£90K+ perm salary similar to contract pay

[Pondlife]

I see ... but now that things are moving to pensions flexibility with regards to annuities/drawdown etc, surely its a good idea to bolster the the amount in the pension as much as possible by putting away as much of the 40% as you can (within your spending plans)...

It depends on how far away from retirement you are because once the money is in a pension it's pretty much untouchable. Ultimately you end up paying tax on the pension income at some point and who knows what those rules/rates will be in 10/20/30/40 years.

Regardless, most on here operate through a Ltd and so don't face the same issue you do.

[handyandy]

The maximum you can contribute to a pension tax this year and get full relief at your marginal rate is £40k - so at £90k gross it will very much depend on your allowances whether you will just escape some income being taxed at 40%.

Even if your employer won;t allow salary sacrifice you can contribute to a personal pension (or SIPP) which will claim back the basic rate form HMRC for you. You can then claim the other 20% via your tax return (which you will almost certainly have to fill out anyway on a £90k base).

I've been doing exactly this for several years - in fact when the annual limit as higher I used to plan exactly how much to put into my pension so I wouldn't pay 40% tax - I expect that is now regarded as 'aggressive tax avoidance'!!!

[northernladuk]

Also, some people like to spend more than the 40% threshold.

Absolutely this. Why live 40k lifestyle when you earn 90k? Your pension will be eye watering but you'll be too old to enjoy it.

[sal]

It depends on how far away from retirement you are because once the money is in a pension it's pretty much untouchable. Ultimately you end up paying tax on the pension income at some point and who knows what those rules/rates will be in 10/20/30/40 years.

Regardless, most on here operate through a Ltd and so don't face the same issue you do.

^This, if you are earning 90k+ perm or equivalent contract rate in your active years, but expect less than the 40% threshold income after you retire, you are doing something wrong. Pension is fine to an extend, but i wouldn't overuse it to avoid some tax today, only to lose even more to inflation and future tax rules. Post tax money in my pocket/bank account now > unknown amount years from now.

[TheFaQQer]

^This, if you are earning 90k+ perm or equivalent contract rate in your active years, but expect less than the 40% threshold income after you retire, you are doing something wrong.

For your pension pot to be paying out over the 40% threshold of £42k a year, you need a significant sum in there in the first place.

According to the Guardian story this weekend they reckon you need a pension pot of £500k to get an income of £25k, so to get that £40k you're going to need £640k (assuming you get a state pension of £8k)

So you need to whack plenty of cash into the pension every year to get to that level of pension pot.

[ChimpMaster]

For your pension pot to be paying out over the 40% threshold of £42k a year, you need a significant sum in there in the first place.

According to the Guardian story this weekend they reckon you need a pension pot of £500k to get an income of £25k, so to get that £40k you're going to need £640k (assuming you get a state pension of £8k)

So you need to whack plenty of cash into the pension every year to get to that level of pension pot.

The low income is due to low interest rates, which will most likely not be the case in say 20 years time (or whenever you retire).

Just to think, £500k could buy you a property portfolio that will generate £50k worth of annual income in today's terms, and it is an investment that is very likely to grow into the future. And the best part is that you don't have to wait until retirement to start enjoying the income.

I might be missing a trick here but I really don't believe in pensions. Perhaps as a small, side income - certainly as it stands my pension income will be less than 5% of my total retirement income. I just don't see the point of squirrelling away money for 20 years down the road; I would much rather invest to generate income today.

[sal]

For your pension pot to be paying out over the 40% threshold of £42k a year, you need a significant sum in there in the first place.

According to the Guardian story this weekend they reckon you need a pension pot of £500k to get an income of £25k, so to get that £40k you're going to need £640k (assuming you get a state pension of £8k)

So you need to whack plenty of cash into the pension every year to get to that level of pension pot.

What ChimpMaster said, I pity the fool with the amount of disposable income most contractors have, how's only plan for retirement is pension. Other forms of investment like BTL can start working for you today, rather than stand and helplessly watch your pension pot melt away in real terms locked out of your reach. Not to mention the political uncertainty and the fact that income tax in 10 yars migth be much higher than today, but YMMV.

[MarillionFan]

You can put as much as you want into any pension scheme, but you need to claim tax relief if the employer doesn't contribute, i.e. you don't need to restruct yourself to any employer's limitations and eventually you get the tax benefit.

For this you really want to see an accountant, and you should discuss your pension plan with the company accounts dept, to see if you can sort out the tax out through PAYE.

That's not true.

Changes to pension rules mean that you can only pay in 40k per year into a private pension. It was 50k last year and was reduced.

You can in theory pay a maximum of your salary into a pension, capped at 40k a year (or using carry back rules to go back three years to use up unused allowances. So for this year you could pay a maximum of 40+50+50+50 = 190k. You would have to have earn't that. To get 190K you would have to pay in to a scheme 152k and then claim back 20/25% in your self assessment. This way you'd get all of your tax back.

If you take a job at 90k, hopefully the company pay match some of your contribution which is a bonus, you could each year max out at 40k and then just pay the lower tax on the 50k. You basically just get a rebate of 20% in your self assessment.

[MarillionFan]

The low income is due to low interest rates, which will most likely not be the case in say 20 years time (or whenever you retire).

Just to think, £500k could buy you a property portfolio that will generate £50k worth of annual income in today's terms, and it is an investment that is very likely to grow into the future. And the best part is that you don't have to wait until retirement to start enjoying the income.

I might be missing a trick here but I really don't believe in pensions. Perhaps as a small, side income - certainly as it stands my pension income will be less than 5% of my total retirement income. I just don't see the point of squirrelling away money for 20 years down the road; I would much rather invest to generate income today.

Pensions never made much sense to me as a contractor. I always ensured my salary / divvies were tax effective. As a permie though on a higher salary, they now make perfect sense as it's the only way to mitigate tax.

For a 40% tax payer a 40k input into your pension is going to cost you 24k. You would pay 32k into a pension which would be topped up at 8k at source & then you would get 8k back in your self assessment. 10k if you're a 45% tax payer. So you pay in 22k, get 40k worth of pension.

You're saving 22k now, for 40k later. Now that makes perfect sense.

[MarillionFan]

Carry forward/back calculator can be found here.

Carry forward and annual allowance calculator