Pensions! Watch

Lell
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#1
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Hi, I was hoping for some advice here! I have just got my first 'proper' job- a full time graduate role and in the pack of forms I have to fill in is a form relating to whether or not I should join a pension scheme.

Basically, I am wondering- at 22 should I be worrying about this already? Should I start contributing towards a pension?!

I understand there are benefits in terms of national insurance, and I put 3.5% of my salary towards it (employer puts 7%ish)....but I am simply clueless as to whether or not I should. Advice please!
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Quady
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Simple answer yes. There shouldn't be NI benefits - if there are thats a bad thing, but your income tax will go down fractionally.
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Illusionary
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(Original post by Quady)
Simple answer yes. There shouldn't be NI benefits - if there are thats a bad thing, but your income tax will go down fractionally.
The NI benefit comes from the reduction in taxable income, so you'll be paying less NI as well as less income tax. Also, it's quite common for the employer to contribute the saving they make due to the reduced employer's NICs to the pension in addition to their standard contribution, making pension contributions more tax-efficient.
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Niaya
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yes u should - it means you dont have to save as much later
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Good bloke
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(Original post by Illusionary)
The NI benefit comes from the reduction in taxable income, so you'll be paying less NI as well as less income tax. Also, it's quite common for the employer to contribute the saving they make due to the reduced employer's NICs to the pension in addition to their standard contribution, making pension contributions more tax-efficient.
No. The lower NICs arise from a lower rate for those that are contracted out of the state scheme. NICs are calculated on the pre-tax gross, and are not reduced by virtue of being calculated on a lower taxable pay (as is the case with income tax), but because of the lower contribution rate.

To answer the OP, it is always good to get extra pay from your employer in the form of contributions to your pension scheme, as long as your cash flow can stand the lower net pay in the short term.
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Quady
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(Original post by Good bloke)
No. The lower NICs arise from a lower rate for those that are contracted out of the state scheme.
Thats what I thought...

and its not a 'good thing'.
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Good bloke
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(Original post by Quady)

its not a 'good thing'.
What isn't? Getting extra pay from your employer, or the state pension scheme?
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Quady
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(Original post by Good bloke)
What isn't? Getting extra pay from your employer, or the state pension scheme?
Contracting out (thats why I deleted the rest).

At the 7% level it would be very tricky for me to decide which way to go. I'd probably not bother but I'd have to research it.

Do you intend on staying with the firm for more than 5 years and how much is your pay?
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Mr M
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In a former life, I was an Independent Financial Adviser for 13 years. Could I just remind you it is a criminal offence under the Financial Services Act 1986 for unqualified and unauthorised individuals to give pensions advice (even if you are doing it with the best of intentions and for no financial gain)?
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Quady
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(Original post by Mr M)
In a former life, I was an Independent Financial Adviser for 13 years. Could I just remind you it is a criminal offence under the Financial Services Act 1986 for unqualified and unauthorised individuals to give pensions advice (even if you are doing it with the best of intentions and for no financial gain)?
Sure if you would?

Where are the boundaries? There are many books that say 'start a pension' for example.
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Mr M
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(Original post by Quady)
Sure if you would?

Where are the boundaries? There are many books that say 'start a pension' for example.
I don't understand what you mean by "sure if you would?".

There are exemptions for journalists and certain publications. You are not covered by those exemptions and this means you can be held responsible (and liable to compensation and restitution) if someone is influenced by your remarks. Obviously that would be incredibly unlikely to happen but I was trying to make you think about the possible adverse effect of your comments. Advisers are not compelled to hold Professional Indemnity Insurance for nothing.
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Good bloke
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(Original post by Mr M)
In a former life, I was an Independent Financial Adviser for 13 years. Could I just remind you it is a criminal offence under the Financial Services Act 1986 for unqualified and unauthorised individuals to give pensions advice (even if you are doing it with the best of intentions and for no financial gain)?
I would like to make two points:

(1) The Financial Sevices Act 1986 has been superseded by the Financial Service Act 2000 and

(2) What the act actually outlaws is carrying on a regulated activity (including the giving of financial advice) in the course of business by an unauthorised person.

I think you'll understand the significance of the phrase in italics.
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Mr M
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(Original post by Good bloke)
I would like to make two points:

(1) The Financial Sevices Act 1986 has been superseded by the Financial Service Act 2000 and

(2) What the act actually outlaws is carrying on a regulated activity (including the giving of financial advice) in the course of business by an unauthorised person.

I think you'll understand the significance of the phrase in italics.
1) I was making the point that these activities have been regulated for 23 years. You actually mean the Financial Service and Markets Act 2000 if we are being pedantic.

