Pay rise above £43,000 (HRT) dougens

#1
Hello



I've just been given a pay rise to £45,000 per annum.

I currently pay in the minimum into my workplace pension and have no other pensions in place.



As we are moving house this year I don't want to start putting aside extra pension cash for mortgage purposes as this affects my total I can borrow due to outgoings so I am putting the cash I would be putting into a private pension into a savings account for the new house and costs etc.



My query is on the tax brackets. As I understand the tax for 2016 is as below:



£11,000 tax free

11,000-33,000 standard rate (20%)

above £43,000 higher rate (40%)



With this moving to the below in 2017:

11,500 tax free

11,500-33,500 (SR 20%)

above 45,000 (HR 40%)



As I only have one more month left prior to the change in tax bands I don't think there is any point in putting extra cash aside pre tax into my workplace pension.



If I got another payrise above the threshold of £45,000 what advice can anyone give me on how to best save money by putting extra into the workplace pension (pre tax) so I'm not getting extra taxed on the higher rate?



Also what advice would people give me on what to do with the extra cash I will be putting aside after my mortgage is completed. I have read NEST pensions are not good and I should be looking at a private pension instead?



Sorry if very simple questions but I've been reading on this and finding it hard to deal with it in layman's terms.



Many thanks for any help and replies

#3
Given your tax band figures to avoid HRT you should put any income above £45K into a pension next year.



The main point of pensions isnt to avoid HRT but rather to pay for your lifestyle in retirement. If you have no other significant savings/investment you wont be living a £45K lifestyle in retirement, more like an £8K one (or £16K for a couple) once you reach State Pension age at 67/68 or whenever. Sounds like something to look forward to? Perhaps you may like to retire earlier on a rather higher income.



As with all pensions the recommendation is normally that you should pay in enough to get the maximum employer contribution. Anything beyond that you could pay into a private pension which has advanatages over NEST.



How old are you? As a very rough rule of thumb, it is suggested that you should be paying half you age as a % of your salary into your pension. If you look at the H-L pension calculator you can get a better idea of what a steady % contribution would get you.

#4



Given your tax band figures to avoid HRT you should put any income above £45K into a pension next year.



The main point of pensions isnt to avoid HRT but rather to pay for your lifestyle in retirement. If you have no other significant savings/investment you wont be living a £45K lifestyle in retirement, more like an £8K one (or £16K for a couple) once you reach State Pension age at 67/68 or whenever. Sounds like something to look forward to? Perhaps you may like to retire earlier on a rather higher income.



As with all pensions the recommendation is normally that you should pay in enough to get the maximum employer contribution. Anything beyond that you could pay into a private pension which has advanatages over NEST.



How old are you? As a very rough rule of thumb, it is suggested that you should be paying half you age as a % of your salary into your pension. If you look at the H-L pension calculator you can get a better idea of what a steady % contribution would get you.
Originally posted by Linton


Half your age... that is a huge amount!



What if I don't make it to retirement?



My employer pays in 4% and I pay in 1% at the moment. (23)



But only because I'm going to do the government ISA/House thing too in April, then I can review how much to put into a pension again.



Urgh!

#5



What if I don't make it to retirement?
Originally posted by tommysaver


Most people do make it to retirement - in fact most people make it well past retirement age. The risk of having to work until you drop and/or spend the last 20-30 years of your life in poverty is greater than the risk of saving for a pension then not seeing the benefit of it.



And of course if we took the attitude that we were going to die any day we would never save at all, never study, never plant a tree - never do anything that involves a cost now for a gain in the future.



But to answer the question, if you die before you're 75 any money in your pension goes tax-free to your wife, or kids, or anyone else you nominate. If you die after you're 75 they still get it, but may have to pay some tax on it depending on their own circumstances.

#6



My employer pays in 4% and I pay in 1% at the moment. (23)


If your pension contributions are £2,150pa for 40 years if they grow in line with inflation they'll provide an income of £4,300pa for 20 years.



You need to pay lots more in. What's the most your employer will contribute?

#7



Half your age... that is a huge amount!



What if I don't make it to retirement?



My employer pays in 4% and I pay in 1% at the moment. (23)



But only because I'm going to do the government ISA/House thing too in April, then I can review how much to put into a pension again.



Urgh!
Originally posted by tommysaver


It's half your age from when you start and you keep that figure. E.g. Start at age 30 and it's 15% for the rest of your earning life. 15% at 30, 15% at 40, 15% at 50 and so on. Start at 40 and it's 20%, etc.



Are you 23 ? If so, 12%. Pay in less, you'll get less in your case a lot less and will be bemoaning your miserable pension.



As to what if you don't make it, well first of all you won't know so you won't care, and second, as said, why apply that argument just to pensions, why not to everything ?

#8
Look on the bright side. Your young, have a good salary and you read these forums. The more you learn about savings, investments and pensions now the more your future self will thank you. I started a workplace pension at 30..... ouch. I aim for the total pension contributions to be above 15% as per the rule of thumb. My opinion is you should get your pension contributions right now so there is less pressure for you to contribute more in the future.

#9
Do what I do and pay into AVCs or a SIPP to "skim off" the 40% tax you have to pay. It is worth doing that for the nice warm fuzzy feeling alone!

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