The Lemon Fool

Any thoughts - My employer seems to have the same scheme as FBD's described ?

FeeBeeDee wrote:Thanks for the replies and apologies for the delay in responding. I've been away.

My employer allows employees to pay in 2% of their salary which the company then match with their contribution – so employees benefit from tax ie: 2% works out as £34 out of our paypacket– the taxman pays £16 in, the company matches that – so that’s another £50 and the company passes on its NI savings of £7.

So £34 out of our pay packet makes a contribution of £34 & £16 tax & matched from the company £50 and the NI saving of £7 = £107 into the fund.

After the 2% has been matched we can still contribute further but it’s unmatched - so we only get £34 & £16 tax and the NI saving of £7 = £57 again into the fund – for the next 2% for example…

Hopefully this makes up for the charges ?

The employer contributions help but they only apply to new contributions - the scheme charges will apply to the entire pot. So, if you have a 200K pension pot, and contribute 1,000 a year, then the company will contribute roughly 2,000.

But if the annual fund charges are 2.5%, then that's 5,00 a year. So you might find you would be better switching to a low cost SIPP even after taking the loss of employer contributions into account. You need to work out the numbers for your own position.

StepOne

can you transfer out the existing monies, and then leave new contributions still going in?

StepOne wrote:

FeeBeeDee wrote:Thanks for the replies and apologies for the delay in responding. I've been away.

My employer allows employees to pay in 2% of their salary which the company then match with their contribution – so employees benefit from tax ie: 2% works out as £34 out of our paypacket– the taxman pays £16 in, the company matches that – so that’s another £50 and the company passes on its NI savings of £7.

So £34 out of our pay packet makes a contribution of £34 & £16 tax & matched from the company £50 and the NI saving of £7 = £107 into the fund.

After the 2% has been matched we can still contribute further but it’s unmatched - so we only get £34 & £16 tax and the NI saving of £7 = £57 again into the fund – for the next 2% for example…

Hopefully this makes up for the charges ?

The employer contributions help but they only apply to new contributions - the scheme charges will apply to the entire pot. So, if you have a 200K pension pot, and contribute 1,000 a year, then the company will contribute roughly 2,000.

But if the annual fund charges are 2.5%, then that's 5,00 a year. So you might find you would be better switching to a low cost SIPP even after taking the loss of employer contributions into account. You need to work out the numbers for your own position.

StepOne

Actually it's all a lot more complicated than that, if we want to do the sums properly.
Even if we don't just have a quick glance at the contribution that NI makes. You would pay 12% on anything earned over £8.4k and an extra 2% over £46k, which would go into the employer pension (as it's a sallary sacrifice).
https://www.gov.uk/national-insurance-rates-letters
In addition the employer doesn't pay the 13% NI and usually adds part or all of this into the pension as well.

One reason that it gets complicated is that StepOne is quite right, If you rapidly build a big pot, then don't retire and cease to contribute (ie due to the Life time allowance). If however, as suggested, you are trying to maximise your pension, prior to leaving work and THEN transfer it to a SIPP, or simply buy an annuety clearly sicking with the work scheme and getting the NI would be better.

Finally, it gets even more complicated as NI is not saved nor tax paid below a certain amount, hence things become problematical if you "salary sacrifice" beyond that point.

Well that's the maths as I understand it. As said earlier in the thread, there are other reasons than simple sums that should/could influence a persons choice.

The employee minimum this year is 3% rising to 5% next year

The employer minimum is 2% this year and 3% next

You can of course pay into your workplace pension and preiodically make a partial transfer to a SIPP.
You don't have to stick with the pensioner provider your company chose for you.
I do this for both me and my wife on a regular basis - it's a bit of faff at first but it is easier once you've done it.