Advice on how much to put into pension

Durged

I’m after advice on how much you should put into a pension if you can afford it. I’m close to retirement (54) and have enough savings to live off for at least a year, all risks aside and purely to minimise any tax liability should I put 100% of my salary into my pension (I’m on less than 60k so that’s not an issue), or should I put in only enough to get me below the income tax threshold of £12570 (assuming I won’t pay tax if I reduced my “income” to below £12570, I’m not entirely sure how it works). 

Basically my thoughts are (if this is correct) I may as well earn £12750 and pay no income tax on it) & put the rest into my pension or if I don’t get the £12570 tax free I’ll put 100% into my pension. Could anyone clarify please? 

Dazed_and_C0nfused

Durged said:

I’m after advice on how much you should put into a pension if you can afford it. I’m close to retirement (54) and have enough savings to live off for at least a year, all risks aside and purely to minimise any tax liability should I put 100% of my salary into my pension (I’m on less than 60k so that’s not an issue), or should I put in only enough to get me below the income tax threshold of £12570 (assuming I won’t pay tax if I reduced my “income” to below £12570, I’m not entirely sure how it works). 

Basically my thoughts are (if this is correct) I may as well earn £12750 and pay no income tax on it) & put the rest into my pension or if I don’t get the £12570 tax free I’ll put 100% into my pension. Could anyone clarify please? 

There are only two methods of getting money into a pension that reduce your taxable income.

Net pay.  For example your salary is £40,000 and you pay 10% via the net pay method so your P60 will show taxable earnings of £36,000.

Salary sacrifice.  This is where you agree to a reduced salary in return for extra employer contributions to your pension.

If you are making relief at source contributions then they do not reduce your taxable income.  But the pension company will add 25% to your net payment.

NoMore

If you can afford it, it's perfectly ok to put all your salary into a pension, you still get tax relief of 20% on the 12570 personal allowance despite paying tax at 0% on that amount.

If its relief at source, just be aware that you only put 80% of what you want to contribute, the rest is claimed by the pension as tax relief. You also need to account for any other contributions you have made to your pension.

33scott

Does your company do Salary Sacrifice?  If so you can only SS down to the level of earning minimum wage i.e. you will not be able to put 100% in. 

Marcon

33scott said:

Does your company do Salary Sacrifice?  If so you can only SS down to the level of earning minimum wage i.e. you will not be able to put 100% in. 

Although you can of course salary sacrifice down to minimum wage and then make further personal contributions by way of deduction from your salary.

Durged

Many thanks for the responses so far, I pay my
pension as salary sacrifice on 25% (assuming that’s the maximum they allow) and another 60% as AVC’s all through my companies benefit portal which is linked to my Scottish widows account, so everything is accounted for in house. 

I had not remotely considered I would get 20% tax relief on any amount below £12570, so it seems as though it might make sense to go for the 100% as it’s effectively 20% ‘free’ money. Great bit of information. Many thanks again. 

Albermarle

Dazed_and_C0nfused said:

Durged said:

I’m after advice on how much you should put into a pension if you can afford it. I’m close to retirement (54) and have enough savings to live off for at least a year, all risks aside and purely to minimise any tax liability should I put 100% of my salary into my pension (I’m on less than 60k so that’s not an issue), or should I put in only enough to get me below the income tax threshold of £12570 (assuming I won’t pay tax if I reduced my “income” to below £12570, I’m not entirely sure how it works). 

Basically my thoughts are (if this is correct) I may as well earn £12750 and pay no income tax on it) & put the rest into my pension or if I don’t get the £12570 tax free I’ll put 100% into my pension. Could anyone clarify please? 

There are only two methods of getting money into a pension that reduce your taxable income.

Net pay.  For example your salary is £40,000 and you pay 10% via the net pay method so your P60 will show taxable earnings of £36,000.

Salary sacrifice.  This is where you agree to a reduced salary in return for extra employer contributions to your pension.

If you are making relief at source contributions then they do not reduce your taxable income.  But the pension company will add 25% to your net payment.

OP, You need to clarify by which of the three methods your current contributions to your workplace pension are made ( it varies from employer to employer)
Plus how much you contribute now.

ali_bear

Agree with all of the above. But it is possible you would benefit in still having some non-pension savings when you stop working. Cash at hand gives you flexibility in when and how you start to take money out of the pension. 

Durged

Albermarle said:

Dazed_and_C0nfused said:

Durged said:

I’m after advice on how much you should put into a pension if you can afford it. I’m close to retirement (54) and have enough savings to live off for at least a year, all risks aside and purely to minimise any tax liability should I put 100% of my salary into my pension (I’m on less than 60k so that’s not an issue), or should I put in only enough to get me below the income tax threshold of £12570 (assuming I won’t pay tax if I reduced my “income” to below £12570, I’m not entirely sure how it works). 

Basically my thoughts are (if this is correct) I may as well earn £12750 and pay no income tax on it) & put the rest into my pension or if I don’t get the £12570 tax free I’ll put 100% into my pension. Could anyone clarify please? 

There are only two methods of getting money into a pension that reduce your taxable income.

Net pay.  For example your salary is £40,000 and you pay 10% via the net pay method so your P60 will show taxable earnings of £36,000.

Salary sacrifice.  This is where you agree to a reduced salary in return for extra employer contributions to your pension.

If you are making relief at source contributions then they do not reduce your taxable income.  But the pension company will add 25% to your net payment.

OP, You need to clarify by which of the three methods your current contributions to your workplace pension are made ( it varies from employer to employer)
Plus how much you contribute now.

Hopefully the post above yours Clarifies my position, but I’m putting in 85% of my salary currently, 25% salary sacrifice and 60% AVC’s which comes straight out of salary as a deduction. 

QrizB

Durged said:

Many thanks for the responses so far, I pay my pension as salary sacrifice on 25% (assuming that’s the maximum they allow)

If that's only an assumption, you should check it. Salsac of the other 60% would bring NI savings.

LHW99

Although I believe you can't sal-sac below NMW (which has just gone up)