Is it worth paying more into my pension?

Sunshine_and_Roses

I have two DB pensions from previous employers.  I have had a part time job for the last three years with a salary of £12,750.   I pay into the Now pension scheme at 5% and my employer 3%.  I will be due a payrise in the next couple of months which will be around £1000 per annum.  

In four years I will look at retiring early (age 55), so I am wondering if it is worth using the payrise to top up my pension and also keeping me under the tax bracket.

Is there an easy way of working out what 4 years of £20 a week payment from me will eventually give me, or should I just put this away in a savings account after paying the tax?

Dazed_and_C0nfused

clareski said:

I have two DB pensions from previous employers.  I have had a part time job for the last three years with a salary of £12,750.   I pay into the Now pension scheme at 5% and my employer 3%.  I will be due a payrise in the next couple of months which will be around £1000 per annum.  

In four years I will look at retiring early (age 55), so I am wondering if it is worth using the payrise to top up my pension and also keeping me under the tax bracket.

Is there an easy way of working out what 4 years of £20 a week payment from me will eventually give me, or should I just put this away in a savings account after paying the tax?

Now pensions look to operate a net pay scheme so unless you have some additional taxable income on top of the earnings from this employment, or have applied for Marriage Allowance, you won't be paying any tax.

If you added the £20/week to a separate personal pension or SIPP you would get £5 in tax relief added giving you £25/week and a total of £5,200.  This ignores provider fees and any investment gain or loss.  If you time it right you may be take the whole lot out without paying any tax.

If you just added £20/week to a savings account you would have £4,160.  Ignoring any interest earned.

Marcon

Dazed_and_C0nfused said:

clareski said:

I have two DB pensions from previous employers.  I have had a part time job for the last three years with a salary of £12,750.   I pay into the Now pension scheme at 5% and my employer 3%.  I will be due a payrise in the next couple of months which will be around £1000 per annum.  

In four years I will look at retiring early (age 55), so I am wondering if it is worth using the payrise to top up my pension and also keeping me under the tax bracket.

Is there an easy way of working out what 4 years of £20 a week payment from me will eventually give me, or should I just put this away in a savings account after paying the tax?

Now pensions look to operate a net pay scheme so unless you have some additional taxable income on top of the earnings from this employment, or have applied for Marriage Allowance, you won't be paying any tax.

If you added the £20/week to a separate personal pension or SIPP you would get £5 in tax relief added giving you £25/week and a total of £5,200.  This ignores provider fees and any investment gain or loss.  If you time it right you may be take the whole lot out without paying any tax.

If you just added £20/week to a savings account you would have £4,160.  Ignoring any interest earned.

Now pensions operates a tax top-up scheme, though: https://www.nowpensions.com/help-and-support/members/faqs/pension-basics/what-is-the-tax-top-up-scheme/

Dazed_and_C0nfused

Marcon said:

Dazed_and_C0nfused said:

clareski said:

I have two DB pensions from previous employers.  I have had a part time job for the last three years with a salary of £12,750.   I pay into the Now pension scheme at 5% and my employer 3%.  I will be due a payrise in the next couple of months which will be around £1000 per annum.  

In four years I will look at retiring early (age 55), so I am wondering if it is worth using the payrise to top up my pension and also keeping me under the tax bracket.

Is there an easy way of working out what 4 years of £20 a week payment from me will eventually give me, or should I just put this away in a savings account after paying the tax?

Now pensions look to operate a net pay scheme so unless you have some additional taxable income on top of the earnings from this employment, or have applied for Marriage Allowance, you won't be paying any tax.

If you added the £20/week to a separate personal pension or SIPP you would get £5 in tax relief added giving you £25/week and a total of £5,200.  This ignores provider fees and any investment gain or loss.  If you time it right you may be take the whole lot out without paying any tax.

If you just added £20/week to a savings account you would have £4,160.  Ignoring any interest earned.

Now pensions operates a tax top-up scheme, though: https://www.nowpensions.com/help-and-support/members/faqs/pension-basics/what-is-the-tax-top-up-scheme/

Have never heard of that before from a pension company.

Sounds similar to the new system HMRC are going to be bringing in.

https://www.gov.uk/government/publications/low-earners-anomaly-pensions-relief-relating-to-net-pay-arrangements

Sunshine_and_Roses

That's really interesting, thank you so much for the links. 

I don't know if this thread is the correct place to ask, but as I currently earn approximately the full amount of personal allowance, will any overtime pay effectively be a lot lower?  To simplify in my mind, if I was earning £10 per hour, and annual pay is £12570, if I do an hours overtime would I be paid £8?

molerat

To simplify in my mind, if I was earning £10 per hour, and annual pay is £12570, if I do an hours overtime would I be paid £8?

Could be only £6.80 net as 20% tax and 12% NI kick in around the same point (all dependent on your exact circumstances of course).  But 68% of something is better than 100% of nothing (unless it affects any benefit entitlement).

Sunshine_and_Roses

molerat said:

To simplify in my mind, if I was earning £10 per hour, and annual pay is £12570, if I do an hours overtime would I be paid £8?

Could be only £6.80 net as 20% tax and 12% NI kick in around the same point (all dependent on your exact circumstances of course).  But 68% of something is better than 100% of nothing (unless it affects any benefit entitlement).

Thanks for your reply.  I don't claim any benefits, this is my only income apart from interest on savings, and DH pension. 
If I work extra hours I can sometimes take this as TOIL which would work out a lot better for me (employer happy with this as long as its only a few hours).