Pension Contribution Question

MoneyMan01

My workplace already puts 10% into my pension without any contribution from myself. If I were to contribute, is there a way I can work out how much I would be better off?

I will try my best to explain, but basically I want to work out how much of a saving I would be making by contributing, given my tax bracket (40%).

I'm not saying that I want to work out how much I'd make in the pension, as that is all relative to how the fund does, I am just trying to work out how much I would be better off by contributing into the pension, where they will match on top, so for example they put 10% in, I put 3% in, they would also put an additional 3% in, so in theory they are putting 13% in, my contribution is 3%.

In % terms, is there a way, or calculator, I can use that would show me how much better off I'd be by doing that? Perhaps per month. 

Short question, I want to know how much I'd be gaining back to myself by adding pension contributions, vs. what I'd be losing in tax each month?

MoneyMan01

My workplace already puts 10% into my pension without any contribution from myself. If I were to contribute, is there a way I can work out how much I would be better off?

I will try my best to explain, but basically I want to work out how much of a saving I would be making by contributing, given my tax bracket (40%).

I'm not saying that I want to work out how much I'd make in the pension, as that is all relative to how the fund does, I am just trying to work out how much I would be better off by contributing into the pension, where they will match on top, so for example they put 10% in, I put 13% in, they would also put 13% in, so in theory they are putting 23% in, my contribution is 13%.

In % terms, is there a way, or calculator, I can use that would show me how much better off I'd be by doing that? Perhaps per month. 

Short question, I want to know how much I'd be gaining back to myself by adding pension contributions, vs. what I'd be losing in tax each month?

Sarahspangles

You need to confirm which type of contributions the employer uses i.e. whether the contribution is via salary sacrifice method.

The_Boss

There is a calculator about half way down this page. You put in your salary and your company and own contributions as a percentage, so you can play around with the % of each. It doesnt specifcially list your tax saving but tells you the impact on your pay packet. Does this help?

I've just used this to work out how much to increase my contribution to (I'm a 40% tax payer like you and have just increased my percentage to put me as close to the threshold for the 40% rate as possible.

https://www.moneysavingexpert.com/savings/discount-pensions

Secret2ndAccount

Suppose we look at £100 of your salary. If you take it home as pay, you receive £60 after tax
If you put it into the pension, and the company matches, you have £200 into the pension. When you come to draw the pension, 25% is most likely tax free. That's £50. Then the other 75% (£150) is taxable income. If you pay tax, in retirement, at 20%, then you receive £120. So £120+50 = £170 instead of the £60 you could have today.
If you remain a 40% taxpayer in retirement, you pay another £30 in tax, so the return is £140 vs £60.
If you contribute via salary sacrifice, the numbers are slightly better still.

Triumph13

Broadly speaking, you just need to calculate a) what it costs you, and b) what you get in return.

For a) say your salary is £60k, if you contribute another 1% that is £600 gross.  The actual cost though is more like £360 as that's what you'd otherwise get in your hot little hand after tax.  The cost is even less if they use salary sacrifice, saving you NI.

For b) you need to add up:

• Your £600
• Any employer match
• Any salary sacrifice NI savings that they share with you

You then need to reduce the total by the tax you will eventually pay on the way out - if you expect to be a 20% taxpayer in retirement and not be over the lifetime limit for tax free lump sums, then that would be 15% (20% on 3/4, 0% on 1/4)

Now compare a) to b) to see how much you've gained.

Eg if there is no sal sac and the employer fully matches your contribution, then you would eventually get £1,200 x 85% = £1,020 at a cost of £360.  Which is a good deal indeed.

kimwp

You need to ask your employer what they will match

Marcon

Have asked for this to be merged with your other thread asking the identical question. You're more likely to get more/better responses if you stick to one thread for the same query.

ali_bear

Something to consider is how close you are to your planned retirement age. If you start making large contributions that is great for your retirement fund, only that money is locked away until you are old enough to access it. 

GrumpyDil

Just to go back to the original post are you saying the company pays 10% with no contribution from yourself but will then fully match your contribution with the overall impact that the company will pay in 23% alongside your 13%?. That is one good deal -i think I need to change jobs.

Albermarle

GrumpyDil said:

Just to go back to the original post are you saying the company pays 10% with no contribution from yourself but will then fully match your contribution with the overall impact that the company will pay in 23% alongside your 13%?. That is one good deal -i think I need to change jobs.

This was my immediate thought on reading the OP.

Even an employer adding 10% is well above average.
If they matched an employee adding 13 % by also adding 13% themselves that would be unusually generous.
If they matched 13% from employee, by adding a further 13% on to top of the current 10%, that would be almost unbelievably generous, so maybe the OP has not got their facts quite straight.