Investing or Pension?
Comments
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Thanks everyone for your replies.
@kidmugsy, core is what my employer pay, regardless of any contribution from myself. That's 8% of my salary. On top, they will match percent point by percent point my contribution up to an extra 4%.
@Alexland, are you suggesting I'd better off upping my contributions above 4% (no longer matched) just to benefit from tax relief?
Thanks0 -
@Alexland, are you suggesting I'd better off upping my contributions above 4% (no longer matched) just to benefit from tax relief?
Yes if you can afford to put the money away for the long term and are happy with the pension investment strategy - assuming you are basic rate then you could be getting 20% tax relief and 12% national insurance saving from the salary sacrifice.
Under current rules you could draw 25% of your pension pot(s) tax free, some of your 75% taxable workplace pension within your annual tax free income allowance and probably have to pay 20% tax on the remainder.
So for most people this would be a clear advantage over a S&S ISA. Also, without meaning to offend, £42k at your age is low and if you continue to contribute at this rate given we are probably entering a period of low investment returns you might be very disappointed at the outcome at retirement.
Alex0 -
@kidmugsy, core is what my employer pay, regardless of any contribution from myself. That's 8% of my salary. On top, they will match percent point by percent point my contribution up to an extra 4%.
That's a very decent deal. The fact that your contributions beyond the 4% can be made by salary sacrifice makes the pension more attractive than an ISA, as long as you can cope with the tie-up to age 55 or beyond. You'd want a separate cash "emergency fund" earning interest.Free the dunston one next time too.0 -
Thanks Alex, I agree, 42K is peanuts....we have had other plans so far (deposit for the house). That's done now, so I am now looking at pension/investment.
Not sure whether that makes any difference in your consideration but at the moment I am lucky enough to be a high tax payer. Look likes I wont' be when I retire, but i guess (hope) I will be ok with a lower income.0 -
Thanks Alex, I agree, 42K is peanuts....we have had other plans so far (deposit for the house). That's done now, so I am now looking at pension/investment.
Not sure whether that makes any difference in your consideration but at the moment I am lucky enough to be a high tax payer. Look likes I wont' be when I retire, but i guess (hope) I will be ok with a lower income.
In which case it's even more compelling as you will be saving 42% tax and national insurance. Also if you have kids remember that paying pension contributions reduces your income for the child benefit clawback so can be extra effective - it certainly is for me!
Alex0 -
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£100 into the ISA costs you £100. £100 into the pension costs you £60 with the Govt giving you £40. With salary sacrifice, it is a bit more due to the NI saving as well.
Moving that onto bigger figures over a decade, ignoring growth, the £100k placed in the ISA has cost you £100k. £100k in the pension has cost you £60k.
if you have children and get child benefit and earn over £50k then child benefit is tapered out. Pension contributions bring your earnings down and can increase the child benefit again.
You are behind on the retirement planning. You want to be in 6 digits by your age. You have a fund size that a 38 year old would be looking at.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.0 -
I suspect even a 38 year old might be disappointed with the outcome at retirement.0
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Why would the OP want a S&S ISA when they only have only accumulated a £42k pension pot so far? We obviously don't know their full circumstances but with such a small pension pot a fair proportion of the additional salary sacrifice pension contributions are likely to be drawn tax free.
In their position I would be putting a lot more than the 4% into the pension pot. I would be behind sofas looking for coins, selling organs and sending our cat to get a job such that I could throw a high proportion of my income at the pension to improve retirement prospects and maximize this tax efficient opportunity.
Alex
Because a pension cant be accessed for many decades. They might want money before that. Upgrading property, marriage, children etc.
I agree the pension is very attractive esp with SS. But they need wiggle room, so some of their extra cash could be put aside outside the pension.0
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