Lump sum into Pension or ISA or Other?

DanglyBits

I have a sharesave maturing in August. Unfortunately the option to buy price is significantly higher than the current share price so I'd be stupid to choose that option. So I'm looking at where to put the savings I built up in this sharesave, about £11,000. As I understand it I haven't paid any tax on this, and looking to avoid doing so. I already have savings that take me close to my allowable interest I can earn before tax ruling out an easy access or fixed interest paying savings account. So as I understand it, my 2 options are put the money into an ISA or into my pension?

ISA

I'm already paying £2,400 a year by regular monthly contribution to a S&S ISA. So that leaves room for this if that's what I decide. But which ISA would be best, a regular interest payer, add to my current S&S as a lump sum or another S&S to spread the risk?

Pension

Since I paid the mortgage off last year, I diverted those monthly mortgage funds into my workplace pension taking me to the maximum allowed salary sacrifice contribution to my pension of 50%. Am I allowed to add a lump sum to it as I'm at the maximum allowable contribution from salary?

 As I haven't paid tax on this and wont pay tax choosing pension or ISA, is there a benefit to one or the other? Or is there something else I haven't thought of I could get a better return for this money?

What would you do?

dunstonh

 As I haven't paid tax on this and wont pay tax choosing pension or ISA, is there a benefit to one or the other? 

For 95% of the population where the timescale is suitable, the pension wrapper beats the ISA wrapper on a like-for-like basis as its more tax efficient.

What would you do?

That isn't important to you as different people have different needs and objectives.   What is important are your needs and objectives.

EthicsGradient

DanglyBits said:

Pension

Since I paid the mortgage off last year, I diverted those monthly mortgage funds into my workplace pension taking me to the maximum allowed salary sacrifice contribution to my pension of 50%. Am I allowed to add a lump sum to it as I'm at the maximum allowable contribution from salary?

I haven't done salary sacrifice myself, but if you say you are at, for your employer, at "the maximum allowed salary sacrifice contribution to my pension of 50%" (meaning, I'd take it, that if your nominal salary is eg £50,000, then £25,000 is paid into your pension, and you get £25,000 as pay), then I think that would be the government limit for pension contributions too, since

"Where salary sacrifice takes place, it is only the taxable amount of salary the member actually receives which is relevant earnings if they are looking to make additional personal contributions."
Tax Relief and Annual Allowance | M&G Wealth Adviser (mandg.com)

So I'd take that as meaning "you receive £25,000, that is your 'relevant earnings', and that is the maximum gross contributions allowed to your pension".

Alexland

My guess is your employer is limiting salary sacrifice to no more than 50% of pay as a crude way to reduce the chance of a high rate of pension contributions causing them to pay you below minimum wage.

I suggest you talk to whoever administers your payroll to see if there is an option to sal-sac this into your company pension in the same month it is returned assuming you have sufficient annual allowance (including any carry forward) available.

Bostonerimus1

For the pension you can contribute more of your wages and live off the lump sum and so save on tax, but when confronted with such choices I usually do a bit of both. It doesn't have to be a binary decision and you can save some tax now with the pension and also have the flexibility of the ISA. It's more about having options that a single best solution.

artyboy

OP - one correction, you say you don't think you have paid tax on the £11,000 you have accumulated.

In fact if this is a SAYE Sharesave scheme (and the fact you've mentioned an option price says it is) then that £11,000 will have come out of your net pay, i.e. after tax deductions.

penners324

Pay it into your pension.

Look at your online account, somewhere they'll be some details about how to do this.

penners324

EthicsGradient said:

DanglyBits said:

Pension

Since I paid the mortgage off last year, I diverted those monthly mortgage funds into my workplace pension taking me to the maximum allowed salary sacrifice contribution to my pension of 50%. Am I allowed to add a lump sum to it as I'm at the maximum allowable contribution from salary?

I haven't done salary sacrifice myself, but if you say you are at, for your employer, at "the maximum allowed salary sacrifice contribution to my pension of 50%" (meaning, I'd take it, that if your nominal salary is eg £50,000, then £25,000 is paid into your pension, and you get £25,000 as pay), then I think that would be the government limit for pension contributions too, since

"Where salary sacrifice takes place, it is only the taxable amount of salary the member actually receives which is relevant earnings if they are looking to make additional personal contributions."
Tax Relief and Annual Allowance | M&G Wealth Adviser (mandg.com)

So I'd take that as meaning "you receive £25,000, that is your 'relevant earnings', and that is the maximum gross contributions allowed to your pension".

That makes no sense and is not what the law says

ColdIron

SS reduces your earnings. The SS contribution is an employer contribution and only applies to the £60,000 allowance and not the earnings limit

EthicsGradient

penners324 said:

EthicsGradient said:

DanglyBits said:

Pension

Since I paid the mortgage off last year, I diverted those monthly mortgage funds into my workplace pension taking me to the maximum allowed salary sacrifice contribution to my pension of 50%. Am I allowed to add a lump sum to it as I'm at the maximum allowable contribution from salary?

I haven't done salary sacrifice myself, but if you say you are at, for your employer, at "the maximum allowed salary sacrifice contribution to my pension of 50%" (meaning, I'd take it, that if your nominal salary is eg £50,000, then £25,000 is paid into your pension, and you get £25,000 as pay), then I think that would be the government limit for pension contributions too, since

"Where salary sacrifice takes place, it is only the taxable amount of salary the member actually receives which is relevant earnings if they are looking to make additional personal contributions."
Tax Relief and Annual Allowance | M&G Wealth Adviser (mandg.com)

So I'd take that as meaning "you receive £25,000, that is your 'relevant earnings', and that is the maximum gross contributions allowed to your pension".

That makes no sense and is not what the law says

It does make sense; M&G said it, and they are professionals. I can understand it. But if "the law" says otherwise, it would be helpful to quote it, rather than just asserting it.

penners324

EthicsGradient said:

penners324 said:

EthicsGradient said:

DanglyBits said:

Pension

Since I paid the mortgage off last year, I diverted those monthly mortgage funds into my workplace pension taking me to the maximum allowed salary sacrifice contribution to my pension of 50%. Am I allowed to add a lump sum to it as I'm at the maximum allowable contribution from salary?

I haven't done salary sacrifice myself, but if you say you are at, for your employer, at "the maximum allowed salary sacrifice contribution to my pension of 50%" (meaning, I'd take it, that if your nominal salary is eg £50,000, then £25,000 is paid into your pension, and you get £25,000 as pay), then I think that would be the government limit for pension contributions too, since

"Where salary sacrifice takes place, it is only the taxable amount of salary the member actually receives which is relevant earnings if they are looking to make additional personal contributions."
Tax Relief and Annual Allowance | M&G Wealth Adviser (mandg.com)

So I'd take that as meaning "you receive £25,000, that is your 'relevant earnings', and that is the maximum gross contributions allowed to your pension".

That makes no sense and is not what the law says

It does make sense; M&G said it, and they are professionals. I can understand it. But if "the law" says otherwise, it would be helpful to quote it, rather than just asserting it.

You've misread it then.

In your example relevant earnings are £50,000, the individual can contribute upto £50k including the employer's contribution.

Unless the employer is contributing £25,000 then combined it's £50k