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  • FIRST POST
    • dunroving
    • By dunroving 2nd Mar 17, 8:02 AM
    • 395Posts
    • 144Thanks
    dunroving
    Pension limit - really 100% salary?
    • #1
    • 2nd Mar 17, 8:02 AM
    Pension limit - really 100% salary? 2nd Mar 17 at 8:02 AM
    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?
Page 1
    • edinburgher
    • By edinburgher 2nd Mar 17, 8:21 AM
    • 10,412 Posts
    • 54,228 Thanks
    edinburgher
    • #2
    • 2nd Mar 17, 8:21 AM
    • #2
    • 2nd Mar 17, 8:21 AM
    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
    • By EdSwippet 2nd Mar 17, 8:22 AM
    • 409 Posts
    • 382 Thanks
    EdSwippet
    • #3
    • 2nd Mar 17, 8:22 AM
    • #3
    • 2nd Mar 17, 8:22 AM
    ... and you can find the govt's rules on salary sacrifice pension arrangements here.
    Last edited by EdSwippet; 02-03-2017 at 8:25 AM. Reason: Beaten to the punchline by the above poster.
    • RuleTheWorld
    • By RuleTheWorld 2nd Mar 17, 8:27 AM
    • 121 Posts
    • 28 Thanks
    RuleTheWorld
    • #4
    • 2nd Mar 17, 8:27 AM
    • #4
    • 2nd Mar 17, 8:27 AM
    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
    • By edinburgher 2nd Mar 17, 8:34 AM
    • 10,412 Posts
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    edinburgher
    • #5
    • 2nd Mar 17, 8:34 AM
    • #5
    • 2nd Mar 17, 8:34 AM
    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
    • By dunroving 2nd Mar 17, 8:36 AM
    • 395 Posts
    • 144 Thanks
    dunroving
    • #6
    • 2nd Mar 17, 8:36 AM
    • #6
    • 2nd Mar 17, 8:36 AM
    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
    • By michaels 2nd Mar 17, 8:54 AM
    • 18,447 Posts
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    michaels
    • #7
    • 2nd Mar 17, 8:54 AM
    • #7
    • 2nd Mar 17, 8:54 AM
    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.
    Cool heads and compromise
    • ThinkingOutLoud
    • By ThinkingOutLoud 2nd Mar 17, 9:08 AM
    • 497 Posts
    • 290 Thanks
    ThinkingOutLoud
    • #8
    • 2nd Mar 17, 9:08 AM
    • #8
    • 2nd Mar 17, 9:08 AM
    I recently asked to be opted out because there actually is very little NI benefit for me, because of my salary level
    Originally posted by dunroving
    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 am just thinking out loud - nothing I say should be relied upon!
    I do however reserve the right to be correct by accident.
    • dunroving
    • By dunroving 2nd Mar 17, 9:16 AM
    • 395 Posts
    • 144 Thanks
    dunroving
    • #9
    • 2nd Mar 17, 9:16 AM
    • #9
    • 2nd Mar 17, 9:16 AM
    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?
    Originally posted by ThinkingOutLoud
    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
    • By ThinkingOutLoud 2nd Mar 17, 9:23 AM
    • 497 Posts
    • 290 Thanks
    ThinkingOutLoud
    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.
    Originally posted by dunroving
    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
    I am just thinking out loud - nothing I say should be relied upon!
    I do however reserve the right to be correct by accident.
    • dunroving
    • By dunroving 2nd Mar 17, 9:35 AM
    • 395 Posts
    • 144 Thanks
    dunroving
    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
    Originally posted by ThinkingOutLoud
    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.
    Last edited by dunroving; 02-03-2017 at 9:41 AM.
    • ThinkingOutLoud
    • By ThinkingOutLoud 2nd Mar 17, 9:39 AM
    • 497 Posts
    • 290 Thanks
    ThinkingOutLoud
    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..
    Originally posted by dunroving
    That small difference would relate to your then pension contribution maybe. Did that change between prior and salary sacrifice scheme? What £ / % of salary were you sacrificing into your pension on that same wage slip?
    More importantly - how much NI do you pay today per month or per year?

