Investing at pension max - good idea or not?

[starter]

It's our benefit year and my workplace offers salary sacrifice pensions. I'm minded to invest to the max not so much for the pension pot boost, but:

1) Practice living on a lower income
2) With NI as well as tax savings it's arouund 80p boost for every pound I put in through salary sacrifice

I'm 50 and have ISA savings that could take me through to retirement point of work feel through. My wife has also agreed to this.

Before I press the button to commit, are there any arguments against doing this?

[vand]

It’s a good idea if you don’t need the money until access age, as it’s generally the most tax efficient wrapper available. As long as you are not threatening to hit the LTA - which by the sound of things you don’t have to worry about.

Salary sacrifice is an especially good arrangement if you happen to be in the standard tax bracket.

[DrFfybes]

1) Practice living on a lower income
2) With NI as well as tax savings it's arouund 80p boost for every pound I put in through salary sacrifice

1) good idea
2), not sure how you get this figure? For standard rate taxpayer you gain 20% tax plus 13%(or whatever it is this month) NI. For higher rate 40% tax plus 3% NI.

Things to consider...

Does it run into your SW company scheme pot, or alongside it in a seperate pot? - might answer your issues with partial withdrawal.

Do you have any other debts that might be better serviced first, or at least alongside? Fine getting a +30% uplift but it helps if the 25% tax free lump sum at the end clears the mortgage.

If you want to take out a loan, credit card, or remortgage, your salary can be considered as the reduced figure. Most schemes allow you to vary the amount month by month, but there is a lag [1].

You must earn more than minimum wage.

I'm minded to invest to the max not so much for the pension pot boost,

What do you mean by "take the max"? Does your employer have a limit on it? When we went down that route we knew roughly how much spare cash we had each month and worked back accordingly.

Paul

[1] Prudential are awful at processing requests, but do compensate you £250 every time they cock up, although the last cheque promised on 3 April has yet to arrive.

[chris]

Most schemes allow you to vary the amount month by month, but there is a lag [1].

I am surprised that you have been able to vary 'month by month'. Since salary sacrifice (as we do it, which was how it was recommended by HMRC) involves you signing a variation in your contract of employment, specifying the amount that your salary will be reduced by, it seems odd that you can do this month by month. Another term in this variation is that it is capable of exceeding 12 months and whilst there will be exceptions for things like going on maternity leave or long-term sickness, in our company it would certainly preclude changing the amount from one month to the next. In fact I think that HMRC would not be happy if people were changing amounts on this basis.

[hiriskpaul]

It’s a good idea if you don’t need the money until access age, as it’s generally the most tax efficient wrapper available. As long as you are not threatening to hit the LTA - which by the sound of things you don’t have to worry about.

Salary sacrifice is an especially good arrangement if you happen to be in the standard tax bracket.

It can be worthwhile even if the contribution does get hit for an LTA charge. £1000 into a pension reduces to £750 after a 25% LTA charge, then down to £600 after 20% income tax. So break even compared with higher rate tax. But that does not take into account any NI savings, which may include the employer's 15.05%.

The inheritance tax savings can be significant as well. £600 outside the pension wrapper reduces to only £360 after 40% IHT. In other words if the £600 ultimately ends up being drawn by a beneficiary, that is ~67% more in the hands of the beneficiary compared to not putting the money into a pension.

[vand]

Most schemes allow you to vary the amount month by month, but there is a lag [1].

I am surprised that you have been able to vary 'month by month'. Since salary sacrifice (as we do it, which was how it was recommended by HMRC) involves you signing a variation in your contract of employment, specifying the amount that your salary will be reduced by, it seems odd that you can do this month by month. Another term in this variation is that it is capable of exceeding 12 months and whilst there will be exceptions for things like going on maternity leave or long-term sickness, in our company it would certainly preclude changing the amount from one month to the next. In fact I think that HMRC would not be happy if people were changing amounts on this basis.

This is my understanding too. I guess some workplaces are more flexible than others.

Personally I put in as much as I comfortably can into my work salary sacrifice scheme, and then contribute more directly to my SIPP if I feel I can save more. Although direct SIPP is not as tax efficient as salary sacrifice, the overall difference for me is not much.

[DrFfybes]

Most schemes allow you to vary the amount month by month, but there is a lag [1].

I am surprised that you have been able to vary 'month by month'. Since salary sacrifice (as we do it, which was how it was recommended by HMRC) involves you signing a variation in your contract of employment, specifying the amount that your salary will be reduced by, it seems odd that you can do this month by month. Another term in this variation is that it is capable of exceeding 12 months and whilst there will be exceptions for things like going on maternity leave or long-term sickness, in our company it would certainly preclude changing the amount from one month to the next. In fact I think that HMRC would not be happy if people were changing amounts on this basis.

MrsF is in the LGPS so the SSAVC runs separately to the main DB shceme, and is administered by Pru.

I hadn't thought about the contract side of things, so you are correct that it isn't as simple as I'd imagined. I just went to the leaflet and found...
https://www.pru.co.uk/pdf/LAVK0846.pdf
Page 5..
"You can increase, reduce or stop your payments at any time. You can restart payments whenever you wish to."

[Edit - it doesn't differentiate between AVC and Salary Sacrifice on the website, so there could be a difference in Shared Cost Salary Sacrifice but I can't find it easily).
Paul