Pension limit - really 100% salary?

dunroving · 2 March 2017 at 10:02AM

I'm sure most people on here are familiar with the limits on pension contributions (£40k annual allowance plus carry-overs, blah, blah, and limited to 100% of salary).

I have been trying to get my employer to allow me to pay 100% of my salary into my workplace pension. However, my employer is saying they can't do this because (a) there is a need to deduct NICs and (b) they "cannot" pay me less than minimum wage.

Is anyone familiar with this situation? Does this not make a nonsense of the "100% of salary" limit?

On a related note, I figure the following, if they insist I can't pay 100% of my salary into the pension. To illustrate, say I earn £40k this year:

Pay £29k into workplace pension. This will get tax relief at source. I will then receive (untaxed) take-home pay on the remaining £11,000.

Pay .80 of the remaining £11,000 (£8,800) into a SIPP. This will be rounded up by HMRC to the tune of £2,200.

The latter situation might even make more sense because it takes advantage of the "free money" situation pertaining to contributions from the personal allowance.

Am I missing something?

edinburgher · 2 March 2017 at 10:21AM

Is it a salary sacrifice pension? If so, you can only pay into the pension to the level that would leave your salary equivalent to minimum wage.

Not entirely sure the exact figure for national minimum wage, but remember that as a common term for sal sac pensions.

EdSwippet · 2 March 2017 at 10:22AM

... and you can find the govt's rules on salary sacrifice pension arrangements here.

RuleTheWorld · 2 March 2017 at 10:27AM

As above they cant salary sacrifice you into a position where you are paid less than minimum wage.

You'll need to use a seperate pension or directly contribute yourself to the employer pension to make further contributions

edinburgher · 2 March 2017 at 10:34AM

To calculate the maximum that someone can sal sac into a pension, is it just a case of calculating your hourly wage, subtracting the minimum wage for their age and then multiplying that by their hours worked in a year?

dunroving · 2 March 2017 at 10:36AM

Thanks, all. Yes, I was auto-enrolled into salary sacrifice (Pensions Plus) along with with everyone else where I work, about 18 months ago. It was done as an opt-out situation, and the message was there were no disadvantages.

I recently asked to be opted out because there actually is very little NI benefit for me, because of my salary level, plus I just find it much simpler to calculate things on a "normal basis". I was strongly encouraged to think about it carefully (i.e., I was discouraged from doing it) - presumably because my employer wants to save on NICs. From what you are saying above, there is a clear advantage to me being out of it. My employer has known I planned to retire slightly early so it seems a bit disingenuous that they were discouraging me from leaving Pensions Plus.

From a tax perspective then, it seems to make more sense *not* to pay 100% salary into an occupational pension, because you'd lose the HMRC top-up on the £11k personal allowance - am I right in thinking that?

michaels · 2 March 2017 at 10:54AM

As mentioned by all posters, you can not reduce your salary to below nmw so your employer can not pay you 100% of salary as pension so if you want to go further than this you willo have to make personal contributions as you describe in your first post.

If you are going down the sal sac route discuss with your employer whether they will split the enic contribution saving with you.

ThinkingOutLoud_2 · 2 March 2017 at 11:08AM

dunroving wrote: »

I recently asked to be opted out because there actually is very little NI benefit for me, because of my salary level

Can you explain how you are better off opting out?
i.e. How much NI would you pay if you took your salary as salary and then separately contributed to the SIPP?
VS
How much NI do you think you pay if you Salary Sacrifice?

Why do you think almost everyone else sees Salary sacrifice as good thing, with only a few salary-related benefit aspects and the like to watch out for?

dunroving · 2 March 2017 at 11:16AM

ThinkingOutLoud wrote: »

Can you explain how you are better off opting out?
i.e. How much NI would you pay if you took your salary as salary and then separately contributed to the SIPP?
VS
How much NI do you think you pay if you Salary Sacrifice?

Why do you think almost everyone else sees Salary sacrifice as good thing, with only a few salary-related benefit aspects and the like to watch out for?

I couldn't give you the exact figures, only that Pensions Plus had a modeller that I used and found that my NI payments were every similar in, compared to out.

I didn't make any assumptions about anyone else, as per the last part of your post, in fact I'm not even sure what you're referring to.

ThinkingOutLoud_2 · 2 March 2017 at 11:23AM

dunroving wrote: »

I couldn't give you the exact figures, only that Pensions Plus had a modeller that I used and found that my NI payments were every similar in, compared to out.

I didn't make any assumptions about anyone else, as per the last part of your post, in fact I'm not even sure what you're referring to.

Ok so here is what does not add up - for NI cannot be the same if you salary sacrifice vs take your pay as a salary to my understanding.
- Once you accept a salary sacrifice, your overall pay is lower, so you pay less tax and National Insurance.
- True - your employer will not have to pay their Employers’ National Insurance contributions on the part you sacrifice. But so what, does not hurt you.
- Unknown for your company - Some employers pass on some or all of these savings to you. Does yours?

This may help - http://www.thisismoney.co.uk/money/pensions/article-2982946/My-bosses-trying-sign-salary-sacrifice-scheme-pension-it.html

dunroving · 2 March 2017 at 11:35AM

ThinkingOutLoud wrote: »

Ok so here is what does not add up - for NI cannot be the same if you salary sacrifice vs take your pay as a salary to my understanding.
- Once you accept a salary sacrifice, your overall pay is lower, so you pay less tax and National Insurance.
- True - your employer will not have to pay their Employers’ National Insurance contributions on the part you sacrifice. But so what, does not hurt you.
- Unknown for your company - Some employers pass on some or all of these savings to you. Does yours?

This may help - http://www.thisismoney.co.uk/money/pensions/article-2982946/My-bosses-trying-sign-salary-sacrifice-scheme-pension-it.html

My take-home pay changed by about £10 per month after SS was implemented, which seems a pretty clear indication to me that financially it didn't make much difference. My main pension is a DB scheme so that was unchanged by the SS.

Pension limit - really 100% salary?

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