as well because I can take that at any time eg retire early.

By retire early, are we to assume you mean earlier than age 58?

Yes.  It would be nice to have the option. 

Dazed_and_C0nfused

To some degree this will depend on whether your employer offers salary sacrifice.  Which is particularly attractive for Scottish resident taxpayers.

Ignoring very small amounts of interest do you have any other taxable income apart from your salary?

What do you expect your next P60 to show your taxable pay as for the current tax year?

[Deleted User]

No, no other income. 
Erm, I suppose my taxable income will be 60k less my personal allowance?

Dazed_and_C0nfused

[Deleted User] said:

No, no other income. 
Erm, I suppose my taxable income will be 60k less my personal allowance?

Your original post said this so coupled with your thread title I thought it would be less than that for the current tax year?

Or is there something you haven't previously mentioned?

I'm being promoted with a significant salary increase.

r6mile

Assuming no other income, Scottish 42% higher rate tax band starts at £43,633 so if your salary was £60k exactly you’d want to be putting just over £16k into your pension, so around 27%. The net cost of this to you would be £9.3k, less if your pension is via salary sacrifice.

Whether you do it via your SIPP or your works pension is up to you, if the latter has low fees then that makes sense (especially so if via salary sacrifice). Remember that if your pension is relief at source you will have to let HMRC how much you are putting in so they can refund you the higher rate relief.

El_Torro

If you've been putting 7% of your salary (including employer contributions) into your pension until now it's worth looking at how much is in your pension now and how much you want to be in there when you retire. You might be surprised to find that you have some catching up to do. There are various pension calculators online which can help with this.

You're right in not just focusing on your pension. A Stocks & Shares ISA is useful if you plan to retire before you can access your pension. While a pension is the most tax effective option it has its limits.

[Deleted User]

Dazed_and_C0nfused said:

[Deleted User] said:

No, no other income. 
Erm, I suppose my taxable income will be 60k less my personal allowance?

Your original post said this so coupled with your thread title I thought it would be less than that for the current tax year?

Or is there something you haven't previously mentioned?

I'm being promoted with a significant salary increase.

I'm sorry, I don't follow. 

[Deleted User]

Thanks everyone. Yes I only have about 70k in pensions so far so a lot of catching up to do.  But I think it's doable especially given my mortgage is not far off done. And I don't intend to have a lavish lifestyle now or in retirement.