Over 100k advice - pension or not?

[BrightLion]

Looking for advice / views from other higher income mums!

I have recently landed a new permanent role (was self employed last year) with a salary of £110k and bonus of likely 20%. This means I will lose tax free childcare and 15 free hours for my daughter who is at nursery 4 days a week. This adds up to nursery costs going up by about £450 a month. I'm a solo parent so no other income coming into the household.

I've done the maths, and between losing the childcare support and the extortionate 65% effective tax rate, my take home pay would only be £3.6k higher than if I was to put everything over 100k (about 23k additional) into my pension.

So, what would you do? Keep all the income and have £3.6k for spending/savings now? Or sacrifice into pension and lose £3.6k this year, but gain £23k for my future self in pension? Either way my monthly budget will be about the same, this would come from bonus at year end.

Also I appreciate I'm fortunate on this salary. I'm self made and have worked really hard to get here, so not looking for commentary on how this is first world problems - I'm aware of that :)

Add in the bump up from the government and compound returns it’s definitely a good idea to put the money into your pension.

I’d put it into my pension. I’m not a high earner but pay extra into my pension as it means I can receive payment if my childcare via UC, along with free meals. If I didn’t do that I’d be wore off

Put it in your pension unless you really need the money now.

If you can manage without the ££ now, increased pension is a no brainer.

Putting money into a pension is always a good thing IMO

My understanding is it's not just the pension that can bring down your taxable pay so definitely have a look into that.

Pension. Congratulations on your new role too.

I’d do the pension option OP - it’s a no brainer really.

£3.6k in your pocket on £23k of income… give that difference to your future self instead of the tax man.

Also well done for getting to where you are, no mean feat as a single parent with a preschooler.

Of course do the pension, particularly if your pension is low from being self employed

Pension option

If you dont need the cash amount of your bonus, put it in the pension, at least until the little one starts school.

I'd dump anything over £99k into a pension. Your future self will thank you for it when your approaching pension age.

What other options are there than pension?

Pension. Do people not dump everything over 50k into it anyway if you don't need the money right now?

Put everything over 100k into pension, more if you can to reduce taxes

Definitely pension - you'd be crazy to take it as salary.

Also consider taking some unpaid parental leave instead of putting all the extra in your pension.

You're entitled to up to 18 weeks total up to her 18th birthday. Max 4 weeks per year. (These entitlements are per child, if you have another). It does have to be taken in 1 week blocks, but what I do is use that for a main holiday, so that my AL is still available for odd days.

Your employer isn't allowed to refuse it, although they can ask you to take it at a different date if they have good reason - but my experience is that employers are absolutely fine about it.

Thank you all for the thoughtful replies, it's much appreciated! Clear consensus that pension is the no brainer option. I suspected as much, it just seems crazy to make such a large contribution when I'm tight month to month. But it absolutely makes sense!

Thank you, that's very kind!

Interesting, I hadn't considered this. Definitely worth bearing in mind particularly once she hits school age!

I’m a solo parent too. It’s so frustrating as you have all the household expenses off one income with zilch support and childcare is even more important. So…. Definitely pension (I think you’ve sussed that). Once at school, you can decide what you want to do but i still took the view that much less than 140k, it’s still worth just pensioning it.

My advice is always, unless you’re going to starve to death, pension.

If your salary goes beyond £160k we advise 1 year on, 1 year off if you need the money. It’s better to get below the 125k mark and do that once than half save both years.

Speak to your employer about using salary exchange as this will create a NI saving for you/your employer which could also potentially be reinvested into your pension.

This is really helpful advice

Spend a little bit on some professional financial advice (not the sort that wants to manage your wealth, the ones that sort your tax out) and go for getting under the threshold for the nursery funding.

sacrifice into pension and lose £3.6k this year, but gain £23k for my future self in pension definitely this.

Also look into tax efficient workplace salary sacrifice schemes to buy electric vehicles, electric bikes or additional annual leave entitlement to keep under the threshold...like https://www.cyclescheme.co.uk/

https://www.electriccarscheme.com/advice/salary-sacrifice-resource-hub