Pension contributions to save tax

[Ferrari60]

If income is over 100k, NI starts to go and obviously the recommendation is to salary sacrifice into a pension. However, is this any good as pensions can go up or down and despite earning a good wage you are essentially doing a lottery in a way??

[Wilmslowboy]

Ferrari60 said:

If income is over 100k, NI starts to go and obviously the recommendation is to salary sacrifice into a pension. However, is this any good as pensions can go up or down and despite earning a good wage you are essentially doing a lottery in a way??

It would need to decline by 40% for you to be out of pocket.

[Ferrari60]

What would need to decline? The investment?

Pensions are losing lot of money at present

[craig1912]

Ferrari60 said:

What would need to decline? The investment?

Pensions are losing lot of money at present

They aren’t

[Mr Pointy]

Ferrari60 said:

What would need to decline? The investment?

Pensions are losing lot of money at present

Well it's true 2022 wasn't great at about -10% for me but 2021 was +16%.

Where elese are you going to get a 40% free contribution?

[Wilmslowboy]

Ferrari60 said:

What would need to decline? The investment?

Pensions are losing lot of money at present

I have an old pension which I contributed to for only 1 year (9 years ago).
In 9 years its avg growth (after fees has been 4.5%) single worse year was end '21 to end '22 when it dropped 9%
If I take into account the fact I had a 40% tax allowance, its avg growth looks more like an avg growth of 11% (over 9 years).

[djc206]

Ferrari60 said:

If income is over 100k, NI starts to go and obviously the recommendation is to salary sacrifice into a pension. However, is this any good as pensions can go up or down and despite earning a good wage you are essentially doing a lottery in a way??

You effectively save paying 62% tax and NI on the money so even if it plummeted in value in a pension it’s still going to be more than you’re going to get if you take the cash

[98elise]

Wilmslowboy said:

Ferrari60 said:

If income is over 100k, NI starts to go and obviously the recommendation is to salary sacrifice into a pension. However, is this any good as pensions can go up or down and despite earning a good wage you are essentially doing a lottery in a way??

It would need to decline by 40% for you to be out of pocket.

Add to that any growth isn't taxed until you draw down, plus the inheritance tax benefits. It really can't be beaten as a long term investment.

[Tango13]

Can you still take up to 25% tax free out of your pension pot once you reach retirement age?

[98elise]

Tango13 said:

Can you still take up to 25% tax free out of your pension pot once you reach retirement age?

Yes, at 55 (currently). Assuming you've retired you also have your tax free allowance every year.

[ATG]

CheesecakeRunner said:

Whoever is paying Ferrari60 a hundred grand needs their head examining.

harsh

[Wilmslowboy]

Maybe OP is worried about these scammers.

[Captain_Morgan]

CheesecakeRunner said:

Whoever is paying Ferrari60 a hundred grand needs their head examining.

If you had 10 penny sweets & 7 tupenny sweets & Gripper from big school took half how much would that impact my pension pot?

[TwigtheWonderkid]

Ferrari60 said:

If income is over 100k, NI starts to go and obviously the recommendation is to salary sacrifice into a pension. However, is this any good as pensions can go up or down and despite earning a good wage you are essentially doing a lottery in a way??

A lottery is 100% luck. No skill involved at all. Your pension is invested for the long term by highly skilled people who used their years of knowledge and experience to try and maximise your return. It's nothing like a lottery.

Factor in the fact that for every £100 you invest, it's only actually costing you £60 because £40 of the £100 would have gone in tax if you hadn't put it in your pension, and it becomes even less like a lottery, and more like a sure fire bet.

[fat80b]

TwigtheWonderkid said:

Factor in the fact that for every £100 you invest, it's only actually costing you £60 because £40 of the £100 would have gone in tax if you hadn't put it in your pension, and it becomes even less like a lottery, and more like a sure fire bet.

This.

My pension is without doubt the best investment I’ll ever make as it makes me >40% on day 1 and then compounds for the next n years.

Imagine what sort of return you’d need to make on the after tax amount to do as well as the pension returns!!

[Ferrari60]

TwigtheWonderkid said:

Ferrari60 said:

If income is over 100k, NI starts to go and obviously the recommendation is to salary sacrifice into a pension. However, is this any good as pensions can go up or down and despite earning a good wage you are essentially doing a lottery in a way??

A lottery is 100% luck. No skill involved at all. Your pension is invested for the long term by highly skilled people who used their years of knowledge and experience to try and maximise your return. It's nothing like a lottery.


Factor in the fact that for every £100 you invest, it's only actually costing you £60 because £40 of the £100 would have gone in tax if you hadn't put it in your pension, and it becomes even less like a lottery, and more like a sure fire bet.

But by the time you can access it, the value may well have decreased?

[fat80b]

Ferrari60 said:

But by the time you can access it, the value may well have decreased?

Think you are either trolling or have no idea of the power of compounding / investing. If not trolling then you probably need to go and edumacate yourself a bit on the way that investing inside a pension wrapper actually works.

It’s almost impossible to imagine that a pension invested for say 20 years would decrease in value. I don’t think you could find a time in the last hundred years where if invested in a bog standard tracker fund this would have happened.

Stick it in a low cost tracker and watch it grow. Turn a few hundred quid a month into hundreds of thousands over time. That’s what all the smart people do.

[98elise]

fat80b said:

Ferrari60 said:

But by the time you can access it, the value may well have decreased?

Think you are either trolling or have no idea of the power of compounding / investing. If not trolling then you probably need to go and edumacate yourself a bit on the way that investing inside a pension wrapper actually works.

It’s almost impossible to imagine that a pension invested for say 20 years would decrease in value. I don’t think you could find a time in the last hundred years where if invested in a bog standard tracker fund this would have happened.

Stick it in a low cost tracker and watch it grow. Turn a few hundred quid a month into hundreds of thousands over time. That’s what all the smart people do.

Agreed.

40% up on initial investment + no tax on growth + compounding. It really is a great long term investment.

It's certainly a big part of why I was able to retire early.

[Richie Slow]

fat80b said:

Ferrari60 said:

But by the time you can access it, the value may well have decreased?

Think you are either trolling or have no idea of the power of compounding / investing. If not trolling then you probably need to go and edumacate yourself a bit on the way that investing inside a pension wrapper actually works.

It’s almost impossible to imagine that a pension invested for say 20 years would decrease in value. I don’t think you could find a time in the last hundred years where if invested in a bog standard tracker fund this would have happened.

Stick it in a low cost tracker and watch it grow. Turn a few hundred quid a month into hundreds of thousands over time. That’s what all the smart people do.

I had a fund that I had contributed to for 20 years that was worth less than I had paid in. It was even increasing by less than my contributions each year!!

I don't think anyone is safe, mine was originally with Allied Dunbar and then taken over by a grabbing big name who did very well out of it.

[omniflow]

Not sure if the OP is genuine or not, but there's one point that appears to have been missed.

A Pension is merely a tax wrapper - the underlying investments can be pretty much anything you want them to be. You can keep your pension fund in cash if that's what you think is sensible.