15% of pension pre-tax or post-tax?

dunstonh

I am thinking that Additional Voluntary Contributions are the best option for me, as they come out pre-tax and national insurance. I can access this money at 58, tax free. 

Occupational DB schemes were not required to offer AVCs after 2006.  So, many of the AVCs that exist today are based on pre 2006 product versions.   i.e. expensive, low-quality functionality and limited investment choice.

So, you need to check the terms vs an individual pension (such as a stakeholder, personal pension, robo or SIPP)

However, I understand this this income would be taxed. Whereas Additional Voluntary Contributions or Lifetime ISA would be tax free. 

Lifetime ISA beats pension if you are a basic rate taxpayer now and will be a basic rate taxpayer in retirement.   If you have an estate that is likely to be subject to IHT, then pension beats lifetime ISA in that respect.  If you are a higher rate taxpayer, then pension beats LISA (ideally do both)

Marcon

robaber said:

Thank you all. 

I work in the public sector. I am a higher rate tax payer. I am 38. 

I understand that I have 4 options? 

There's a fifth option which, as a higher rate taxpayer, you might do well to invest in: some proper (paid for) financial advice. Could be one of the best investment 'decisions' you make and be worth its weight in gold, especially longer term.

JayRitchie

Hi

Could you give a little more detail please? 

How much do you earn?

Which pension scheme are you a member of?

For how long have you been part of the pension scheme and what was your average salary over that period?

How do you see your pay developing over the next ten years?

What are your aspirations? Greater income once retired? Early retirement? Better opportunities to chose once nearer retirement age?

Dazed_and_C0nfused

If I contributed £100 per month. I understand that you'd would only cost my around £60, as I wouldn't pay 40% and National Insurance on this

That would be fairly unusual, though not impossible, for a public sector scheme.  Most operate net pay which means you avoid paying tax on your contribution but it has no impact on your NI.

The only way to avoid paying the NI would be if they offered salary sacrifice but then you wouldn't be making the contributions, you would be agreeing to a reduced salary in return for additional employer contributions. 

4) SIPP. Where I would receive 20% bonus, but can apply for an additional 20% in a self assessment.

There is no fixed additional 20%, the higher rate tax relief depends on your overall tax position.  You might be contributing £10k to a SIPP but only paying higher rate tax on £5.

Also, the pension company adds 25% to your contribution (which is 20% of the gross amount).  £100 from you becomes £125 with the basic rate relief (£25 is 20% of £125).

Why are you completing Self Assessment returns 🤔

Nebulous2

Going back to what I said earlier - when would you like to retire? 

If you want to stop work earlier than the youngest age you can draw your DB pension - then you need to accrue funds for that, even if it isn't the most tax efficient. 

Albermarle

2) Buy additional pension. My employer offers this, but don't match my contribution. This is taken pre-tax. If I contributed £100 a month, my employer calculator says I would receive around £1,900 a year extra pension. If I lived 30 years, this would be around £57,000. 

It is worth far more than that, as that £1900 is in todays money. So it would increase with inflation between now and when you retire, and after you retire. This makes it much more valuable than it looks initially. 

robaber

Thank you all. 

Some asked for more information. 

I am part of the Local Government Pension Scheme. I have checked with my employer and unfortunately they don't currently offer a salary sacrifice scheme. 

I currently earn around £59,000.

I think I may be mistaken when I said that I wouldn't pay National Insurance on Additional Voluntary Contributions. 

I plan to retire at normal retirement age, which I understand for me is 68. I may continue working part time after this date. 

I currently save around 25% of my Salary each month. Into Cash and a Stocks and Shares ISA. 

I don't normally complete a Self Assessment for tax. I understand that I will have to complete one for this tax year, as I have tipped into the Child Benefit High Income Charge, for the first time. 

I receive a pay rise in April. I was thinking of putting the increase, into Additional Voluntary Contributions for my pension and also continue my monthly investment into my Stocks and Shares ISA. Then when I approach retirement, maybe the 5 years before, begin trying to maximise my Additional Pension Contributions.

Thanks 

Dazed_and_C0nfused

robaber said:

Thank you all. 

Some asked for more information. 

I am part of the Local Government Pension Scheme. I have checked with my employer and unfortunately they don't currently offer a salary sacrifice scheme. 

I currently earn around £59,000.

I think I may be mistaken when I said that I wouldn't pay National Insurance on Additional Voluntary Contributions. 

I plan to retire at normal retirement age, which I understand for me is 68. I may continue working part time after this date. 

I currently save around 25% of my Salary each month. Into Cash and a Stocks and Shares ISA. 

I don't normally complete a Self Assessment for tax. I understand that I will have to complete one for this tax year, as I have tipped into the Child Benefit High Income Charge, for the first time. 

I receive a pay rise in April. I was thinking of putting the increase, into Additional Voluntary Contributions for my pension and also continue my monthly investment into my Stocks and Shares ISA. Then when I approach retirement, maybe the 5 years before, begin trying to maximise my Additional Pension Contributions.

Thanks 

That makes extra pension contributions, either linked to LGPS or a separate SIPP/personal pension even more attractive from a tax/HICBC saving perspective.

A DC fund linked to LGPS seems an extremely popular option as you can get significantly more than 25% out as a TFLS.

No doubt someone more knowledgeable on this will be along to post more about it now you have told us your DB scheme is LGPS.

AlanP_2

Be clear and unambiguous about what you are planning to do.

LGPS APCs but additional defined benefit annual pension.

LGPS AVCs build up an invested pot that can be taken tax free with main DB pension.

You seem to use the terms interchangeably in your lists but they are very different.


What we did was use AVCs to build tax free pots and SIPPs and IDAs to offer the flexibility about when to start pensions. 

Look at overall family finances as well.

robaber

Thank you. 

My employer has only one provider of a Additional Voluntary Contributions.

I haven't had good customer service from this company. They are difficult to contact. I have not been able to use their online services, to check or increase my contributions. They have made errors in calculating my contributions. 

It is great that I would get the money tax free as a lump sum and could put into my Stocks and Shares ISA. 

It makes me cautious about increasing my Additional Voluntary Contributions with them. I worry that I won't get my correct contributions back from them.

I have more confidence in making Additional Pension Contributions to the Local Government Pension Scheme. 

My wife also makes additional monthly contributions directly to her workplace pension (people's pension) via Direct Debit. 15% of her net pay.  

Looking at the pension fees. I think she may be better off putting it to a Lifetime ISA. But she really values the simplicity of keeping it all together in a single pot. 

We are also saving money currently for my child's University/ future) house deposit fund. We should reach our savings goal in 2-3 years. 

Perhaps, as a family we should focus on this.

Then in a few years, when we have achieved this savings goal. I should pay for some independent financial advice about how to plan our retirement savings.

Whether to use AVC, APC or a SIPP. As well as the monthly split between these and my Stocks and Shares ISA. 

Thank you.