Retirement

[The Great Soprendo]

Let's say your Gross Pay is £60k per year (imagine that's a flat £5k per month).

You suggested contributing into your pension to bring that down to £50,270. Which works out £4189 per month and saves you 42% (40% tax & 2% NI) on the £921 you put in your pension.

Phasing of contributions makes no difference to income tax allowance, it is calculated annually. But NI is calculated based on the period in which you're paid (in this example, the month) - over £4189 per month NI is 2%, under is 8%

Which means if you alternate your contributions; month 1 £5k per month, month 2 you contribute £1842 to pension and you save 2% NI on the first £921 and 8% on the second £921.


It's more obvious when a one-off bonus is involved. Let's say your base pay is £4189 per month (£50270pa) plus a £10k bonus. Anything you salary sacrifice from your usual wage you'll save 8% in NI but any sacrifice from your bonus you'll only save 2%. So a bonus month is often the worst time to contribute to a pension, but many people do it.


Obviously, keep up any minimum contributions required to get your employer matched contributions. And don't salary sacrifice too much that takes you below minimum wage or they might remove you from the salary sacrifice scheme altogether.

Wasn't aware of this, good info. Basically allows you to take advantage of NI being calculated on each pay (weekly or monthly) while tax is calculated annually. Requires you to be able to cut your in-pocket pay drastically for part of the year I guess (and then increase it for the other part), but if that's not a problem it could save a few hundred quid over a year. If I've understood correctly you don't need to alternate actually, just have a few months where you pile into your pension so that the NI savings include a big chunk at the 8% rate, then reduce your pension contributions for the rest of the year, to make up the same overall total contribution and money in your pay over the year. You then save a bit more NI in those 'piled in' months than you would do if you kept contributions the same all year (all assuming you're in this zone generally with earnings somewhere in the 60-100K zone). So could be done with two switches of contributions in a year, if timed correctly.

Key considerations being not to let your earnings fall below minimum wage during those 'piled in' months, and also to make sure in the months you pay less into your pension that you still contribute enough to get the employer contributions at full rate too (for me I need to put in at least 6% to get their 6% contribution).

Bit of a hassle to save a few hundred but it's free money I guess.

And noting only possible if your employer runs a salary sacrifice scheme.

 

[42]

If the proposed changes to NI salary sacrifice savings actually happens, it could very well scupper this bit of jiggerypokery

 

[Edinburgh Black Cat]

Wasn't aware of this, good info. Basically allows you to take advantage of NI being calculated on each pay (weekly or monthly) while tax is calculated annually. Requires you to be able to cut your in-pocket pay drastically for part of the year I guess (and then increase it for the other part), but if that's not a problem it could save a few hundred quid over a year. If I've understood correctly you don't need to alternate actually, just have a few months where you pile into your pension so that the NI savings include a big chunk at the 8% rate, then reduce your pension contributions for the rest of the year, to make up the same overall total contribution and money in your pay over the year. You then save a bit more NI in those 'piled in' months than you would do if you kept contributions the same all year (all assuming you're in this zone generally with earnings somewhere in the 60-100K zone). So could be done with two switches of contributions in a year, if timed correctly.

Key considerations being not to let your earnings fall below minimum wage during those 'piled in' months, and also to make sure in the months you pay less into your pension that you still contribute enough to get the employer contributions at full rate too (for me I need to put in at least 6% to get their 6% contribution).

Bit of a hassle to save a few hundred but it's free money I guess.

And noting only possible if your employer runs a salary sacrifice scheme.

Aye, that's exactly it.

It was more worth it when the NI rate was 12%. And less of a faff if it is a bonus that pushes you over the £50k threshold - basically you contribute minimum that month and more the other months.

If the proposed changes to NI salary sacrifice savings actually happens, it could very well scupper this bit of jiggerypokery

Aye, absolutely.

I've no idea how they implement the new rule where people have choppy earnings. Which £2k do you save NI on!?

 

[ShoutyBearHead]

I've mentioned before my two teeny DB pensions from about 6 months worth of work 30 years ago - £350ish a year and £60 a year! - I've started trying to get them transferred, mostly so I don't have to f*ck on with 4 pensions which is what I'll currently be doing. Having zero luck, had a transfer value for the 'big' one and it's not life-changing but hardly chump change, but can't get it across to either of my non-DB pension, they just aren't interested.

 

[Matt Hopkins]

I've mentioned before my two teeny DB pensions from about 6 months worth of work 30 years ago - £350ish a year and £60 a year! - I've started trying to get them transferred, mostly so I don't have to f*ck on with 4 pensions which is what I'll currently be doing. Having zero luck, had a transfer value for the 'big' one and it's not life-changing but hardly chump change, but can't get it across to either of my non-DB pension, they just aren't interested.

What are the CETV for the pensions?

 

[mickb2112]

7 working Mondays to go

 

[ShoutyBearHead]

What are the CETV for the pensions?

£25k for the big one, not got one for the small one as yet

 

[Darlo1973]

If the proposed changes to NI salary sacrifice savings actually happens, it could very well scupper this bit of jiggerypokery

We have the option to pay our annual bonus into our pension by salary sacrifice so that you get the gross amount. Makes a big difference if you are a higher rate tax payer.

 

[Skippy]

£25k for the big one, not got one for the small one as yet

A £25k cetv, for a pension worth £350 per year? They must be expecting you to reach a ripe old age!

