Workplace Pension Contributions

redundantmortgage

Currently mortgage free, around £115k in savings but hope to move somewhere bigger in the near future which will require a new mortgage.

I've always been skeptical about pensions and didn't have one until the workplace legislation came in by which point I was in my early 30s. None of my employers have been particularly generous with their contributions but I started upping my contributions when I considered I'd be paying 40% tax on that money otherwise so once the pension company has made their money from me I should be better off.

I'm currently contributing 20% of my salary and am still in the 40% tax bracket afterwards. I'm also saving more than my £20k ISA allowance each year so as a 40% tax payer I'm being taxed heavily on the interest I make outside of that.

My thought is to contribute enough to my pension to take me out of the 40% tax bracket so at the very least my savings won't be taxed as much. However this Labour government is making me nervous that they'll tax the hell out of my pension and making it not worth it.

Ultimately I want to get out of the rat race as soon as possible, my job is unstable and I hate it with a passion.

Is this a good idea?

Cobbler_tone

My rule of thumb has always (well the past 5 years) been to avoid paying 40% tax if possible. Ultimately it comes down to net affordability. I guess my wages have moved from in the mid £50k's to mid £60k's and the net result is that I haven't seen any more in my net pay packet but I am closer to retirement age. The kicker is always my bonus which is paid at the end of March and we get no visibility whether it is going to be £1k or £8k! Unless I project to come way below the allowance I invariably get stung for 40% and I have asked them several times to consider bonus sacrifice to no avail.
I'm still focusing on the pension and have started to think about diverting some of it towards ISA's as my assets are all in my two pensions currently. It is something I am definitely starting in 2025 as haven't maximised the £20k limit.

dunstonh

I've always been skeptical about pensions and didn't have one until the workplace legislation came in by which point I was in my early 30s. None of my employers have been particularly generous with their contributions but I started upping my contributions when I considered I'd be paying 40% tax on that money otherwise so once the pension company has made their money from me I should be better off.

Your charges on the penson will be lower than the margins of a supermarket.   You also pay more in charges on a bank account/savings account/cash ISA.       The only differences are with pensions they have full disclosure.

 However this Labour government is making me nervous that they'll tax the hell out of my pension and making it not worth it.

Pension still beats ISA even with the proposed changes.

Archerychick

Pension is still a better place than ISAs as long as you save enough in your ISA that you might need before being able to access your pension. 

I currently pay everything that would take me into the 40% bracket into my pension, otherwise I would loose 40% of that plus £500 of my PSA. I am still saving a decent amount outside of that to fund retirement. 

I can’t see an argument for taking pay at 40% tax, to save for retirement 

Albermarle

 However this Labour government is making me nervous that they'll tax the hell out of my pension and making it not worth it.

40% tax relief 
25% tax free lump sum.

Together this is a very generous tax regime, especially if you will be a 20% taxpayer in retirement.

So the tax regime encourages and rewards you for saving into a pension, and as far as I know, Labour support this. The restrictions brought in are about IHT on larger pension unused pension pots when you die, and were part of a general closing of IHT loopholes.