I am currently looking into the upside of increasing my pension contributions. I am a 23 year old lower-rate taxpayer and am working in Northern Ireland (but living in the Republic of Ireland).
Obviously, I am paying my tax through the UK tax system. The deductions on my salary are 22% tax as well as 11% National Insurance. Also, my employer must pay 12.8% National Insurance on my behalf. However, they have a salary sacrafice scheme whereby they don't have to pay National Insurance contributions on my pension payments. Instead, they offer to redirect this 12.8% saving to my pension.
Therefore, my pension contributions attract relief as follows:
Salary Sacrafice...£100
Tax Savings........£22
NI Savings.........£11
Total Cost To Me...£67
This will mean a pension contribution of £100 from my salary as well as a 12.8% contribution from my employer (due to their NI Saving).
This means that, at a cost of £67 to me, I will get a £112.80 pension contribution. In other words, every £100 I add to my pension only costs me £59.40.
Now, obviously if I was a higher rate tax payer, the relief would be huge - with every £100 only costing me £41.40. However, is it worthwhile me paying the maximum that I can afford into this or should I pay my mortgage down to a more comfortable level first?
Also, if I were to pay into this pension until I retire, would it be possible for me to use the pension pot to purchase pension products in the Republic of Ireland as if it were an Irish pension plan? I ask this because the tax/NI reductions in Northern Ireland seem very high compared to the Republic of Ireland.
Obviously, I am paying my tax through the UK tax system. The deductions on my salary are 22% tax as well as 11% National Insurance. Also, my employer must pay 12.8% National Insurance on my behalf. However, they have a salary sacrafice scheme whereby they don't have to pay National Insurance contributions on my pension payments. Instead, they offer to redirect this 12.8% saving to my pension.
Therefore, my pension contributions attract relief as follows:
Salary Sacrafice...£100
Tax Savings........£22
NI Savings.........£11
Total Cost To Me...£67
This will mean a pension contribution of £100 from my salary as well as a 12.8% contribution from my employer (due to their NI Saving).
This means that, at a cost of £67 to me, I will get a £112.80 pension contribution. In other words, every £100 I add to my pension only costs me £59.40.
Now, obviously if I was a higher rate tax payer, the relief would be huge - with every £100 only costing me £41.40. However, is it worthwhile me paying the maximum that I can afford into this or should I pay my mortgage down to a more comfortable level first?
Also, if I were to pay into this pension until I retire, would it be possible for me to use the pension pot to purchase pension products in the Republic of Ireland as if it were an Irish pension plan? I ask this because the tax/NI reductions in Northern Ireland seem very high compared to the Republic of Ireland.