Overpaying into a pension - can't do calculations

[someone]

Hi,

To pay into a pension or not?

Quick sanity check on my decision to not take maximum advantage of my employers matching pension contributions.

I'm in the tapered pension regime. My employer runs a pension match.

My goal is to pay just enough into my pension to exactly use up my allowance.

But if I pay more:

For each £2 I pay in, my employer pays in £2, I lose £1 in pension allowance so pay 45% tax on £5 - That means that the taxman gets £2.25.

If I don't pay in then I pay 45% on the £2 - so the taxman gets 90p.

So the taxman gets an extra 67.5p tax for each additional pound I pay into my pension, effectively making my employers contribution worth 32.5p in the pound going into the pension.

As I will almost certainly pay basic rate tax taking it out I'll get 50p tax free and pay 30p tax on the other £1.50. Making my employers contribution almost exactly match the extra tax I'll pay and basically meaning I've tied up money for absolutely no benefit at all. (I will pay no extra tax if I don't put it into the pension in the first place)

Of course, by not paying into my pension I'm depriving the taxman of tax. Will this be tax avoidance that the next labour government is going to stop us doing?

[robbob]

Will this be tax avoidance that the next labour government is going to stop us doing?

Probably not but if you go on holiday for too long you might find you cant get back into your nice home - you can't argue if you have booked a holiday overseas that you aren't deliberately making it vacant for a period that time - i guess its time for robbob to set up a posh london house sitter for hire - fridge and freezer cleaned out in time for your return at no extra cost

https://www.thetimes.co.uk/article/corbyn-give-empty-flats-to-homeless-krdl25m7x


Getting back to the subject at hand - presumably getting threshold income below 110k is not an option - it seems a no brainer that a free pound taxed at a ridiculous marginal rate is still a free pound of sorts. The main item not to play with is the "threshold income" where slightly over that level really can get some ridiculous marginal rate %'s

[someone]

Getting back to the subject at hand - presumably getting threshold income below 110k is not an option - it seems a no brainer that a free pound taxed at a ridiculous marginal rate is still a free pound of sorts. The main item not to play with is the "threshold income" where slightly over that level really can get some ridiculous marginal rate %'s

Unfortunately it's unlikely I can play with threshold income. I'm unclear what happens if you overpay so much into your pension that the threshold income goes below 110k. Common sense says you won't get the 40k allowance but I can't tell if the law agrees. If I was just over the threshold I might try it but even at 20% relief I'm not convinced pensions are a good investment unless and until mortgages are paid off (and all other debts) and at 0% tax relief I don't want to tie up money for politicians to play with!

My frustration/concern is that I (usually) get a substantial bonus that I find out about and am paid late in January.

Without the bonus I'd be outside the taper and get the full 40K so would want to take advantage of the maximum employer contribution.

Even a halving of my bonus (something that could easily happen - it's a performance related thing, not a guaranteed thing but a subjective measure so I can't predict it - would mean I could maximize my employer contributions.)

I agree with you that a free pound, at any tax rate below 100% is worth something but, in my case I think it's 55p now or 57p in 10 years assuming that the minimum pension age doesn't go up even more and assuming that the 25% tax free lump sum isn't removed.

That's a lot of risk for a 2p gain!

One thing I do need to look at is whether not paying in at all for a year and then using carry forward the next year can get me the 40k. But I'm pretty sure the numbers won't work. But the advantage is that I can make the extra payment right at the end of the tax year.

What I really need is for my employer to delay bonus season to end April. Most people will wish they had my problems and aren't going to see a benefit to bonuses being paid three months later so I don't expect a sympathetic ear (I'm not even going to bother to ask)

I'm assuming that telling me my bonus in Jan but (at my request) paying it in April won't avoid the tax implications happening in the previous tax year.