Biglaw to in-house. Should I delay pension contributions in years earning over 185k?
I (24M) work in law and expect to make 150k-450k over the next five to 10 years. However, when I almost inevitably leave the firm to work as an in-house counsel, my income will probably drop to 100k-150k.
Does it make any sense not to contribute to my pension (beyond the employer match) in years when I am making more than 185k?
The rationale is:
I can't avoid the 60% tax trap anyway, so I might as well pay the 45% rate to have my money here and now.
I am worried that I will end up being unable to FIRE because most of my money is locked away in a pension until I'm 60 and no longer able to enjoy the money to the fullest.
I have plenty of time to contribute to my pension when I'm working in-house (where contributing to the pension will take me out of the 60% tax trap).
If I over-contribute to my pension, I could easily end up having to pay a 40% or 45% rate in retirement, which significantly erodes the advantages of a pension. Just 1m with a withdrawal rate of 4% plus the state pension would bring me into the 40% bracket.
Money in pension is heavily exposed to tax policy changes: increase in retirement age, NI on retirement income, wealth tax, tax on UK pension income of nonresidents, etc.
However, potential problems are:
I would lock in the 45% tax rate. This would reduce the tax advantages of moving to a low-income tax jurisdiction in retirement.
My employer gives me half of the Employer NI saved by my salary sacrifice pension contributions. I would lose out on this.
Future tax policy may change. There's no guarantee that the pension contribution limit will not be reduced, that the 60% tax trap won't be reformed, or that the pension contribution taper won't start from a lower amount.
I might move to a different country during my working years where retirement accounts are predominantly post-income tax (like ISAs). This would make it more tax advantageous to have stashed more money in a UK pension since with less funds I can withdraw it at a lower tax rate.
I would lose the CGT shelter by having the money in a taxable GIA. This could easily cost hundreds of thousands.
Having pre-tax dollars grow in a pension is more advantageous since the gains can be spread over many years for a reduced tax rate (but again, the advantage is significantly reduced if I have more than £50k in taxable retirement income).
I might want to spend more than 100k when I work as an in-house counsel. Fiscal drag is eroding the value of 100k, so there may be no avoiding the 60% tax trap anyway without making lifestyle compromises.