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My wife would like a pension offset to give her more cash now to reduce her mortgage burden. I am not opposed to the idea however we have very different ideas as to what £1 cash equates to.
My maths follows this logic, for my DC pension
Currently a higher rate tax payer, in retirement will be a basic rate taxpayer. My employer gives an extra 10% on AVCs due to employer NI contributions.
If I take £100 of gross earnings I can either take it as income now where it could compound in an isa, or put it on the pension as an AVC.
Income now has £40 tax and £2 NI. Leaves me £58.
On the pension £100 gets 10% uplift so becomes £110. On withdrawal 25% is tax free and the remainder is taxed at 20%. This leaves me with £93.50.
I calculate 93.50/58.00 =1.61 so each £100 cash now is £161 in the pension.
And this is to say nothing of the extra utility value of having the cash now (20yrs to retirement) and the ways in which the government could change the rules against pensions.
How have other people calculated offsets?