new starter help

Dexydog · Post by **Dexydog** » 27 Mar 2018, 16:01

Hi,
Have been with Post Office for 18 months now.
I didn't join the pension immediately as I was going through a divorce and wanted to wait until that was settled.
I intend to join and pay the full 6% and receive the 10% from RM, pretty generous I reckon.
My question is regarding AVC's.
More pertinently how that affects your PAYE and NI.
I realise it's tax efficient but to what extent?
I can afford to pay in half of my salary into the AVC fund which I understand to be separate from my RM pension.
I am 52 now and hope to retire in 5 years' time at 57.
So questions are-
1. How does PSE work in relation to NI contributions?
2. Is it best for me to pay an amount each week to the AVC which would leave me more or less at the personal allowance for this year of £11800/£226 per week?
In other words if my pay is for arguments sake £400 per week if I put £174 into the AVC does this then mean I will pay no income tax at all?
Or does it not work like that?? (These are ball park figures but I hope you get the gist)
4. As I hope to retire at 57 can I then access all of my accrued RM/AVC at that point (subject to tax etc.)
5. As it will be in for 5 years only, what do people think would be the best pot to put the AVC to?- as I understand it you can choose where to invest and with what level of risk. I'm a pretty cautious person generally.

Thanks for taking the time to read and hope for some help- I've read a lot on the subject but it's a minefield and don't want to make the wrong decisions and more generally don't understand the tax implications fully.

Post by **westy23** » 27 Mar 2018, 16:13

RobertT

Dexydog · Post by **Dexydog** » 27 Mar 2018, 16:14

westy23 wrote:RobertT

Do you mean I should contact this user??

Post by **RobertT** » 27 Mar 2018, 16:32

Dexydog wrote:Hi,
Have been with Post Office for 18 months now.

I assume you mean Royal Mail!

I didn't join the pension immediately as I was going through a divorce and wanted to wait until that was settled.
I intend to join and pay the full 6% and receive the 10% from RM, pretty generous I reckon.
My question is regarding AVC's.
More pertinently how that affects your PAYE and NI.
I realise it's tax efficient but to what extent?
I can afford to pay in half of my salary into the AVC fund which I understand to be separate from my RM pension.

If you ‘intend to join’, then you’ll be joining the Royal Mai Defined Contribution Plan, so any AVC’s you make will go into the same pot. RMDCP details in the plan guide, here.

I am 52 now and hope to retire in 5 years' time at 57.
So questions are-
1. How does PSE work in relation to NI contributions?

You get ‘NI relief’, so 12p is taken off your NIC’s for each £1 gross you pay into the pension. You also get ‘tax relief’ at 20% which means a gross contribution of £1 only actually costs you £0.68. Full details are here.

2. Is it best for me to pay an amount each week to the AVC which would leave me more or less at the personal allowance for this year of £11800/£226 per week?
In other words if my pay is for arguments sake £400 per week if I put £174 into the AVC does this then mean I will pay no income tax at all?
Or does it not work like that?? (These are ball park figures but I hope you get the gist)

It’s best to pay in as much to keep within the limits of PSE, anything over and you lose that benefit.
Paying into your RM pension will reduce both income tax and NIC’s as above. The Personal Tax Allowance is just the amount you can earn before you start to pay income tax.

4. As I hope to retire at 57 can I then access all of my accrued RM/AVC at that point (subject to tax etc.)

The RMDCP is just a pot of money with which you can access at the legal minimum age, currently 55.

5. As it will be in for 5 years only, what do people think would be the best pot to put the AVC to?- as I understand it you can choose where to invest and with what level of risk. I'm a pretty cautious person generally.

As already said, your AVC’s will go into the same pot as your normal RMDCP contributions. Nobody can really give specific advice about where to invest, but 5 years is a fairly short time in pension terms, so something fairly safe would be my choice.

I hope that helps.

Dexydog · Post by **Dexydog** » 27 Mar 2018, 17:06

Thanks.
So PSE is a little like the old serps opt out in that you don't accrue the full entitlement in relation to NI contributions?
I opted out in 1988 and back in in 2004 so God only knows how that will affect me at 67- I realise I can get a state forecast but if I do PSE I worry therefore this might complicate things further- in general is PSE a good thing or is the jury out on this?
With regards PAYE I still don't fully understand- as per my original thread am I in a position where I can pay enough AVC'S to actually reduce my PAYE to just about zero?
As stated if I pay in £174 A week does that have the effect of making the difference between this amount and the £400 my flat line for my personal allowance so that I pay zero?- IE £400 minus my AVC contribution of £174= £236= my personal allowance=zero tax to pay?
Or have I misunderstood this bit?
Confused.com.

