Should I contribute more to my workplace pension?

Albermarle

 I'm a higher rate tax payer

Assuming you will not be a higher rate taxpayer in retirement ( not many people are) then higher rate tax relief on pension contributions is very generous and you should take as much advantage of it as possible.

Just to note though you can only get higher rate relief on income you actually pay 40% tax on.

Mark_Glasses

@Albermarle I have thought about putting everything I earn over the 40% threshold into the pension.

Albermarle

Mark_Glasses said:

@Albermarle I have thought about putting everything I earn over the 40% threshold into the pension.

That would seem a good idea if you can afford it.
The next thing is to look at is how your workplace pension is invested.
If like the large majority you have not made any specific choices, it will be invested in something called a default fund. This may be perfectly OK for you but it will pay to get to know and understand what you are invested in and what potential other choices there might be. This is not urgent but as your fund gets bigger it gets more important.

Mutton_Geoff

If you're a higher rate tax payer then for every £100 of (taxed) income, you can load your pension by £166.67. If your employer offers salary sacrifice incentives (my old employer added 10% in return for their 14% NI saving) then your £100 becomes more like £187 into the pot so you've almost doubled your money on day 1.

Secret2ndAccount

Mark_Glasses said:

@Albermarle I have thought about putting everything I earn over the 40% threshold into the pension.

This.  Yes, you should do it. It's still your money, and you can get it back later, with interest; just without the 40% tax.
Unless you have some giant credit card bill or similar at an egregious rate then this is the best investment for you.

Pat38493

Secret2ndAccount said:

Mark_Glasses said:

@Albermarle I have thought about putting everything I earn over the 40% threshold into the pension.

This.  Yes, you should do it. It's still your money, and you can get it back later, with interest; just without the 40% tax.
Unless you have some giant credit card bill or similar at an egregious rate then this is the best investment for you.

I am trying to do this too - I am planning to stop work (or at least cut down a lot) in the next 2.5 years (latest Summer 2026) and I am also facing possible redundancy in 2024 as my industry generally is having a very bad couple of years.  Luckily I have contractual severance terms which would leave me pretty much the same either way or possibly even better off if I am made redundant!  Not that I am going to tell my employer that   I have actually even tried to pull a few strings and shake a couple of branches to get me on the list!

In view of this, I am trying to max out my carryover from 2020 to wipe out my 40% tax, or as close to it as possible.  I am even considering either taking out a £7500 TFLS in early 2024 when I am 55 (to avoid any recycling concern) and/or take out a transfer credit card and use it short term on 7.9% to maximize tax relief.  Normally I would not consider such measures but the short term benefit in the 23/24 tax year for me makes it worthwhile as I will gain a lot more in tax relief and salary sacrifice benefits than I will pay in interest.  I would then pay it all off within the next several months of 24/25 tax year.

Unfortunately if I am made redundant, unless I can control the timing a bit I will probably breach the taper allowance in that year 24/25 so I might end up in a mess with having paid more pension than the retrospective allowance, but it's a nice problem to have I guess.

Bemma

This is going a bit off topic for OP, but replying to @Pat38493

The above resonated with some of my thoughts a few years ago, a different financial landscape, but similar things discussed:

https://forums.moneysavingexpert.com/discussion/6060068/borrowing-to-increase-contributions/p1

FWIW, I have managed to maintain my pension payments at £40k/£60k per year without needing to Stooz or borrow due to increased pay and decreased expenditure.  It’s getting a bit tight and may Stooz a little early next year (55 in Oct 24).

Have you considered 'small pots' to repay the debt? Sounds like you will remain in HR tax, so probably won't work for you.

I SalSac down into the 20% tax band, which results in a 57% (20% tax, 12% NI, 7% ER NI) uplift on the way in and it will be 15% tax on the way out.

£6369 -> £10000 going in 57% uplift

£10000 -> £8500 coming out effective 15% tax

 

Net gain of 33% (£2131 per small pot). No MPPA or uneven crystallisation hassle. 

Pat38493

Bemma said:

This is going a bit of topic for OP, but replying to @Pat38493

Thanks I am taking a look at that thread.  My thinking right now is that if I am a pauper outside of pension and house assets on the day I retire that will be a success.  It's not a long term strategy but it makes sense in the last year or two if you are going to stop working and lose the opportunity to get future tax relief.

It's a bit off topic but OP did say higher rate taxpayer so I guess it's somewhat relevant that it's worth maximizing pension contributions in the higher rate part even if it means running down cash reserves outside the pension, or potentially using stoozing approaches for a short term bridge - however you probably really need to know what you are doing here and be careful of recycling rules and suchlike.

Bemma

Pat38493 said:

Bemma said:

This is going a bit of topic for OP, but replying to @Pat38493

...My thinking right now is that if I am a pauper outside of pension and house assets on the day I retire that will be a success.

This is my thinking too, I would consider large amount of savings outside of a pension as I approach 55 as a missed opportunity for more tax relief. I am just about able to put £60k per year without going below NMW, I'm making up my income short fall from savings that will approach zero by the time I'm 55.

Steve_666_

You're a 40% tax payer, then demand UK gov to put that tax into your pension!