Pension vs ISA - Top rate tax payer

squirrelpie

But even if it's just DC pensions, then many more people have DC pensions than ISAs, so I still have trouble understanding why you think ISAs are less likely to be tinkered with. Unless it's nothing to do with how many people have them and everything to do with "Whereas ISAs have recently been tweaked."

Kernowshep

MallyGirl said:

there will likely come a point where you have exceeded the max 25% tax free so all you are saving is the 2% NI if you pay the same rate tax on the way out as you saved on the way in.

As it stands won't it realistically be a 12% benefit.
45%-40% = 5%, plus 2% NI, plus 5% employer contribution.
(and more if contributions means a dip down into the £100-125k tax band is possible using any unused pension allowance if required).

Based on the limited info in the OP, ISA would come in for me to bridge the gap to 57, after I'd made use of any unused pension allowance from the last few years and wasn't able to get below the £125k level.

Kernowshep

Unless the £800k from 57 is already enough, then ignoring extra pension contributions and focusing on the ISA so there are more funds to finance the years before 57 would make sense, especially if wanting to stop work/reduce salary before then.

julicorn

Firefly12345 said:

Hi all,

Question:

Does the board think there is ever a scenario where someone making pension contributions at top rate tax (45%) should use ISA instead of pension?

Just to echo what the others said above: Wanting to retire before 57 would be a good reason to do exactly that. Don't let the (tax) tail wag the dog. 
(you'll still probably want to only use the ISA for that bridge before 57, and put the rest into pensions)

redped

As above, retiring before 57 is a good reason to split your money between an ISA and your pension - I did exactly that, and retired early at 50 (I was in the 40% tax bracket, not 45%).  I haven't reached 57 yet, so not only am I able to survive on my ISA investments (plus other savings), but I've also got several pensions which are building up nicely in the background.

MallyGirl

Kernowshep said:

MallyGirl said:

there will likely come a point where you have exceeded the max 25% tax free so all you are saving is the 2% NI if you pay the same rate tax on the way out as you saved on the way in.

As it stands won't it realistically be a 12% benefit.
45%-40% = 5%, plus 2% NI, plus 5% employer contribution.
(and more if contributions means a dip down into the £100-125k tax band is possible using any unused pension allowance if required).

Based on the limited info in the OP, ISA would come in for me to bridge the gap to 57, after I'd made use of any unused pension allowance from the last few years and wasn't able to get below the £125k level.

I assumed that OP would continue to do what qualified them to get the 5% from employer. I focused on the top line so 5% (45-40) plus 2%

Firefly12345

Thanks for all of the advice. 

To clarify the 5% is an additional bonus % of what I contribute myself via SSP. This is my firm sharing the benefit they get from me doing sal sac. The firms contribution is 10% of my salary if I put in 5%. I currently contribute 12%. I would never consider going under 5, obviously.

SpeedSouth

I've had similar thoughts as well.  I'm only a 40% rate payer.  

Currently pension(s) is/are around 90% of my individual worth and around 75% as a couple.

I'm 43 and looking to go 55 or earlier, but it's the ISA bridge pot that is lacking at present.  Paying in less than the 40% part is difficult to do, but think there will come a time when I decide to.