 

[ShoutyBearHead]

A £25k cetv, for a pension worth £350 per year? They must be expecting you to reach a ripe old age!

aye, only kicks in when I'm 67 as well - must think I'm related to Keith Richards!

 

[faith brothers]

A £25k cetv, for a pension worth £350 per year? They must be expecting you to reach a ripe old age!

Aye about 700 years on death!

 

[Matt Hopkins]

£25k for the big one, not got one for the small one as yet

Strange if it's under £30k you should be able to move it without advice. I suppose it's up to the provider whether they take it or not.
I have in my head that a stakeholder pension has to take it so you could maybe transfer to a stakeholder then transfer to your DC one?? Maybe look into that but as I say I'm not 100% sure this is correct.

Aye about 700 years on death!

Top maths there Carol Vorderman

 

[im not roland rat]

We have the option to pay our annual bonus into our pension by salary sacrifice so that you get the gross amount. Makes a big difference if you are a higher rate tax payer.

I did that for about 10 years straight at my old place. Saved me a fortune on tax, it’s made my pension look very very healthy for my age and will allow me to knock a good few years off my retirement age. It’s a great habit to get into if you don’t need the money there and then.

 

[NGS]

I’m 43 and just started looking into my pension, I’d love to wind down once my mortgage is paid off at approx 57. I’ve worked for the same company for 21 years and I believe the amount in there is way higher than average for my age (well, according to Grok anyway). So this thread is fascinating, I’ve been a long time lurker

 

[WHD]

I’m 43 and just started looking into my pension, I’d love to wind down once my mortgage is paid off at approx 57. I’ve worked for the same company for 21 years and I believe the amount in there is way higher than average for my age (well, according to Grok anyway). So this thread is fascinating, I’ve been a long time lurker

How much if you don't mind saying?

 

[Darlo1973]

I’m 43 and just started looking into my pension, I’d love to wind down once my mortgage is paid off at approx 57. I’ve worked for the same company for 21 years and I believe the amount in there is way higher than average for my age (well, according to Grok anyway). So this thread is fascinating, I’ve been a long time lurker

Stats about the sizes of pension pots are always dangerous. They tend to report mean rather than median averages and often don't take into account that people can have multiple pots plus there is also the wealth people have in property, ISAs and other assets to fund retirement. There are also significant regional and gender differences.

This is what Gemini gave me

Age Group	Median Pension Wealth (2026 Est.)
16 – 24	£5,500
25 – 34	£18,800
35 – 44	£39,500
45 – 54	£80,000
55 – 64	£137,800
65 – 74	£145,900
75+	£59,700

 

[Jesse The Body Ventura]

Posted in the S&S thread but wonder if it should gave been here.
I'm looking to retire early in about 7 years time and apart from my CS pension wonder if I should open up a SIPP.

I've done some reading but I'm still not sure how this works, if I put for example £1000 a month in a SIPP when does the government put the 20% contribution in? Does my SIPP just increase in size at the time of deposit?
And because I'm a higher tax payer and want to claim the additional 20% is that once a year using a similar form to self assessment? Or again does it go in every month or is it not a deposit but a tax break and my tax code changes?
For the SIPP itself again I'm assuming someone like a global fund with Vanguard or InvestEngine.

 

[The Great Soprendo]

Posted in the S&S thread but wonder if it should gave been here.
I'm looking to retire early in about 7 years time and apart from my CS pension wonder if I should open up a SIPP.

I've done some reading but I'm still not sure how this works, if I put for example £1000 a month in a SIPP when does the government put the 20% contribution in? Does my SIPP just increase in size at the time of deposit?
And because I'm a higher tax payer and want to claim the additional 20% is that once a year using a similar form to self assessment? Or again does it go in every month or is it not a deposit but a tax break and my tax code changes?
For the SIPP itself again I'm assuming someone like a global fund with Vanguard or InvestEngine.

Normally the provider claims the 25% from the government on your behalf and just adds it directly a few weeks after each deposit you make.

Any additional claim as a higher rate taxpayer is done via self assessment.

 

[TAD]

Posted in the S&S thread but wonder if it should gave been here.
I'm looking to retire early in about 7 years time and apart from my CS pension wonder if I should open up a SIPP.

I've done some reading but I'm still not sure how this works, if I put for example £1000 a month in a SIPP when does the government put the 20% contribution in? Does my SIPP just increase in size at the time of deposit?
And because I'm a higher tax payer and want to claim the additional 20% is that once a year using a similar form to self assessment? Or again does it go in every month or is it not a deposit but a tax break and my tax code changes?
For the SIPP itself again I'm assuming someone like a global fund with Vanguard or InvestEngine.

I'm in exactly the same boat bridging gap between 60 (possibly earlier) and 67. We are living off half our wages to see how much we need and started a vanguard sipp for the rest. The 25% tax goes literally straight on there but unsure about higher rate tax as unfortunately it doesn't apply to me .

 

[Feed the Monster]

I did that for about 10 years straight at my old place. Saved me a fortune on tax, it’s made my pension look very very healthy for my age and will allow me to knock a good few years off my retirement age. It’s a great habit to get into if you don’t need the money there and then.

Have done so for the last few years at our place - if I keep in up for another 2-3 years then I can escape a couple of years earlier.

Wish we’d had the same option at my previous place when the bonuses were pretty generous. Used to get crucified on tax. Mind, it was a DB scheme in the private sector so can’t complain.