With PSE, a £10 per week gross payment only actually costs you £6.80 with £2(tax relief) and £1.20(NI relief/PSE) being paid by the tax man. Therefore it’s not really cost effective to pay in more than the PSE limit because you’ll be paying that £1.20 per £10 yourself instead. If you’re paying in a few hundred pounds a week, that’s going to add up!
The sensible plan would be to make the most of PSE and put anything else into another pension arrangement. That way you’d still be getting the tax relief on your contributions going in, and could potentially be tax free on the way out too. Although that will obviously depend on the amounts involved, age, how you plan to access it, and any other income, etc.
A pension is probably the most efficient way of saving money because of the tax breaks and employer contributions. But it’s not just a case of piling in as much money as possible, you also need to consider what you’re going to do with your money in the future and how much tax if any, you will pay on the way out. There’s no point in taking the tax breaks now, if you’re just going to give them back in the future!
Personally I already have enough in Bonusplan & Flexiplan to fund my tax free lump sums from my NRA60 and NRA65 and will soon be building up more via the DBCBS. Therefore I will be reducing my Flexiplan contributions to a ‘ticking over’ level and putting the rest in my personal pension instead.
That does mean I’ll be missing out on PSE now, but I’d end up paying too much tax later on if I let my AVC’s build up too much. As the personal pension is a drawdown pot designed to fund early retirement without having to touch any RMPP main benefits early, putting more in that seems the best option if I want to meet my aims.
Depending on how long the DBCBS is in operation for, I may transfer my Bonusplan over to the personal pension too.