DB pension and additional contributions

Brie

Nothing further to add except congrats on the payrise and also on still being in a DB scheme!!

xylophone

Have you seen this

https://www.lgpsmember.org/your-pension/paying-in/paying-more/overview/#:~:text=When you pay Additional Voluntary,you receive tax relief automatically.

AVCs will be taken from salary on the net pay basis so that tax relief would not need to be claimed from HMRC.

Shinynewpenny

Thank you!! This is really helpful. I’m leaning towards AVC - if work will support. So I think I need to do 

( (new salary * 0.915 ) - 50,009 ) to work out the additional I’d need to make up and then divide that by 1.4 to get the amount I would need to put into AVC?

I haven’t grossed up any of the 8.5% so I’m wondering where that fits in. Mind a bit boggled now!

Dazed_and_C0nfused

There is no crossing up with net pay contributions and you don't get any pension tax relief.

Your taxable income is less so you save tax that way.

Don't forget adjusted net income includes all taxable income, even that taxed at 0%.

r6mile

Assuming no other income sources (and not a lot of bank interest etc.), in your situation if your gross salary is 62,000, and your DB pension currently deducts 8.5%, then I would probably start in the AVC scheme with 11.5% contributions. That rounds up your "total" pension contributions to 20% - and would take your ANI to £49,600.

Remember both your DB contributions and your AVC contributions will be taken directly from your gross salary (via the confusingly-named "net pay" method), so you don't need to confuse yourself with grossing up or anything like that.

This leaves around 500 for any potential bonuses, bank interest, etc. And closer to the end of the tax year if you think you will end up with an ANI over £50,099 then you could always make further one-off contributions to the AVC scheme if allowed - or perhaps to a separate SIPP.

I am in the Civil Service and have done something very similar.

PS: This is on the basis of your new salary being your earnings for the whole of the tax year. Obviously if your salary is only going up now, then your earnings will be lower this tax year, so you may want to start with lower AVC contributions now, and then increase them after April. You may need to add up your payslips this FY to date, plus what you expect the next ones to be, come up with what you expect your Adjusted Net Income to be and adjust AVC contributions accordingly.

Albermarle

I’d previously been well under any 50k band and had been putting 450 per month away into a S&S ISA - I’m going to stop that now but just want to make sure I’m making the right moves (I’m 35)

In simple terms;

Cash that you might need within the next 5 years should be kept in a cash savings account of some kind. In any case you should have available an easy access 'emergency fund' in case of unexpected expenses.

Money that you might need in the next 1o to 15 years, then invest via a S&S ISA.

Saving for retirement is nearly always best via a pension, especially if you are a higher rate taxpayer.

and really grateful for the replies here: what a lovely community.

There is also a Savings and Investment forum and a Pensions forum. Reading through those can be informative.

Shinynewpenny

r6mile said:

Assuming no other income sources (and not a lot of bank interest etc.), in your situation if your gross salary is 62,000, and your DB pension currently deducts 8.5%, then I would probably start in the AVC scheme with 11.5% contributions. That rounds up your "total" pension contributions to 20% - and would take your ANI to £49,600.

Remember both your DB contributions and your AVC contributions will be taken directly from your gross salary (via the confusingly-named "net pay" method), so you don't need to confuse yourself with grossing up or anything like that.

This leaves around 500 for any potential bonuses, bank interest, etc. And closer to the end of the tax year if you think you will end up with an ANI over £50,099 then you could always make further one-off contributions to the AVC scheme if allowed - or perhaps to a separate SIPP.

I am in the Civil Service and have done something very similar.

PS: This is on the basis of your new salary being your earnings for the whole of the tax year. Obviously if your salary is only going up now, then your earnings will be lower this tax year, so you may want to start with lower AVC contributions now, and then increase them after April. You may need to add up your payslips this FY to date, plus what you expect the next ones to be, come up with what you expect your Adjusted Net Income to be and adjust AVC contributions accordingly.

This is super helpful - thank you so much!! 

So do people just carry on with 50099 ANI for ever more? Just trying to get my head around how the future looks!

I’m lucky that my DB scheme is good - feel better now I know I can top up and bridge the 57- normal pension age from the scheme gap, but want to make sure I’m balancing it all. I have quite a few home improvements that I would like to do over time too so need to factor that in.

Dazed_and_C0nfused

Shinynewpenny said:

r6mile said:

Assuming no other income sources (and not a lot of bank interest etc.), in your situation if your gross salary is 62,000, and your DB pension currently deducts 8.5%, then I would probably start in the AVC scheme with 11.5% contributions. That rounds up your "total" pension contributions to 20% - and would take your ANI to £49,600.

Remember both your DB contributions and your AVC contributions will be taken directly from your gross salary (via the confusingly-named "net pay" method), so you don't need to confuse yourself with grossing up or anything like that.

This leaves around 500 for any potential bonuses, bank interest, etc. And closer to the end of the tax year if you think you will end up with an ANI over £50,099 then you could always make further one-off contributions to the AVC scheme if allowed - or perhaps to a separate SIPP.

I am in the Civil Service and have done something very similar.

PS: This is on the basis of your new salary being your earnings for the whole of the tax year. Obviously if your salary is only going up now, then your earnings will be lower this tax year, so you may want to start with lower AVC contributions now, and then increase them after April. You may need to add up your payslips this FY to date, plus what you expect the next ones to be, come up with what you expect your Adjusted Net Income to be and adjust AVC contributions accordingly.

This is super helpful - thank you so much!! 

So do people just carry on with 50099 ANI for ever more? Just trying to get my head around how the future looks!

I’m lucky that my DB scheme is good - feel better now I know I can top up and bridge the 57- normal pension age from the scheme gap, but want to make sure I’m balancing it all. I have quite a few home improvements that I would like to do over time too so need to factor that in.

Some do, some pay HICBC and others stop receiving the Child Benefit payments.

A few don't even make a claim for Child Benefit but that can cause more problems than it solves.