tax relief on pension contributions for higher earners

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  • Indigo05
    Indigo05 Posts: 9 Forumite
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    dunstonh wrote: »
    If she accepts the risks and tie ins then they are viable options. It is important to not let tax be the primary driver. However, if they her fit objectives then fair enough.
    Thank you! She is risk averse!
    In nutshell - NHS pension is better even with tapered tax relief over 150k? or is she better to find some other pension??
    thanks again
  • dunstonh
    dunstonh Posts: 116,371 Forumite
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    Thank you! She is risk averse!

    That works against VCTs etc. then.
    In nutshell - NHS pension is better even with tapered tax relief over 150k? or is she better to find some other pension??

    No other pension will beat the NHS scheme.
    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.
  • kidmugsy
    kidmugsy Posts: 12,709 Forumite
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    Indigo05 wrote: »
    One of my hard working friend (7 day a week worker) was enquiring re how she can save taxes as her income is above 150k ( 3 jobs in NHS) and ...


    Is this moralising anything to do with the issue?
    Free the dunston one next time too.
  • Indigo05
    Indigo05 Posts: 9 Forumite
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    Thank you all

    Discussed with her and she is grateful for your support and advice.

    She wishes to continue paying in NHS pension as she is risk averse.

    On the other hand ; she is trying to cut down work as she feels like working extra ''only'' to pay taxes!

    I advised her that it's her choice at the end of the day

    Many thanks for all your help
  • dunstonh
    dunstonh Posts: 116,371 Forumite
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    Sometimes, people only using things free of investment risk are actually increasing their risks. Not in investment risk but terms of shortfall risk and inflation risk. The latter two may only occur with investments but WILL occur with cash.

    Its more about taking a sensible risk as everything has some risk.
    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.
  • Indigo05
    Indigo05 Posts: 9 Forumite
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    Update: My friend tells me that she had a big tax bill this January due to tapered allowance as her adjusted income went up . She raided her savings to pay additional taxes.
    She is seriously debating if she should stop paying into pension... as paying 'extra tax' plus scheme pays cost , over usual 45% income tax?
    Any views please?
  • dunstonh
    dunstonh Posts: 116,371 Forumite
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    She is seriously debating if she should stop paying into pension... as paying 'extra tax' plus scheme pays cost , over usual 45% income tax?

    Tapering is a pain. However, she is only losing the tax relief on the contribution part that is being tapered. She is still getting the employer bit.

    All alternatives will suffer the same tax issue as the pension as her pay will be reduced to cover the tax and NI. However, none of the alternatives get the benefits paid for by the tax payer.
    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.
  • Indigo05
    Indigo05 Posts: 9 Forumite
    edited 28 February 2018 at 8:35AM
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    dunstonh wrote: »
    Tapering is a pain. However, she is only losing the tax relief on the contribution part that is being tapered. She is still getting the employer bit.

    Thanks ...What she tells me that as a GP (practice income) she can keep both employees and employers contribution . She may be able to put in amount into the pension only just about for tapered level in SIPP and rest in S&S ISA or something else.
    If it true for GPs that they could keep Ee+Er in hand, then would it be worth temporarily coming out of pensions? Her income was 160k from practice ( ee+ er can be kept to self from this) and 30k from other sources last year..
    thanks
  • hyubh
    hyubh Posts: 3,531 Forumite
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    Indigo05 wrote: »
    If it true for GPs that they could keep Ee+Er in hand, then would it be worth temporarily coming out of pensions? Her income was 160k from practice ( ee+ er can be kept to self from this) and 30k from other sources last year..
    thanks

    GPs' pay include an element representing the employer contribution to the NHS Pension Scheme that the GP themselves then actually pay if in it.

    I'll be honest, GPs and pensions is a pretty specialist area - your friend needs proper (paid) advice, not generalist guidance from anonymous people on the internet.
  • EdSwippet
    EdSwippet Posts: 1,588 Forumite
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    dunstonh wrote: »
    Tapering is a pain. However, she is only losing the tax relief on the contribution part that is being tapered. She is still getting the employer bit.
    A particular problem with the taper is that 'scheme pays' is usually(*) unavailable, meaning that contributions above the taper are double-taxed.

    Suppose a £100 total (employer plus employee) contribution above the taper. There is £45 tax to pay in the year of contribution. On withdrawal, £25 could be tax-free and £75 taxable. A retired basic rate taxpayer gets back £40 of the original £100, for an effective 60% tax rate. For a higher rate taxpayer this drops to a £25 return and effective 75% tax rate. These are the sorts of numbers to look at when evaluating whether employer contributions can overcome the penalties.

    If the pension also breaches the lifetime allowance the outcomes worsen further, to the point where the higher rate taxpayer receives £0 and pays 100% in tax. And no level of employer contribution can overcome that.

    (*) Some schemes do provide 'scheme pays' for exceeding the taper. Apparently, the GP's pension scheme does not.
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