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Whats the sensible thing to do?

smogg21
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Joined: July 15th, 2022, 10:24 am

Whats the sensible thing to do?

#522673

Postby smogg21 » August 15th, 2022, 5:14 pm

Hi all,

after a bit of advice regarding my pension. I recently left a company where I was getting employer contributions into a Scottish Widows PENS Portfolio 2 pension and over the years accrued a nice amount which is still sitting in that pot. I have now moved over to another company which has set me up on The Peoples Pension but I no longer get employer contributions. I was considering opting out of the workplace pension and personally investing directly into my old Scottish widows pension? As I no longer receive employer contributions what are the benefits of keeping the new pension over the old (is it better fees?) should I simply merge my old Scottish Widows pension into my new Peoples Pension provider?

Any clarity would be greatly appreciated.

cheers

xxd09
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Re: Whats the sensible thing to do?

#522677

Postby xxd09 » August 15th, 2022, 5:27 pm

Scottish Widows pensions are opaque with charges etc and are usually more expensive than running your own SIPP
An Employers contributions however made your decision of sticking with Scottish Widows worthwhile
Questions to answer
Are you up to running your own SIPP-it’s not for everyone.
Will Scottish Widows let you make extra contributions?
xxd09

monabri
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Re: Whats the sensible thing to do?

#522678

Postby monabri » August 15th, 2022, 5:28 pm

I thought you should get employer contributions?

https://thepeoplespension.co.uk/workpla ... ributions/

TUK020
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Re: Whats the sensible thing to do?

#522679

Postby TUK020 » August 15th, 2022, 5:32 pm

On your new pension, can you make your contributions as salary sacrifice? This saves NI.

ursaminortaur
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Re: Whats the sensible thing to do?

#522698

Postby ursaminortaur » August 15th, 2022, 7:13 pm

monabri wrote:I thought you should get employer contributions?

https://thepeoplespension.co.uk/workpla ... ributions/


Yes - your employer is breaking the law if you are enrolled in a workplace pension and they are not contributing at least 3% to that pension.

https://www.cipd.co.uk/knowledge/fundamentals/people/benefits/workplace-pensions-factsheet#gref

Automatic enrolment has been a major development. It requires all employers to automatically enrol eligible workers into a qualifying workplace pension scheme (unless the worker chooses to opt out) to which the employer must also contribute.

From 6 April 2019, the total minimum contribution is 8% (with at least 3% being contributed by the employer). The yearly administration charges and management fees a pension company can charge are currently capped at 0.75%.

Employers must re-enrol eligible staff who opt-out of a qualifying automatic enrolment pension scheme. Automatic re-enrolment occurs every three years after the employer’s staging date and is basically a repeat of the duties that were carried out at that staging, or deferral, date if postponement was used.

The government published a review of automatic enrolment in 2017, which made a number of recommendations, such as lowering the age criteria for enrolment from 22 years to 18. These are yet to be implemented.

richfool
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Re: Whats the sensible thing to do?

#522704

Postby richfool » August 15th, 2022, 7:39 pm

What if your (new) employer has a pension scheme through abc company, and you have been contributing into a pension through your previous employer with company xyz? Are you obliged to change to the new scheme (in order to secure the new employer's contributions) and to continue to have your own contributions deducted with tax relief through your new employer? Then do you have to decide whether to transfer the previous pension to the new scheme, or leave it hanging for the time being?

Urbandreamer
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Re: Whats the sensible thing to do?

#522721

Postby Urbandreamer » August 15th, 2022, 8:54 pm

I think that you have to establish both what your pension "contributions" are and what the costs "are".

Despite what others have said, it's possible that your employer is not breaking the law by not adding a contribution, it depends upon how money is paid in.

If you were auto-enrolled then it's simple. They are legally required to contribute. If they asked you then it isn't auto-enrollment. Further, as has been stated, if they pay the pension contributions, rather than taking it out of your "pay cheque", then both you and they avoid NI. Most employers add a bit at this point. However ASFIK there is no legal requirement for them to do so. In the past "salary sacrifice" was not the term used but "pension provided by the employer" as they paid XYZ and you could usually contribute if you chose to.

Pensions are DIFFICULT, and there is no right answer. I chose to loose money by contributing to a SIPP in addition to my company pension. The NI uplift would provide more in contributions if I simply used the company scheme. A colleague has chosen not to join the company scheme, instead he makes contributions to his personal pension. He not only looses the NI uplift but also the company contribution.

This is even before we consider costs and performance. Like others on this thread, I'm not a fan of SW. My company pension moved from them to Aviva and it seems like night and day. However this could be a comparison between now and the bad old days. SW may have improved.

Re SIPP's, I think that they can be as easy as my corporate Aviva pension. It helps that with that the company employed a FA to recommend initial funds, though they now use a simplified system. From there you can login and change what funds you are invested in and where your contributions go (each month if needed). With a SIPP you could do the same. Ie £600pcm of which £400 goes into a global tracker and £200 into a bond fund (traditional 60/40 split*).