2) I think you have googled one aspect (Financial Promotions?). There is more to the law than this.

Think I will consign my Financial Planning Certificate, Advanced Financial Planning Certificate, Pensions G60, Retirement Options K20 etc to the bin!
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Good bloke
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(Original post by Mr M)
1) I was making the point that these activities have been regulated for 23 years. You actually mean the Financial Service and Markets Act 2000 if we are being pedantic.

2) I think you have googled one aspect (Financial Promotions?). There is more to the law than this.

Think I will consign my Financial Planning Certificate, Advanced Financial Planning Certificate, Pensions G60, Retirement Options K20 etc to the bin!
I haven't googled anything. Perhaps you would like to point out the wording in the act that contradicts what I said in point 2 in my post above. I suggest paragraph 22 is most apposite - it defines what a regulated activity is under the act (and this applies to all regulated activities - not just financial promotion).

It says:

An activity is a regulated activity for the purposes of this Act if it is an activity of a specified kind which is carried on by way of business ...
The act is here, for your reference:

http://www.statutelaw.gov.uk/content...tDocId=2927341
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suicidal_dream
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so ... i'm in the same boat as well - but i know nothing about pensions... which really isn't good.

At my job (which I start a week on tuesday) you don't have to sign up straight away to the pension scheme - is there anyway you could start this is a few months time - give you a chance to really consider all options?

I'm going to consider my options as soon as i've started and hopefully start up a pension at around christmas time - give me a chance to get out of my student debt a little!!!
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Good bloke
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(Original post by suicidal_dream)
so ... i'm in the same boat as well - but i know nothing about pensions... which really isn't good.

At my job (which I start a week on tuesday) you don't have to sign up straight away to the pension scheme - is there anyway you could start this is a few months time - give you a chance to really consider all options?

I'm going to consider my options as soon as i've started and hopefully start up a pension at around christmas time - give me a chance to get out of my student debt a little!!!
You'll need to talk to your employer about when you can join, or until what date you can delay joining.
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Lell
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Right, OK so this thread seems to have gone a bit off topic but from what I gather overall-probably a good idea to go with it? I can afford the reduction in wages at the moment, my compulsory outgoings are very minimal (just have to pay council tax and for the phone, gym, car and food)- the rest is taken care of by family. I am earning enough to cover these and save a decent amount. And I intend on staying with the company long term unless something goes badly wrong, they have suggested many interesting paths of progression, plus are investing a lot in my training so....

The leaflet says I may not be able to join in future so if I'm going to do it, it will be now. Certainly the employer contribution/ income tax reduction sounds good- I wouldn't get that if I got my own private pension would I?

And if anyone knows anything about it- it's the Plumbing Pensions scheme for workers in the industry.
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Good bloke
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(Original post by Lell)
Certainly the employer contribution/ income tax reduction sounds good- I wouldn't get that if I got my own private pension would I?
You are unlikely to be able to persuade your employer to contribute to a private scheme, but you would get tax relief on your contributions just the same.
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Illusionary
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(Original post by Good bloke)
No. The lower NICs arise from a lower rate for those that are contracted out of the state scheme. NICs are calculated on the pre-tax gross, and are not reduced by virtue of being calculated on a lower taxable pay (as is the case with income tax), but because of the lower contribution rate.

To answer the OP, it is always good to get extra pay from your employer in the form of contributions to your pension scheme, as long as your cash flow can stand the lower net pay in the short term.
Accepted. However, correct structuring can give NICs benefits for both employers and employees. This is a pretty good summary of how 'salary sacrifice' arrangements lead to reduced NICs. Broadly, the employee's contractual salary is reduced, in return for increased employer contributions (and yes, I know this is getting a rather more detailed than the OP's original question )

Edit: and direct from HMRC: http://www.hmrc.gov.uk/specialist/salary_sacrifice.pdf
Last edited by Illusionary; 9 years ago
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Good bloke
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(Original post by Illusionary)
Accepted. However, correct structuring can give NICs benefits for both employers and employees. This is a pretty good summary of how 'salary sacrifice' arrangements lead to reduced NICs. Broadly, the employee's contractual salary is reduced, in return for increased employer contributions (and yes, I know this is getting a rather more detailed than the OP's original question )

Edit: and direct from HMRC: http://www.hmrc.gov.uk/specialist/salary_sacrifice.pdf
I see what you were getting at. These schemes are not all that common, though.

I wonder where Mr M went. Perhaps he is having a bonfire with his certificates and a copy of the FSA.
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