    You only pay NI on the salary you have - so if you sacrifice all you can (down to the min wage limit) - then that should be a considerable reduction in NI you pay!
    Last edited by ThinkingOutLoud; 02-03-2017 at 9:54 AM.
    I am just thinking out loud - nothing I say should be relied upon!
    I do however reserve the right to be correct by accident.
    • HappyHarry
    • By HappyHarry 2nd Mar 17, 9:49 AM
    • 300 Posts
    • 359 Thanks
    HappyHarry
    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
    Originally posted by dunroving
    By opting out, have you lost out on your employer's contributions to your pension scheme? If so, then opting back in might be a good idea.

    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.
    Your take-home pay should not have changed at all. The amount added to your pension should have increased.

    The basics behind salary sacrifice is that:
    1. Instead of making personal contributions to your pension, your employer makes your contributions to your pension for you.
    2. Your employer then reduces your salary by an equivalent amount. So, your take home pay should remain roughly the same.
    3. Your employer has paid out the same amount overall.
    4. However, your employer has not had to pay 13.8% NIC on the amount it used to pay you, and now contributes to your pension. Most employers add some, if not all of this NIC saving to the employee's pension scheme, boosting the employee's pension.

    As mentioned above, your employer is not allowed to reduce your salary below minimum wage limits.

    However, you are allowed to contribute to a personal pension, up to 100% of your earned income (less other contributions).

    If you want to maximise your pension contributions, then consider salary sacrificing as much as possible to your employer's scheme, and then contributing as much as possible to a personal pension.

    If you are working full time, then 35 hrs per week x £7.20 per hour x 52 weeks per year = £13,104.

    So, by contributing to a personal pension, you would still gain the 20% uplift on most, if not all of your earnings that fall within your personal allowance.
    I am an Independent Financial Adviser. Any comments I make here are intended for information / discussion only. Nothing I post here should be construed as advice. If you are looking for individual financial advice, please contact a local Independent Financial Adviser.
    • dunroving
    • By dunroving 2nd Mar 17, 10:30 AM
    • 395 Posts
    • 144 Thanks
    dunroving
    I'd have to go back to my payslips to answer some of these questions, but from memory, I think the following is correct:

    My % contribution to DB pension did not change; neither (I believe) did the absolute amount.
    My employer did not contribute the saved employer NI to my pension
    I think my payslip hardly changed. Where it used to have a section stating £300 (or whatever) paid into "pension", I think it then said £300 into "Pensions Plus"

    All these changes occurred shorty after I was involved in a pretty serious car accident so my attentions were elsewhere. I am now looking to retire early and have been maximising pension contributions up to the annual allowance and using as much of carryover as possible.

    I am making additional MPAVC into a DC section of my employer's pension, but I don't think this is SS. (could be wrong). I am trying to put as much into employer MPAVC as possible rather than SIPP. My employer MPAVC scheme is linked with the DB scheme, which has advantages when it comes to 25% TFLS.
    Last edited by dunroving; 02-03-2017 at 10:40 AM.
    • ThinkingOutLoud
    • By ThinkingOutLoud 2nd Mar 17, 11:17 AM
    • 497 Posts
    • 290 Thanks
    ThinkingOutLoud
    OK. So some broad brush things:-
    - if you earn 40k - you are likely paying around £3.8k in NI
    - if you can salary sacrifice to the point you don't pay NI...then that is a huge win for you and more that goes into your pension
    - as identified within the rules you have awareness of - you can then take any salary you must be paid (min wage) and put that into your SIPP - thereby putting all you want in overall.
    - Your employer is hardly going to stop you as this saves them employer NI (but sadly they don't pass any of that on from what you say)