The significant difference would come when approaching retirement. In the days when we were required to use the funds to buy an annuity come retirement (this is still assumed to be the norm), the capital is gradually moved from equities to bonds and cash as you approach retirement as you will be spending the total on that day (buying an annuity). Most these days question that as retirements are now long enough that we need some capital growth in retirement. I have opted out on this "lifestyling" with my company pension so the main difference is being limited to funds Aviva run or consider.

*My SIPP is not a traditional boring split, but that is a different issue. My point was that you can choose to have a boring (forget it except once a year) SIPP.

ursaminortaur
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Re: Whats the sensible thing to do?

#522826

Postby ursaminortaur » August 16th, 2022, 12:06 pm

Urbandreamer wrote:I think that you have to establish both what your pension "contributions" are and what the costs "are".

Despite what others have said, it's possible that your employer is not breaking the law by not adding a contribution, it depends upon how money is paid in.

If you were auto-enrolled then it's simple. They are legally required to contribute. If they asked you then it isn't auto-enrollment. Further, as has been stated, if they pay the pension contributions, rather than taking it out of your "pay cheque", then both you and they avoid NI. Most employers add a bit at this point. However ASFIK there is no legal requirement for them to do so. In the past "salary sacrifice" was not the term used but "pension provided by the employer" as they paid XYZ and you could usually contribute if you chose to.


From the horses mouth

https://www.gov.uk/workplace-pensions/what-you-your-employer-and-the-government-pay

If you’ve been automatically enrolled

You and your employer must pay a percentage of your earnings into your workplace pension scheme.
.
.
.
If you’ve voluntarily enrolled in a workplace pension

Your employer must contribute the minimum amount if you earn more than:

£520 a month
£120 a week
£480 over 4 weeks

They do not have to contribute anything if you earn these amounts or less.


The minimum amount being 3%.

Contributions can be paid into a workplace pension in two distinct ways - Net pay or relief at source.

https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/tax-relief-and-your-pension

 Relief at source

With relief at source, your contributions receive a boost from the government. You can potentially claim more back through your tax return if you pay tax above the basic rate.

Here’s how the relief at source method works in more detail:

Your employer deducts tax from your taxable UK earnings as normal.
They then deduct your pension contribution from after-tax pay and send this to your pension provider. If you're self-employed, you would make a contribution from your taxable UK earnings directly to the pension provider.
Your pension provider then claims 20% in tax relief direct from the government, which they add to your pension pot. If you live in Scotland and pay tax at the Scottish starter rate of 19%, you still get tax relief on your pension contributions at 20%.

This way is better for people who don’t pay any tax as they still get tax relief. See our section on ‘Tax relief if you don’t pay tax’ below.

However, with this arrangement, people who pay higher rates of tax than 20%, whether employed or self-employed, will have to claim the extra tax relief through their tax return or direct from HMRC

Net pay

With net pay, your pension contributions are made before you are taxed. You will usually therefore pay less tax because your tax will be calculated based on a lower amount of UK earnings.

Here’s how the net pay method works in more detail:

Your employer deducts the full amount of your pension contribution from your pay before any tax is deducted.
You then pay tax on your UK earnings minus your pension contribution. As a result your tax bill will usually be lower and you get more take-home pay.
Although you’ve paid the full amount of your pension contribution yourself, you get the tax relief straight away by paying less tax.

With this method, whatever rate of tax you pay, you get full tax relief without having to claim it.


The fact that an employer is using the Net pay method does not imply that salary sacrifice is being used. That is something entirely different and means that "officially" you are being paid a lower salary so that lower NI contributions are payable.

With salary sacrifice the employer is still making the contribution

https://www.moneyhelper.org.uk/en/pensions-and-retirement/building-your-retirement-pot/salary-sacrifice-and-your-pension#

Your employer might offer you the option of salary sacrifice as part of their pension scheme. This is a way to make your pension saving more tax-efficient and could mean your take home pay increases.

If you choose to take up the option, you and your employer will agree to reduce your salary, and your employer will then pay the difference into your pension, along with their contribution to the scheme.

As you’re effectively earning a lower salary, both you and your employer pay lower National Insurance contributions (NICs), which often means your take-home pay will be higher. Better still, your employer might pay part or all their NIC saving into your pension too (although they don’t have to do this).

Wuffle
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Re: Whats the sensible thing to do?

#524099

Postby Wuffle » August 21st, 2022, 8:54 am

Might be relevant, might not but I have also been auto enrolled with TPP having started a new job in April.
They don't come out of the blocks that fast.
I have noted a deduction in July's wages (that coincided with the change in NI so could be murky if you weren't looking for it) that appears to be a salary sacrifice type of contribution, equivalent to about 4%.
No correspondence from anyone, employer or TPP, until yesterday as it happens, within which was encouragement to create a login.
I did that.
I was surprised to see a balance of zero, but clearly they operate at a pace that suits them and I will have another look later when I shall have to see which bits turn up when. Previous experience with SIPP and NEST suggests that these things take time but do in fact show up, with little warning or predictability.

W.


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