Paying more into employers pension scheme?

LeadFarmer · 30 March at 1:49PM

Is this a sensible choice to make…?

My 19yr old son is doing an apprenticeship and is joining his employers pension scheme, His contributions default at 5% of earnings with his employer matching them, but he can increase his contributions and his employer will match them.

He wants to pay 7.5% but I want him to pay in more, but as he's on a low wage he obviously doesn't want to lose too much spending ££ a month. He does however have a few £k in savings (ISA £16k, LISA £4k, and some Premium Bonds).

I've told him that if he pays more into his pension he can supplement the loss of monthly income by gradually cashing in some of his PB's, so he will effectively be putting some of his PB's into his employers pension, but he'll gain by his employers contributions and he'll also get tax relief.

Does this sound like a sensible idea?

Exodi · 30 March at 1:54PM

LeadFarmer
I've told him that if he pays more into his pension he can supplement the loss of monthly income by gradually cashing in some of his PB's, so he will effectively be putting some of his PB's into his employers pension, but he'll gain by his employers contributions and he'll also get tax relief.

I personally think it's a brilliant idea, exactly what I was going to suggest before I read your last paragraph - how far will his employer match to out of interest? Depending on his income, he may be getting basic tax relief he never paid which is a big win for him.

He's doing very well for a 19 year old, I think I was in the depths of a payday loan spiral around the same age!

LeadFarmer · 30 March at 2:03PM

Thanks. He received some inheritance which allowed him to put the max into an ISA and a LISA, and have a few PB's too.

I don't want him to miss out on any employer contributions which I see as free money, so I shall ask him if there's a limit to how much his employer will contribute.

Marcon · 30 March at 2:22PM

There certainly will be a limit on how much the employer contributes! You might also bear in mind that although you want your son to contribute more, he needs to have a say in his own finances or there's going to be a clashing of wills further down the line. Getting the maximum employer contribution is probably the most it makes sense for him to tie up for what could be 40+ years.

born_again · 30 March at 3:55PM

Would this come into play?

https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

Overview

A salary sacrifice arrangement is an agreement to reduce an employee’s entitlement to cash pay, usually in return for a non-cash benefit.

As an employer, you can set up a salary sacrifice arrangement by changing the terms of your employee’s employment contract. Your employee needs to agree to this change.

A salary sacrifice arrangement must not reduce an employee’s cash earnings below the National Minimum Wage (NMW) rates. Employers must put procedures in place to cap salary sacrifice deduction and ensure NMW rates are maintained.

Sam_666 · 30 March at 11:05PM

More important issue is in what is pension invested.
Probably is some kind of default fund, that needs to be changed to 100% US equities.

Exodi · 31 March at 8:10AM

Sam_666
More important issue is in what is pension invested.
Probably is some kind of default fund, that needs to be changed to 100% US equities.

While suggesting someone should take an interest in what their pension is invested in is good advice, I'm no sure telling someone to go all in on US equities is.