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Paying extra contributions advice

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uphilldownhill
uphilldownhill Posts: 8 Forumite
in Auto-enrolment
Hi forum,

I currently pay in 6% contributions on £15k and my employer is going upto 4.5% April 2019 and I am 40. This is my only pension and I have 6 months cash aside plus short term savings, debt and mortgage free.

I have been considering either increasing my contributions or opening a S&S ISA for retirement planning too with £500 seeding then paying in £30 per month for the next 10-15 years or to increase my pension by 2%, eventually reaching 10%.

What are your thoughts on the above?

Does either way benefit me as a basic rate tax payer?


Does tax relief increase as my contributions increase?

I don't want a cold baked bean retirement or work myself to death like my grandad.
uphilldownhill

Debt free, Mortgage free, 6 months emergency fund, white goods fund, dental fund and short term savings.
«1

Comments

  • Paul_Herring
    Paul_Herring Posts: 7,481 Forumite
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    Does tax relief increase as my contributions increase?

    You will get 20% relief on all contributions up to your gross wage (after relief,) including any that technically weren't taxed at 20% originally (i.e. wages that fall into the personal allowance)
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
  • uphilldownhill
    uphilldownhill Posts: 8 Forumite
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    Thankyou for the reply, am I correct to say the 20% tax relief total is against how much is paid in.



    20% of £100 contribution is £20 relief added to pension pot.

    then 20% of £200 is £40 and going all the way up to whatever the maximum is for basic rate tax.
    uphilldownhill

    Debt free, Mortgage free, 6 months emergency fund, white goods fund, dental fund and short term savings.
  • LHW99
    LHW99 Posts: 4,215 Forumite
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    20% of £100 contribution is £20 relief added to pension pot.

    then 20% of £200 is £40
    Yes, but going up to the maximum you can contribute. In your case that's £15k gross / 12k net. You have to earn in the higher tax bracket to get more than 20% of tax relief.

    Have you checked your state pension is on track?
  • uphilldownhill
    uphilldownhill Posts: 8 Forumite
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    Thankyou. I did ask my employer to explain how tax relief works and they said we don't give financial advice.



    I have not checked state pension, although I have worked for 21 full years so far, had a little break of 8 months. 35 years is still the target I presume.



    The second reason I asked is, I keep reading or hearing about the government ending tax relief, albeit a cause for concern regarding government expedeniture reporting by the press. Which would be a sad day for pension savers moving away from the DB system and onto DC like myself.
    uphilldownhill

    Debt free, Mortgage free, 6 months emergency fund, white goods fund, dental fund and short term savings.
  • Paul_Herring
    Paul_Herring Posts: 7,481 Forumite
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    I keep reading or hearing about the government ending tax relief,

    Unlikely to happen any time soon, and most certainly not to the detriment of 20% tax-payers.
    Conjugating the verb 'to be":
    -o I am humble -o You are attention seeking -o She is Nadine Dorries
  • dunstonh
    dunstonh Posts: 116,371 Forumite
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    The second reason I asked is, I keep reading or hearing about the government ending tax relief,

    Pension tax relief has been around for over 50 years. There is no hint that tax relief will be ended. Indeed, auto-enrolment increases actually increase the overall amount of tax relief payable.

    The only hint is that a flat rate may come in future (and some claim that may actually be higher for basic rate taxpayers).
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • uphilldownhill
    uphilldownhill Posts: 8 Forumite
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    Thankyou for making that part clear everyone.


    My next question is about income tax. When I pay higher contributions will that in turn lower the amount I pay in income tax and or NI as I am taking home less pay?
    uphilldownhill

    Debt free, Mortgage free, 6 months emergency fund, white goods fund, dental fund and short term savings.
  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458 Forumite
    Uniform Washer
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    If your pension contributions are paid under a "net pay scheme" yes i.e. salary £15,000 less 10% pension = £13,500 taxable pay (your P60 pay figure).

    If it is a "relief at source" scheme no. You pay say £100 per month and the pension company adds £25 tax relief to your pension fund.
  • Dazed_and_confused
    Dazed_and_confused Posts: 6,458 Forumite
    Uniform Washer
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    And you should check your State Pension forecast on gov.uk

    35 years does not guarantee you the full "new" State Pension. You are under the transitional rules and may need fewer or more years.
  • uphilldownhill
    uphilldownhill Posts: 8 Forumite
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    I took your advice D & C and checked my state pension contributions. I'm suprised to see that my first job doing weekend work whilst at school for 3 years counts, leaving only 9 more years to complete with 23 completed.


    Thankyou D & C :T
    uphilldownhill

    Debt free, Mortgage free, 6 months emergency fund, white goods fund, dental fund and short term savings.
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