How much can I save into a pension?

[rumpoodle]

When I say I, I mean my daughter. She is about to qualify as a lawyer in London. Before bonus, her pre tax salary is £150,000. She will be 26 and have a student loan of 9%.

What’s the maximum that can be saved into her pension? I’ve tried looking at various websites but keep getting different answers.

£40k isn't it? She'd be taxed on any more than that.

That seems realistic. I would sit down and have a word with my daughter. Never mind about the pension.

@ForensicAccountant

What do you mean ?

£150k as a newly qualified lawyer?

I think its reduced to less than £40k if you earn over a certain amount, they call it tapering.

The Magic Circle definitely pay £100k, not heard of anyone on £150k: www.google.co.uk/amp/s/www.legalcheek.com/2021/07/linklaters-joins-magic-circle-rivals-in-upping-nq-lawyer-pay-to-100k/amp/

@underthebridger

I think its reduced to less than £40k if you earn over a certain amount, they call it tapering.

This is true but the income at which it applies has now been raised considerably so she should have the normal allowance if she is earning £150K. That means £40K plus any unused allowance from previous years. The £40K includes any emloyer's contributions plus tax relief.

Does she want to put in as much as she can OP? Of course if she puts it in early she has a great opporunity to let it compound away for decades. On the other hand at 26 I am sure that she has lots of other financial goals. Plus she may find that she misses out on future employer's contributions etc if she stops paying in due to the lifetime allowance (which may well become more punitive)/

It will be a us firm. And she will practically live in her office. Good luck to her op, she must be a clever girl..

Her employer may well offer matched contributions up to a certain % of salary. I would suggest she contributes as much as they will match. Then she may prefer to look at other options for her remaining pay - ISAs are more flexible than pensions for example, does she want to buy a place, etc.

She’s 26, and obviously intelligent. I think this is one for her to adult herself.

She probably needs to balance saving for a pension against other priorities like saving a deposit for a property.

On such a good salary, she's one of the few who can afford to buy in London, so I would have thought that, for someone in their 20s, that task number 1 would be to save a deposit and buy somewhere to live, as that will pay off by freeing her from a significantly monthly rent outgoing.

Then concentrate on the pension, alongside paying off the mortgage as she'll have money available that wasn't going into house deposit savings.

Then again, she might want to think about how she sees her life going. She might decide that the 'work stupid hours and have no time to live' lifestyle isn't for her and she might not want to tie up all her money in pensions and property because if she saves/invests all her money into products that will be still accessible prior to retirement age, she might be in a good position to 'retire' or at least massively step back or take a career break in her 30s or 40s and potter around in low paid hobby jobs while living off savings. Or travel the world, or be a SAHM or anything else other than being a lawyer for the next 40 years.

But I agree that someone capable of earning £150k in their 20s should obviously be intelligent enough to find a reliable website to give factual information about such things rather than various websites that allow people to post different numbers that may or may not be correct.

yes, a US firm

thank you for the advice. Have passed it on

£40k Gross. This will also reduce what she pays in tax so a very good wheeze and one that will be worth looking at.

Well done her.

If she's

beware the bonus as if she exceeds 210k she'll start to consider a pension taper. She should take advice as planning for her will be essential or she may never get a pension that is realistic to her earnings.

The life pension limit is just over £1m, any more can attract tax. Given your daughters starting salary I agree with other PPs that she'd be better off concentrating on a deposit for housing, whilst making a more modest pension payment.

She should put the full £20k annual allowance into an ISA too. There's no lifetime limit on them and no tax on the way out.

If I was 26 and just qualified as a lawyer I would be mortified my mother was asking about my pension contributions on an Internet forum.

I'm sure she will receive good pension advice through her new job and her own research.

@ChickenSchnitzel

If I was 26 and just qualified as a lawyer I would be mortified my mother was asking about my pension contributions on an Internet forum.

I'm sure she will receive good pension advice through her new job and her own research.

what like the whole world can identify her

A few solid years of pension contributions will get the compounding going and she can slow down. It's tax efficient.

She should also save for a deposit - she can do both.

In her position I would prioritise property (and if that is saving for a deposit etc she should be making use of Lisa and ISA in the meantime). Rent is expensive though and she should try and live near the office as the hours are brutal so she might not have as much left over as one might think. It's also
expensive eg getting your clothes laundered as you haven't got time to wash them yourself so your general expenditure is often much higher than
the average person.

She needs to pay in at least what is matched by her employer into her pension. At her age I would be tempted to pay in around £20k a year (as she will
save a lot of tax and still take home around £6k) but a lot depends on her career ambitions. If she is just doing this for a few years and then plans to take a slower pace of life then pay more into the pension (as the early bit of a pension compounds fast). When I look around my contemporaries now the ones doing really well were the first to buy though but you are commuting yourself to needing the big job if you get the big mortgage. Having said that her salary will grow fast too. It's a burn out industry though, very few make it to the very top (of £2m salaries) and it is very difficult to make compatible with a relationship or a family. If I had my time again I would save like crazy (in my view property is a tax efficient saving vehicle too) to ease my life for the inevitable drop in salary.

If she is with a big us law firm their pension provider will give bespoke advice by the way as it will be a big account. Most are providing sipps these days so there can be an ni saving too(depending on how they structure it). She should take this advice. Her HR dept will also run the numbers so she can see approximately what effect different contributions will have on her take home pay. The employer contribution from law firms is usually capped at around 5%.