Looking for some advice around pension/salary sacrifice

[daleric]

Hi folks,

I'm hoping someone might be able to steer me in the right direction, I'm just looking for some guidance.

I've been IT contracting for about a year now, and have no idea how long I will be doing it so planning financially around this is difficult and I'm getting a bit worried about my lack of pension as I'm turning 30 in a couple of years.

I currently earn £110,000 gross annually via contracting inside IR35 with an Umbrella company. I'm auto-enrolled into an employer's pension scheme with NEST via my Umbrella company Paystream.

Unfortunately, I wasn't aware that the pension scheme would be fixed (4% employee and 3% employers rate) meaning I can't increase this to the 10-15% that I'd like to.

I opened up a SIPP with Vanguard and moved my previous employer's pension pot (about £20k) from Legal & General over. I was then planning on making salary sacrifice payments into Vanguard before I realized this wasn't possible.

I've got a few questions that I'm hoping someone can answer for me -

• Will 10-15% of my income be enough through my 30s? I'm assuming as I get older I will be increasing this over time. I might not be contracting forever, but I'm confident I can move into a relatively well-paying permanent role if I stop contracting.
• Having searched online I can see people recommending Freetrade and Interactive Investor. I'm guessing moving forward I should be looking at setting up a SIPP with one of these companies to salary sacrifice into?
• Do these companies only offer a set amount in £'s as contributions, or can I use a % based system? I find using a % of my income to be an easier system.
• If I was to move back to a permanent role, can I keep using one of the above providers as my pension provider or am I wrong in thinking that's how it works? Would I be better using the employer's pension scheme?
• Any other general tips anyone can give to someone contracting for less than a year?

I appreciate anyone that gives this a read, I'm a bit stressed worrying about retirement and having no money.

[Whitelime]

Having searched online I can see people recommending Freetrade and Interactive Investor. I'm guessing moving forward I should be looking at setting up a SIPP with one of these companies to salary sacrifice into?

Ask the Umbrella which (if any) SIPP providers they work with.

Do these companies only offer a set amount in £'s as contributions, or can I use a % based system? I find using a % of my income to be an easier system.

It's the Umbrella that decides the monthly contributions, not the SIPP provider.

If I was to move back to a permanent role, can I keep using one of the above providers as my pension provider or am I wrong in thinking that's how it works? Would I be better using the employer's pension scheme?

Depends on the employer. Do they allow it? Is it financially sensible (some employers charge 0 fees)?

[daleric]

Ask the Umbrella which (if any) SIPP providers they work with.



It's the Umbrella that decides the monthly contributions, not the SIPP provider.



Depends on the employer. Do they allow it? Is it financially sensible (some employers charge 0 fees)?

Thanks for the response!

I've got a list, so I'll have a look over them and decide which one I'm interested in and go from there. It seems like the best step forward to contribute more to my pension.

As for the monthly contributions, I got a response to my email and it looks to be that I can set a number in £'s and contribute that way.

Your last point is true, I might end up benefiting most from using an employer scheme more. I'll think about this when it comes I guess.

[ladymuck]

The umbrella has to pay you minimum wage so if you're looking to max out your contributions then you can you put nearly all your pay into your pension, keeping a nice low tax/NI bill. Of course, if that doesn't pay the bills then set your monthly payment to something more affordable.

[Whitelime]

As for the monthly contributions, I got a response to my email and it looks to be that I can set a number in £'s and contribute that way.

If you mean from the SIPP provider, they mean setting up a direct debit. No Umbrella will agree to this. Like I said, speak to the Umbrella company you're signed up with and see which SIPP providers they work with.

[Fred Bloggs]

The umbrella has to pay you minimum wage so if you're looking to max out your contributions then you can you put nearly all your pay into your pension, keeping a nice low tax/NI bill. Of course, if that doesn't pay the bills then set your monthly payment to something more affordable.

Hmmm, OP says he/she is on £110k a year, that's not going to be possible when the contribution cap is £40k per year?

[ladymuck]

Hmmm, OP says he/she is on £110k a year, that's not going to be possible when the contribution cap is £40k per year?

Depends if prior years were paid up to the max? It didn't sound like it

[Fred Bloggs]

Depends if prior years were paid up to the max? It didn't sound like it

That may be the case, but there are a couple more things to consider too. The OP is very new to contracting and must have been in a pension scheme to qualify for carry forward of allowances for each year being carried forward.

Secondly, the lifetime pension allowance is presently only a bit above £1 million and with the OP in his/her 30's. Therefore OP has to be very aware of breaking life time allowance before retirement age and suffering punitive 55% taxes. OP must therefore balance investing in pensions with other investments such as ISA. It's not a simple situation.

[daleric]

That may be the case, but there are a couple more things to consider too. The OP is very new to contracting and must have been in a pension scheme to qualify for carry forward of allowances for each year being carried forward.

Secondly, the lifetime pension allowance is presently only a bit above £1 million and with the OP in his/her 30's. Therefore OP has to be very aware of breaking life time allowance before retirement age and suffering punitive 55% taxes. OP must therefore balance investing in pensions with other investments such as ISA. It's not a simple situation.

Thanks, I'm new to looking at a lot of this stuff and I'm not sure on the best way forward.

Would it be worth me trying to opt out of my auto-enrolment employer pension? (I've heard this is a bad idea)

Since I can't up the % taken each month and they're not willing to allow me to do salary sacrifice with my current pension holder.
I was thinking I'd be better moving to a supported pension provider which will allow me to have my pension and salary sacrifice paid into?

Again, I appreciate all of the replies and advice. I'm just wanting to make sure I'm doing the right thing.

[Fred Bloggs]

Thanks, I'm new to looking at a lot of this stuff and I'm not sure on the best way forward.

Would it be worth me trying to opt out of my auto-enrolment employer pension? (I've heard this is a bad idea)

Since I can't up the % and they're not willing to allow me to do salary sacrifice with my current pension holder.
I was thinking I'd be better moving to a supported pension provider which will allow me to have my pension and salary sacrifice paid into?

Again, I appreciate all of the replies and advice. I'm just wanting to make sure I'm doing the right thing.

If you opt out, you are turning down free money. Albeit not a massive amount but I wouldn't do that myself.

Best option is salary sacrifice into your present scheme. At a later date you can move it to a SIPP of your choice, should you prefer.