Post by **RobertT** » 27 Mar 2018, 18:20

Dexydog wrote:Thanks.
So PSE is a little like the old serps opt out in that you don't accrue the full entitlement in relation to NI contributions?

No, PSE is RM’s name for salary sacrifice. It’s a way to reduce both yours and your employers national insurance payments. It also applies to Cycle to work and other similar tax efficient schemes.

I opted out in 1988 and back in in 2004 so God only knows how that will affect me at 67- I realise I can get a state forecast but if I do PSE I worry therefore this might complicate things further- in general is PSE a good thing or is the jury out on this?

Paying into PSE won’t affect your state pension entitlement as long as you’re earning at least £116 per week. Although it can affect other state benefits that are linked to NIC’s. This gives more info.
PSE/salary sacrifice is a no-brainer for most people, most of the time!

With regards PAYE I still don't fully understand- as per my original thread am I in a position where I can pay enough AVC'S to actually reduce my PAYE to just about zero?
As stated if I pay in £174 A week does that have the effect of making the difference between this amount and the £400 my flat line for my personal allowance so that I pay zero?- IE £400 minus my AVC contribution of £174= £236= my personal allowance=zero tax to pay?
Or have I misunderstood this bit?
Confused.com.

You can pay as much as you want into your pension/s to gain tax relief as long as it’s no more than you earn, and theoretically you could reduce your income tax to zero. But other deductions have to be paid aswell like NIC's, CWU, etc.
At the same time to qualify for PSE you need to make sure your post PSE pay doesn’t fall below certain levels, as per the link I provided earlier.

For each £1 you pay into your pension, your income tax bill will go down by 20p and your NIC's will reduce by 12p(as long as you stay within the PSE limits).

Dexydog · Post by **Dexydog** » 27 Mar 2018, 20:45

Thanks very much for taking the time to reply.
Sounds like I would be silly not to put as much as I can afford in, with the caveat I will go low risk given it will only ne for 5 years or so.
Anything else I should consider before I do calcs- or even is there an easy way to work out the optmum way of paying zero tax and still keeping above the LEL for maximum NI? i ask only because I do a lot of overtime on a 30 hour contract (and the 6% non AVC element is only paid on the first 39 hours).
Also I want avoid PAYE t**s up with such fluctuations in earnings- am assuming an adjustment might have to be made at tax year end?
My brain hurts with it all tbh!

Post by **RobertT** » 28 Mar 2018, 15:43

Pensions are a great way of saving money because of the tax relief, NI relief(PSE) and employer contribution, and personally I think everyone should put in as much as they can to take advantage!
If for example, you’re 6% gross contribution into the RMDCP equals £25 per week, with tax relief & PSE that’s only costing you £17 and you’re getting another £41.66(10%) off RM too.
That’s £66.66 going into your pension each week and it’s only costing you £17.Where else can you get a return on your money like that, for doing absolutely nothing?

I wouldn’t get too hung up on the idea of paying no tax, just put in what you can afford.

Dexydog · Post by **Dexydog** » 28 Mar 2018, 16:07

Thanks for all your help.
Have decided to put in 54% AVC on top of the 6%.
Hopefully 70% going in including Royal Mail's contributions should build up a decent sum in 5 years or so.

JoeWagg · Post by **JoeWagg** » 29 Mar 2018, 07:52

I’ve been with Royal Mail just over four years.
I’m unsure about which pension scheme I need to be enrolled in as I know people who have been at RM for over five years automatically get put into the main one. Can someone explain what I need to do so I don’t lose out as an ‘Under 5’?

Post by **RobertT** » 30 Mar 2018, 12:33

JoeWagg wrote:I’ve been with Royal Mail just over four years.
I’m unsure about which pension scheme I need to be enrolled in as I know people who have been at RM for over five years automatically get put into the main one. Can someone explain what I need to do so I don’t lose out as an ‘Under 5’?

You are currently in the Royal Mail Defined Contribution Plan administered by Zurich, and you will continue to be in that scheme until you’ve hit 5 years’ service. You will them be contacted by RM as to whether you want to continue in the RMDCP or be transferred into the DBCBS(via the RMPP).

This is what it says on the matter in the Q&A’s on myroyalmail:

If I am in the RMDCP, but have less than 5 years’ service with the Company, what should I do?

If you would like to put 6% of your pensionable pay into your RMDCP retirement account so that you get the top amount (10%) from the Company, you do not need to do anything.
If you would prefer to put less into your RMDCP retirement account and receive smaller contributions from the Company, you should complete the RMDCP Contribution Level form which was included in your letter and booklet.
The Company will write to you when you are eligible to join the RMPP and build up benefits in the DBCBS.