Bonus into pension scheme

crazyspaniels

Mr Crazyspaniels works for a supermarket chain, he is a manager.
He is due a performance bonus worth about £4000, before losing the big chunk to the tax man etc.
He got a letter today asking if he wanted to pay is bonus, plus a 10% of the bonus contribution, into the companies pension scheme - so would be the full £4000 plus £400 from the company.

Is this is a good idea or are we better off paying off any credit card bills, or debts etc with the reduced sum we would get after tax.
If we do this only once is it actually going to make a big difference or would we need to pay all bonus's into the scheme to see an impact?
He can pay a percentage of the bonus if he doesnt want to put it all in??

any advice appreciated?

CLAPTON

if you dont need the money then pay it into the pension fund

if you have debts (particular if high APRs) then pay off the debts and resolve never to get into debt again.

Once the debts are clear then add to the pension fund when the opportunity arises

Dithering_Dad

Work out how much money you think you will need to secure a comfortable retirement, then contact the pension provider to get a valuation. If their valuation is a lot less than you need then you should up the pension contributions, if the pension is on track then pay off debt (including mortgage debt).

Everyone's principle aim must be to make sure that they have enough money for a decent retirement. You can struggle along while you're young and healthy and can work overtime or a second job to get yourselves out of a financial hole. You can't do this when you're old and (perhaps) frail. Once you're in poverty when you're old there is very little you can do to get out of it.

p.s. if you don't have a pension scheme of your own, then perhaps you should use this money to start one, and then try to make regular payments into it. You will then make sure that you use both your tax free allowances to their best advantage once you have retired and you'll have your own pension - useful if you split up or your husband dies leaving you with a 50% widows pension.

crazyspaniels

Dithering_Dad wrote: »

Work out how much money you think you will
p.s. if you don't have a pension scheme of your own, then perhaps you should use this money to start one, and then try to make regular payments into it. You will then make sure that you use both your tax free allowances to their best advantage once you have retired and you'll have your own pension - useful if you split up or your husband dies leaving you with a 50% widows pension.

thanks, I have a stakeholder, just a small one, but pay into it every month

Good idea about the valuation, hadnt thought of that, will see who we need to contact about that

EdInvestor

Why are you paying into a stakeholder if there is a company pension scheme?

Are you a higher rate taxpayer?

crazyspaniels

EdInvestor wrote: »

Why are you paying into a stakeholder if there is a company pension scheme?

Are you a higher rate taxpayer?

thats me, Mr CS has a company pension and its his bonus I was asking about, I was responding to DD's PS which asked about setting up a pension in my name.

bigbloke45

I think you need to do a complete financial review.

If your debts are high, they won't get any smaller by bonus sacrifice into a pension plan. Maybe you need to prioritize between debts and pension planning. One thing is certain, the amount of interest you pay on your debts will always remain but the return on your pension contribution is in the lap of the gods.

I cant see that a pension plan valuation will help as they are based upon assumptions that will never come true.

Clear your credit cards first and then worry about pension contributions. You should be able to do the maths to see the sense in this. If you need help, there are many websites that can do the calculations for you.

Believe me, I am talking from bitter experience; it took me a long time to clear my debts but, by God it was worth it!

Finally, just think that every pound you clear from debt is exactly the same as earning the same amount of interest that you would have paid on it in a deposit account AFTER tax!

I wish you the very best.

Jennifer_Jane

I always pay my bonus into my pension scheme (but I am always going to be way under the lifetime allowance amount!). It means that I instantly get a 'return' of 20% (basic rate taxpayer) plus NI contributions, for me totalling about 31% before I turned 60, plus whatever growth I received on the ACs - far better than my debt (which is only the mortgage apart from any credit cards on 0% for stoozing).

I agree, however, with all the above (yes, pay off credit cards first or manage them to lower interest rates or 0%), but also consider in the future putting the money in your pension fund - and you even get the Company giving you 10% too. Amazing!

With our pension fund we are able to choose a percentage and the rest is given in cash less tax/NI.

Good luck
Regards
Jen
x

EdInvestor

Is Mr Crazyspaniels a higher rate taxpayer? If he is, the benefits of paying into the pension may well outweigh the benefits of paying off debt.If he is on basic rate it's more likely to be better to reduce debt.

bigbloke45

Jennifer Jane you said below;

agree, however, with all the above (yes, pay off credit cards first or manage them to lower interest rates or 0%), but also consider in the future putting the money in your pension fund - and you even get the Company giving you 10% too. Amazing!.

But remember, all the company is doing is adding in the NI they would have paid on the bonus in the first place! I suspect that ther answer to this question will lie in some pretty sophisticated maths and a pretty strong will to go through with whatever results the calculations

crazyspaniels

EdInvestor wrote: »

Is Mr Crazyspaniels a higher rate taxpayer? If he is, the benefits of paying into the pension may well outweigh the benefits of paying off debt.If he is on basic rate it's more likely to be better to reduce debt.

yes, he pays top rate tax so the before tax amount is alot more than it will be if we draw it out.
Our credit card debt is with a low rate for life AMEX card, so not a bad debt, we switched it a while ago to a low rate for life as that suited us best.