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?
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