State of the Market

[sira]

Food bank time on that sort of income


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We'll all be dumpster diving soon, the way things are going in this country.

[jayn200]

Food bank time on that sort of income


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I know you're joking but obviously there is zero impact to quality of life while you're working and your take home might actually increase (assuming one director company only taking home around 4k a month)

The difference is the 4-5k less a month saving for a rainy day or retirement. It's just the difference between being trapped into working till state retirement age and mediocre retirement vs early retirement and a much more comfortable retirement income.

[eek]

I know you're joking but obviously there is zero impact to quality of life while you're working and your take home might actually increase (assuming one director company only taking home around 4k a month)

The difference is the 4-5k less a month saving for a rainy day or retirement. It's just the difference between being trapped into working till state retirement age and mediocre retirement vs early retirement and a much more comfortable retirement income.

You are completely forgetting about pensions here.

Yes you don't have the flexibility that you have before and more tax is being paid but you can easily ensure you throw £40k a year into your pension, a trick that few permanent people could afford to do.

Provided of course you live somewhere where contracts are available and don't need to pay travel expenses out of taxed income.

[mattster]

You are completely forgetting about pensions here.

A lot of people seem to.
The truth is, from the age of 40 (maybe younger), it really doesn't make financial sense to put money into any sort of investment/pay down the mortgage early etc until you have maxed out your pension contributions for the year. You almost double your money straight off the bat, and of course it is the one avenue still left for effective tax reduction if you find yourself within IR35. How long it lasts in its current form is another question.

[ChimpMaster]

You are completely forgetting about pensions here.

Yes you don't have the flexibility that you have before and more tax is being paid but you can easily ensure you throw £40k a year into your pension, a trick that few permanent people could afford to do.

Provided of course you live somewhere where contracts are available and don't need to pay travel expenses out of taxed income.

This is absolutely the way forward for me. I am hoping to put as much possible into the employer's pension scheme when I turn permie in the spring/summer. Heck if I can, I'll put the max £40k in. I'm approaching 50 in age so it's not a bad option for me.

The problem is that not all employers allow Salary Sacrifice.

[GhostofTarbera]

State of the Market

A lot of people seem to.
The truth is, from the age of 40 (maybe younger), it really doesn't make financial sense to put money into any sort of investment/pay down the mortgage early etc until you have maxed out your pension contributions for the year. You almost double your money straight off the bat, and of course it is the one avenue still left for effective tax reduction if you find yourself within IR35. How long it lasts in its current form is another question.

Unless you want to enjoy life and not just waiting for old age and death - richest man in the graveyard and all that


Long time deed

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[mattster]

Unless you want to enjoy life and not just waiting for old age and death - richest man in the graveyard and all that


Long time deed

True enough, but if you are putting spare money away in middle age without filling your pension allowance first, you are throwing money away. You can get it back in your late 50's. I think this especially applies to people who think paying their mortgage off early is a good idea, when at current interest rates it just isn't.

[PTP]

A lot of people seem to.
The truth is, from the age of 40 (maybe younger), it really doesn't make financial sense to put money into any sort of investment/pay down the mortgage early etc until you have maxed out your pension contributions for the year. You almost double your money straight off the bat, and of course it is the one avenue still left for effective tax reduction if you find yourself within IR35. How long it lasts in its current form is another question.

I can see why maxing out pension contributions in a perm job instantly doubles your money because the employer at least matches your contribution.

But is there really much of a benefit paying pension contributions when with an umbrella? Something tells me not.
I'd rather max out my S&S ISA limit first because I've got full control over accessing it.

[eek]

I can see why maxing out pension contributions in a perm job instantly doubles your money because the employer at least matches your contribution.

But is there really much of a benefit paying pension contributions when with an umbrella? Something tells me not.
I'd rather max out my S&S ISA limit first because I've got full control over accessing it.

Lets put it simply:-

£10000 a month

£10000 all used for immediate income
£5830.95 take home
£4169.05 lost in tax and fees

Or £3000 into a pension
£7000 for immediate income
£4308.78 take home
£2691.22 lost in tax and fees

Most of the time you will lose 50%+ of your umbrella income from tax paid.

So would you prefer to put £1522.17 into your ISA or £3000 into your pension as that is what £3k that could be salary sacrificed gives.
(Payroll figures from fair pay as it has a simple calculator).

[jayn200]

Lets put it simply:-

£10000 a month

£10000 all used for immediate income
£5830.95 take home
£4169.05 lost in tax and fees

Or £3000 into a pension
£7000 for immediate income
£4308.78 take home
£2691.22 lost in tax and fees

Most of the time you will lose 50%+ of your umbrella income from tax paid.

So would you prefer to put £1522.17 into your ISA or £3000 into your pension as that is what £3k that could be salary sacrificed gives.
(Payroll figures from fair pay as it has a simple calculator).

Missing the tax when you take it out. It's not such a simple calculation... depends what your income level is like when you take it out. Obviously with inside ir35 contract the tax liability is so high it's almost always better to put it into pension you are right and i did skip over that. But with a ltd company some people will be better off taking out what they can at basic rate + corp tax if they end up in a higher tax bracket in retirement age, but anyway that's a good problem to have...