    So you should from what is known, as you had been implored to, take advantage of your Salary Sacrifice scheme.
    I am just thinking out loud - nothing I say should be relied upon!
    I do however reserve the right to be correct by accident.
    • martinsurrey
    • By martinsurrey 2nd Mar 17, 11:29 AM
    • 2,698 Posts
    • 3,233 Thanks
    martinsurrey
    I'd have to go back to my payslips to answer some of these questions, but from memory, I think the following is correct:

    My % contribution to DB pension did not change; neither (I believe) did the absolute amount.
    My employer did not contribute the saved employer NI to my pension
    I think my payslip hardly changed. Where it used to have a section stating £300 (or whatever) paid into "pension", I think it then said £300 into "Pensions Plus"

    All these changes occurred shorty after I was involved in a pretty serious car accident so my attentions were elsewhere. I am now looking to retire early and have been maximising pension contributions up to the annual allowance and using as much of carryover as possible.

    I am making additional MPAVC into a DC section of my employer's pension, but I don't think this is SS. (could be wrong). I am trying to put as much into employer MPAVC as possible rather than SIPP. My employer MPAVC scheme is linked with the DB scheme, which has advantages when it comes to 25% TFLS.
    Originally posted by dunroving
    You are confused and your decision to opt out and then pay 100% salary into pension could cost you up to £300 a month.

    Your calc that SS only saved you £10 a month was based on you being a higher rate tax payer and STILL being a higher rate tax payer after SS. £300 a month SS saves a higher rate tax payer £6 a month (at 2% NI rate).

    Re run your calc with a £3500 monthly SS and you'll save £250 as a lot of that SS saves NI at 12%.

    the BEST way to do this is to SS as much as possible (down to min wage) and then personal contribute the rest.

    please please, get them to opt you back in!
    • cjking
    • By cjking 2nd Mar 17, 2:09 PM
    • 38 Posts
    • 7 Thanks
    cjking
    Does this not make a nonsense of the "100% of salary" limit?
    Didn't spot an answer to this, so decided to chip in. Not it doesn't make a nonsense of the limit, your minimum wage salary could be put into a pension as a personal contribution. Also, your personal contribution doesn't have to come out of salary, it could be made out of any other money that you have.
    • chucknorris
    • By chucknorris 2nd Mar 17, 2:21 PM
    • 8,654 Posts
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    chucknorris
    Also, your personal contribution doesn't have to come out of salary, it could be made out of any other money that you have.
    Originally posted by cjking
    That is not true, it has to be 'relevant earnings':

    http://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/member-contributions-tax-relief-and-annual-allowance/

    For example I have quite a bit of rental and dividend income, neither are allowed to be used for pension contributions and tax relief claimed.
    Last edited by chucknorris; 02-03-2017 at 2:23 PM.
    Chuck Norris can kill two stones with one bird
    The only time Chuck Norris was wrong was when he thought he had made a mistake
    Chuck Norris puts the "laughter" in "manslaughter".
    After running injuries I now also hike, cycle and swim, less impact on my joints.

    For the avoidance of doubt Chuck Norris is an actor and an ex martial artist (not me)
    • ThinkingOutLoud
    • By ThinkingOutLoud 2nd Mar 17, 3:29 PM
    • 497 Posts
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    ThinkingOutLoud
    True Chuck, although if the OP has under-contributed in prior years, he can use money from any source to make up his cash input to the "relevant permitted maximum contributions". i.e. he can use other income to make back contributions not to calculate his total "salary".
    I am just thinking out loud - nothing I say should be relied upon!
    I do however reserve the right to be correct by accident.
    • Clifford_Pope
    • By Clifford_Pope 2nd Mar 17, 3:40 PM
    • 3,141 Posts
    • 3,082 Thanks
    Clifford_Pope
    That is not true, it has to be 'relevant earnings':
    .
    Originally posted by chucknorris

    You can fund it from any source you like. It's the calculation of the limit that is related to relevant earnings.
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