Is it worth adding to works pension

Sunshine_and_Roses

I am 52, and looking to retire at 60 if not before.  I have two DB pensions due and another couple of very small DC pensions, along with ISA savings.

I work part time, and due to several payrises over the last couple of years I now earn over the minimum tax threshold (£14742).  My monthly pay is £1228.50, and I pay 5% of this into NOW pension (£61.43).  My other deductions are income tax £22.40 and NI £14.44.

Is worth me adding to this pension direct through my wages?  I know that I would need to pay an additional £166 or more to take me under the tax threshold which I probably won't do just to get out of paying £22 tax.  I could afford to pay between £50 - £100 per month extra into a pension/investment but is 3 - 8 years of extra contributions enough, I have read that it should be a minimum of 10 years - or is that just standalone investments?  

Dazed_and_C0nfused

Nest operate the "relief at source" method so additional contributions won't make any difference to the income tax you pay.

You will receive basic rate relief within your pension though, so £100 from you becomes £125 in the pension.

There is no link between the tax you pay and pension tax relief Nest will add.

Sunshine_and_Roses

Dazed_and_C0nfused said:

Nest operate the "relief at source" method so additional contributions won't make any difference to the income tax you pay.

You will receive basic rate relief within your pension though, so £100 from you becomes £125 in the pension.

There is no link between the tax you pay and pension tax relief Nest will add.

Thanks for your reply.  Are Nest and NOW pensions the same?  

Will the tax relief be the same for any pensions scheme, whether a workplace pension or a SIPP?

Dazed_and_C0nfused

Ignore that, I've confused Nest and Now 😭.

Now operate net pay so you don't get any pension tax relief in your pension,  your contributions reduce your income for tax purposes so you pay less tax (until you go below your Personal Allowance).

bjorn_toby_wilde

Sunshine_and_Roses said:

I could afford to pay between £50 - £100 per month extra into a pension/investment but is 3 - 8 years of extra contributions enough, I have read that it should be a minimum of 10 years - or is that just standalone investments?  

Don’t forget that most of the money in your pension remains invested for a long time after your retirement date. You don’t take it all out on retirement day. Any extra contributions made now will benefit from tax relief and will hopefully have many years of investment growth.

ali_bear

The only thing I would add is to keep the ISA funds going if you can

Sunshine_and_Roses

ali_bear said:

The only thing I would add is to keep the ISA funds going if you can

I have a few full years of cash ISAs that I have not touched, was thinking that i could 'pay' myself one each year if I retired early until pensions matured. 

Sarahspangles

Sunshine_and_Roses said:

ali_bear said:

The only thing I would add is to keep the ISA funds going if you can

I have a few full years of cash ISAs that I have not touched, was thinking that i could 'pay' myself one each year if I retired early until pensions matured. 

Remember that when you retire you still have a personal allowance. If some of those ISA savings were moved into a pension they would receive 25% from the tax man. You can withdraw 25% tax free and then withdraw the rest as taxable income, but if you don’t exceed your personal allowance, you pay no tax.

Example: Pay £15k into a pension, taxman makes up to £20k. Withdraw £16,760 (25% tax free plus £12,570 within your personal allowance).  You still have £3,240 in your pension.

You can only contribute up to your level of earnings (across all pensions), and need to choose ‘safe’ investments in your pension.

Sunshine_and_Roses

Sarahspangles said:

Sunshine_and_Roses said:

ali_bear said:

The only thing I would add is to keep the ISA funds going if you can

I have a few full years of cash ISAs that I have not touched, was thinking that i could 'pay' myself one each year if I retired early until pensions matured. 

Remember that when you retire you still have a personal allowance. If some of those ISA savings were moved into a pension they would receive 25% from the tax man. You can withdraw 25% tax free and then withdraw the rest as taxable income, but if you don’t exceed your personal allowance, you pay no tax.

Example: Pay £15k into a pension, taxman makes up to £20k. Withdraw £16,760 (25% tax free plus £12,570 within your personal allowance).  You still have £3,240 in your pension.

You can only contribute up to your level of earnings (across all pensions), and need to choose ‘safe’ investments in your pension.

This was one of the options I was considering.  I have a couple of old pensions which I have not paid into for a long time, one is Aviva and the other is Standard Life (I think).  If I was to put £5k a year into one of these and use it as a 'saving scheme' to withdraw as a lump sum when I decide to retire in a few years time, would that be better than a SIPP (which I don't really understand) or S&S?

xylophone

Have you obtained a state pension forecast?

https://www.gov.uk/check-state-pension

Are your DB pensions payable without reduction at age 60?

What is the value of each of your old DC pensions?

Sarahspangles

Sunshine_and_Roses said:

Sarahspangles said:

Sunshine_and_Roses said:

ali_bear said:

The only thing I would add is to keep the ISA funds going if you can

I have a few full years of cash ISAs that I have not touched, was thinking that i could 'pay' myself one each year if I retired early until pensions matured. 

Remember that when you retire you still have a personal allowance. If some of those ISA savings were moved into a pension they would receive 25% from the tax man. You can withdraw 25% tax free and then withdraw the rest as taxable income, but if you don’t exceed your personal allowance, you pay no tax.

Example: Pay £15k into a pension, taxman makes up to £20k. Withdraw £16,760 (25% tax free plus £12,570 within your personal allowance).  You still have £3,240 in your pension.

You can only contribute up to your level of earnings (across all pensions), and need to choose ‘safe’ investments in your pension.

This was one of the options I was considering.  I have a couple of old pensions which I have not paid into for a long time, one is Aviva and the other is Standard Life (I think).  If I was to put £5k a year into one of these and use it as a 'saving scheme' to withdraw as a lump sum when I decide to retire in a few years time, would that be better than a SIPP (which I don't really understand) or S&S?

Honestly, since getting a SIPP I don’t know why I assumed this was such a brave step. With my L&G workplace pension I used to log in and had the option of selecting a different fund from the default one. With my SIPP I log in and have the option of selecting a different fund/funds. The only difference is I had to pick a fund to start with, and I need to ensure I have some cash in the account to cover the custody fee. I have a mix of ‘global growth’ and ‘adventurous’ funds and I know the relative risks. It’s no more complicated than holding a few stocks and shares.