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I have a pension scheme via my company with fidelity in the UK.

I am trying to understand how much I should put into it, knowing that:

  • 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 am 27, French but live in London
  • 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

Specifically, am I right in that everything I put on these is deducted from tax, or are there other rules (very new to this)? 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)?

Edit: I found this which states:

You can obtain tax relief on any contributions you pay in any tax year provided they’re not higher than: 100% of your Relevant UK Earnings i.e. broadly your earnings from a trade or profession; or £3,600 (after 20% basic rate tax relief is added), if your earnings are less than this amount.

So am I correctly understanding this as "anything above £3,600 per year will not be deducted from your tax"?

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    Generally (and keep in mind I can only speak for U.S. but often translates) you should put into it up to the amount your employer matches (if they do) but if they don't; try to avoid putting too much into it (unless you have granular control over how it is invested) and even then, you should diversify into other types of investment. For example in the US, we can have the 401k, pension, IRAs, and trading accounts (spread across stable funds, bonds, and large/med/small caps) to maximize your gain. Keep in mind, they ALL have various degrees of risk of loss, so be careful. – GµårÐïåñ Apr 19 '17 at 0:11
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In the UK you have an allowance of £40,000 per annum for tax relief into a pension. This amount includes both your and your employer's contributions. If you earn more than £150,000 per annum this allowance starts to reduce and if you earn less than the allowance, your allowance is limited to what you earn.

You can also carry over unused allowance from up to 3 years previously.

If you stick within this allowance you won't pay tax on your pension contributions, if you go over the excess will be subject to tax.

Salary exchange normally lets you avoid the National Insurance value of your contribution being taxed. If you paid your own money into your pension (without going through salary exchange), your contributions would have the 20% basic rate of tax credited to them and if you're a higher rate taxpayer you could reclaim the difference between the basic rate of tax and the higher rate of tax you pay but the National Insurance you've paid on your own money would not be reclaimable.

You can't get the money back you've paid into your pension till you are are 58 (given that you are 27 now), the minimum age has risen from its historic 55 for your age group.

That's the pension trade off, you forgo tax now in the expectation that, once retired, you will be paying tax at a lower rate (because your income will be lower and you are much less likely to be subject to higher rate taxation) in return for locking in your money till you're older. Your pension income will be subject to tax when you eventually take it.

There are other options such as ISAs which have lower annual limits (£20,000 currently) and on which your contributions do not attract tax relief, but which are not taxed as income when you eventually spend them. ISAs and pensions are not mutually exclusive so if you have the money, you can do both.

It's up to you to determine what mix of savings will be appropriate to generate income for your eventual retirement.

If you are living in some other country when you retire your pension will be paid net of UK tax. You might then be able to claim (or pay) any difference between that and your local tax rate depending on what agreement exists between the UK government and the other country's government.

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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.

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