Re:
Specifically, am I right in that everything I put on these is deducted from tax, or are there other rules?
and
Am I correctly understanding this as "anything above £3,600 per year will not be deducted from your tax"?
Neither interpretation seems quite right… Unless what you mean is this:
The contributions (to a pension, or to the share-save scheme) are deducted from your pay before it is taxed. That's how it works for employer-run pension schemes.
In other words, you are paying the gross amount you earn into the pension, not the amount after tax. It's a tax-efficient way to save, because:
- £100 into a pension costs you £100 gross
compared to other forms of saving:
- (If you pay basic rate tax 20%) £100 into savings costs you £125 gross
- (If your earnings are higher, I'm guessing they are, and you pay 40% tax) £100 into savings costs you £167 gross.
(The bit about the £3,600: you can ignore this assuming you're earning more than £3,600 a year.)
What happens to the pension if you decide to move back to France or another country? In some cases you can transfer tax free. Worst case, you'd pay some tax on the transfer but not more than 25%. [See here for the current rules: https://www.gov.uk/transferring-your-pension/transferring-to-an-overseas-pension-scheme.
Re: the share scheme, if by 'salary exchange' you mean salary sacrifice (where your gross pay is officially reduced by that amount e.g. £150 a month), that's even more tax-efficient, because it saves you paying the National Insurance contribution too (approx 9% of the pay packet).
Conclusion: Saving into pension and company share save schemes is supremely tax-efficient and, provided you're OK with your money being locked away until you're 57 (pension) or tied up in company shares, it's understandably many people's priority to make use of these schemes before considering other forms of saving where you pay into them from your salary after tax.
Now, about this:
I am trying to understand how much I should put into it
- my company matches what I put up to 6%
- I can put anywhere between 1% (currently) up to 40% on my income via salary exchange and still be able to live
- I can buy for £150 of shares of the parent company I work for every month, which as I understand I can pay with a salary exchange
Should I put money into these, or should look for another way to save (how will this work out if I go back to France or another country)?
Nobody here can advise you what to do since individuals' goals and circumstances are different and we don't know enough of the picture.
That said: FWIW, I'll tell you what I might do based solely on what you've told us in the question…
First, I'd definitely contribute 6% to the company pension. This gets you the full employer match. That's free money (plus, remember the tax relief = more free money). If you're 27, a total of 12% salary into a pension a year is a decent rate to start saving for retirement.
Actually, 14% would be generally advisable, and maybe more still – it's generally a case of 'the more the better' especially while young, as you have time for growth and you don't know what later priorities might change / financial needs might arise.
Nevertheless, you said you might move overseas. So in your position I would then:
- as a short-term plan, save into an easy access cash savings account until I've a few months salary piled up. NB: in some cases, the best interest rate on this amount of cash is found in certain current accounts.
- as a longer-term plan (5-10 year time horizon – not quite as long as a pension), I'd consider saving monthly into a stock market based portfolio: a cheap passive fund such as a FTSE All-Share Tracker unit trust (or if you don't believe there will be growth in the overall stock market, choose a good actively managed fund in the sector where you think they'll be growth). And I'd do this in a Stocks & Shares ISA wrapper so that there's never the threat of Income Tax on any dividends from the shares, nor Capital Gains Tax when I come to sell them.
