Pension not tax effective?

[SuddenlyHighEarning]

Dear knowledgeable Mumsnetters!

What should I do with my pension contributions if they’re not tax effective?

I’m an employee and a sudden and significant jump in salary after mat leave now has me earning about 350k which I believe takes me over the thresholds for pension contributions coming off pre-tax salary.

The thing is - if I don’t put that money into pension, it’ll be taxed anyway, so what’s the benefit in moving it out of a (well performing) pension scheme into something else? Am I missing something really obvious here?

I know I can use up my allowance from the last 3 years (when I was earning significantly less), but am a bit confused about what I should be doing going forward…

seriously

you’re asking mumsnetters 😆

presumably you have an IFA? 🤔

I think at that salary it’s probably worth investing in professional advice from a financial advisor/accountant- it could be worth many thousands in savings.

Nothing to say here apart from wow, mind blown on this sort of salary (and we’re a high earner family!) congratulations on your incredible salary. Get yourself a good financial advisor asap and make sure you are definitely paying the right tax amount via PAYE, if they get it wrong the amount due would be substantial on this salary. Not many mumsnetters I see on here earning this!

This is not the place to ask for advice like that, get yourself a decent financial advisor.

Why on earth are you asking Mumsnetters rather than a tax specialist???

no chance is op on £350k and on mumsnet Chat asking for financial advice! 😆

Get back to day time TV Op!

I know I can use up my allowance from the last 3 years (when I was earning significantly less), but am a bit confused about what I should be doing going forward…

You should pay for some sound financial advice!

Must be a wind up - surely you've got a decent IFA/accountant....

At a risk of attracting an orchestra of tiny violins, I genuinely can’t afford a FA this FY… Mat leave on my lower previous salary (two periods back to back) got us hugely into debt which we’re still paying off and there’s a nasty mortgage rate rise coming in the near future. DP is a SAHP at the moment because childcare costs are prohibitive in our area, so mine is the sole income for our family.

I know some options but what is it you actually do to get paid that salary? 😊

So this fy don't worry about pension , pay off your debt and then find an adviser

Due to tapering yes it's pointless putting more than whatever the applicable tapering allowance is into your pension (think it's £8k per annum now, used to be £4K)

Quite unfair in practice as you basically don't benefit for tax relief like middle earners do, but hey ho that's the U.K. for you!

Better off just taking your taxed income and investing it as you like in stocks, property and other assets...

Use it to pay off your debt.

i’m impressed you’re even employed OP on the basis of this thread OP!

But like everyone else has said, get some basic advice from an FA. Not that expensive to given your salary.

Appreciate it is less than it sounds if you are a sole earner though in your household

Agree - use your huge salary to reduce your debt and then hire a financial advisor next year!

a) definitely get an IFA but one who also has access to tax specialists.

but my non financial advice thoughts are

b) over the next few years ensure you max out your pension contributions using the unused allowance. When that is done you currently can put in £10k max a year

c) contribute the max to DH’s pension from now and every year onwards if you aren’t. If he doesn’t have an income it’s something like £2800 and then there is tax relief added on top.

d) invest the max you can in stocks and shares ISAs for both of you as a alternative to pensions once the annual allowances are used up.

Thanks @ladykale, that was my understanding, but if it’s just a case of comparing my pension scheme with other possible investments, what’s the benefit of not just continuing to use the pension scheme if it’s performing well…?

You can use the 3 years carry forward which you should absolutely do if you can afford it.

After that you’ll be on tapered allowance and can only put in £10k a year.

There is nothing else you can do pension wise.

Max your ISA allowance, max premium bonds, overpay mortgage / any debt.

Aside from that only tax efficient investing options are overseas bonds which can be drawn down like a pension effectively and VCT’s which are tax efficient (currently) up to 30% tax back straight away as long as you stay in for 5 years I think. But these are pretty high risk. I suspect they’ll loose tax benefits soon in budget.

Other than that, you can look forward to making a healthy contribution to HMRC and do your bit for the greater good!

Im a high earner paying approx £250k a year in tax and NI and have had IFA advice given to me as per the above.

Congrats on the pay rise!

If ever take a salary dip (hope not) then you can always top up your pension then.

If this fy you are maternity leave for part of it, your income will be significantly lower. Worry about your financial affairs long term by instructing a financial advisor as soon as you can afford to but in the interim use your pension and also ensure you max out isa's for you both if you can by March.

Honestly this is a huge salary and if you are unable to manage your finances you need a hands on financial advisor/accountant to get you into a good position. Perhaps I've just seen a business opportunity . Pretty sure you aren't alone, I don't want you to feel bad. I'm a debt counsellor and several of my clients have been on incomes significantly above average yet are in terrible debts

You will get taxed in what you take of the pension scheme when the time comes. Contributing only what has tax relief now means you are not double taxed.

then you can switch to a stocks and shares ISA which you don’t get taxed on the income you get, only get taxed on the money you earn going in.

If you’re on £350k I think you can afford to ask an IFA for advice.

Some really helpful comments here, thank you!

Debt is currently on interest free credit cards but we want to substantially clear it in time for re-mortgage so it doesn’t prejudice the new terms we could get.

DP is not in employment, but were setting up a LISA to max out.

DH is at the pension tapering limit as well and we don't use an IFA as we like to keep ourselves educated about financial and taxation issues. It's fairly straightforward to learn about it yourself.

DH still contributes enough to his pension to get the employer match - chances are this still works out to be a net gain despite the tapering. We contribute the maximum to our ISAs (£20k each, of which £4k goes to a LISA).

I have a small limited company and put almost all of my salary into pensions. Your DH can put £2880 per year into a pension even as a non-earner, which will be grossed up to £3600.

We both have general investment accounts, which aren't sheltered from tax, but we have seen excellent returns with higher risk investments.

There are a few other options like VCT and EIS, but due to our tax position it hasn't made sense to use those.

We have maxed out our mortgage, as we believe a more valuable house will see a greater jump in price over the longer term. So that will be a tax-free gain due to PRR when we eventually downsize.