Hello all, I am looking for some advice to those of you who live in UK. I have a workplace pension and I am unsure that this is a good idea? Can anyone educate me on the pros and cons please? I say this because I was considering stopping it and investing in a low cost vanguard ETF like VUSA. What do you think to that and do you have any advice for me? I am looking to pay the least amount of tax possible basically when remaining in control of my money if possible. Has anyone got a pension with vanguard and is it also subject to tax? All comments knowledge and advice welcome! Thank you so much! TANYOL.
Do not stop your workplace pension. Itâs a terrible idea. Every contribution you make attracts tax relief and an employer match in the UK. Itâs literally free money.
@Tanyolmedi, if it is a workplace pension then I agree with @Scrooge_McCodf as they are very tax efficient (no income tax paid) and companies (employers) effectively put in âfree moneyâ on your behalf, however the opening post does not specify if he refers to his workplace pension or an additional private pension.
I am referring to my workplace pension. My only reservation on it is that I will get taxed on it when itâs time to draw it only 25% is tax free I believe so I thought I will get taxed 20% on the remaining 75%. Just wondering if there was a more tax efficient way or if this is the best thing available. Donald looks to recommend keeping it.
Theyâre 100% the most tax efficient way.
You wonât be taxed on the remaining 75% immediately.
You can take 25% of it as a tax free lump when you retire. The remaining 75% you can drawdown over a longer period, only paying the tax that the threshold would generate.
Think of your pension as becoming your salary when you retire.
Lessons in wealth building:
- max your your pension contribution so you capture the most of your employersâ contribution and safe in the most tax efficient way;
- then max out your ISA contribution;
- start early with both and compound, compound and compound.
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How do I max my pension contribution? I put in 5% and my employer puts in 3%. That is the most they will put in but I can put in more. Any benefit to that? Thanks Donald , equity investors and nirneath so far. Also how What is an isa contribution and ? How do I max out an isa contibution?
Sounds like youâre doing it. Generally speaking if you take your age and divide it by two, thatâs how much should be going into your pension.
Some employers offer a larger match if you contribute more. Sounds like your employer is doing the minimum.
ISA is a tax free savings account. You can have a mix of different ISAs to suit your needs with the following caveats.
- No more then 20k put in per tax year (4k in a LISA)
- One of each account open per tax year.
- Only contribute to one of each account per tax year.
Thanks Donald. I actually spoke to them and said can they increase their amount from 3% and they said no. Is there a way of finding out if they can increase it and if so what to?
Theyâre under no obligation to do so. Some companies do it as a type of employee benefit. Unfortunately if they wonât budge, thereâs not a lot you can do.
Got it. Do you believe in investing in a low cost index fund? What else do you think are good investments ? Thanks 
Yeah. Pick up a copy of Tim Hales Smarter Investing.
Perfect place to start.
@Scrooge_McCodf, my mistake, I missed that.
@Tanyolmedi, the idea of putting in money now is good because you do not pay tax on it and also, it is based on the assumption that your âsalaryâ (eg. income from state pension, private pensions and other income from any investments). So putting money into an ISA as suggested above could be as good for the future. I would suggest doing both, as mentioned by @Nirnaeth .
Please donât stop your work pension as it is equivalent to getting about 3% pay rise. From my understanding, the best way to save for retirement is through a pension. If you have extra cash you want to put away then do it through a SIPP (self invested pension plan). This can still be opened in addition to your work place pension scheme. You can put away up 40k per year and if you are a high tax rate payer then the government can top up your pension by up to 45%. T 212 do have plans to introduce SIPPs and that will be even more awesome. If you still have extra cash to save then max out your ISA. And if you still have extra cash then you can still put it in the invest account on T 212 through which you will still have up to 12000 free capital gains tax.
Great I formation Tsot you have given me enough to think about along with confirmation that I will keep my workplace pension. Do you think I should increase the amount I put in from 5% to more? As the benefit is I get tax relief ? (Is this true)
Iâm with Vanguard and just started a targeted fund plus some others. Itâs low cost and HMRC add 20% on top of what I put in. When I retire, I can withdraw 25% tax free. Vanguard are good, very low cost and according to Motkey Fool, investing some in FTSE 250 is a good investment.
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That sounds good at least itâs tax free assuming the tax rate is 20% when you retiređdid you consider the lifetime isa?
Absolutely because for the extra you put in the government will top it up by at least 20% even if your employer doesnât increase their contributions. But if you want a bit of flexibility and some degree of control, as long as you know what you are doing, then a SIPP will be great.
Thanks! How would an SIPP be better than a stocks and shares lifetime isa which is what I was considering?