Salary Sacrifice??

hyperhypo

replying with thanks to James......

...no my wife has no pp arrangments othe than full state entitlement. she is self employed limited hours.

I have a 12 year membership of a final salary scheme due to pay 12k pa in todays money in 10 years time.

I have just started contributing to my new employers stakeholder scheme with the intention of reducing exp to 40% tax and retaining some child benefit...... but am limited to choice from the available Aegon SE stakeolder funds.
Estimate that £20k gross p.a. going into funds.....and picking those is another question.

...i've never really considered tax before but thought naively that i might be able to make my pre tax contributions into her scheme too !!

I guess i just need to place as much as can afford at present into the stakeholder pot whilst i am fortunate to be in work.

jamesd

hyperhpo, it seems that you're well on track to be able to use Flexible Drawdown instead of capped drawdown once the state pensions start for you and that's a further incentive to have the pension contributions mostly made in your name rather than hers. Contributing for both people is good generic advice but here there's such a mismatch in your two situations that yours is the best one to use.

Your wife will probably be one of the winners from the flat rate state pension cut for employees, since self-employed will be able to get the flat rate, which is higher than the basic state pension. While you'll probably be worse off, with a block on gaining more Additional State Pension entitlement after the new scheme comes in, assuming it does.

She can probably best improve her position by deferring taking the state pension for a few years, perhaps as many as five if her health at that time is quite good. Living costs while doing that can be paid for out of your income, or life assurance payout and transfer of your personal pension assets to her if you were to die first and didn't use them to buy a single life annuity but used a dual life one or drawdown or some combination.

You might want to check whether your employer will allow partial transfers out occasionally into another scheme that has more investment options. I've had good fortune in being able to do that in my work schemes. If they don't allow that normally you could ask them what happens if you opt out then ask to opt back in, can you transfer while opted out. An employer has to accept at least one opt in request every twelve months, so it's a potential workaround. If you can't do that then it's worth evaluating whether it's better to put some of your pension contributions elsewhere, will depend on how much you already have elsewhere and how restrictive the investment choices are when combined with what you can do elsewhere - you can use one pot for some investments and the other for others.

hyperhypo

James,

i neglected to say that i have an aviva pp which was created by opting out of serps in 1989.....nothing has been paid into it since c.2000 when i joined employers scheme.........it has a present transfer value of c. 23k .... a. i don't know what to do with it other than leave it alone ... and b. i don't know how its presence will affect my regular state entitlement.
Thanks again here for your input.

jamesd

hyperhypo, you don't accumulate earnings-related Additional state pension under SERPS or now S2P when contracted out of that system but those years still count for the Basic State Pension. You'll get whatever income teh Avaia pot of money can provide in addition to whatever you get under the state pensions.

If the proposed flat rate cut to the state pensions for employees happens, those who have contracted out will still keep their pot of contracted out money and will be able to accumulate more years towards the 35 year total required. There will be some adjustment to the number of years earned so far to allow for having been contracted out.

You can transfer the Aviva pot if that makes sense to either get a broarder range of investments or to get them more cheaply. these days the "protected rights" money is just a normal pension pot without any of the old protected rights restrictions. It can be merged into any other form of personal pension. So first think about what you invest in, then look for the best place to do that and transfer the Aviva pot if that makes sense. Check with Aviva to be sure that there are no guaranteed annuity rates on the plan, though it seems unlikely that there would be.

hyperhypo

The question of what to do with the aviva £23k has been exercising me too.....it has no guar. annuity but does have a guaranteed bonus of 4%.

My initial hunch was to transfer it out and into a HL Sipp where i might test out my (juvenile) investment ideas... or something similar ...

....but then i consiered the 4% bonus ... a relic of the late 1980s and the fact that it appeared to have done reasonably well.... i recall being told that c. £8-9 k had bee paid in up until 2001 which was when i was in a work schece.....so then it didn't look too bad. I think the amc is 0.85%.

However, the bigger part of me would like to be more in control of where it is invested ..... truth is i don't really know how to go about it.

kidmugsy

hyperhypo wrote: »

... the aviva £23k ... has no guar. annuity but does have a guaranteed bonus of 4%.

Does that mean that every year there's a guarantee of at least 4% growth? If so, in your shoes I'd be tempted to keep it as a low-risk part of your pension portfolio, at least for the time being. 4% p.a. is far better than Gilts are paying, and is ahead of RPI inflation.

Your 12k pa from a final salarly scheme is (presumably) index-linked and is free of investment risk, so that's a very desirable part of your portfolio.

Your current workplace stakeholder pension is, I suggest, the part of your portfolio where you might want to experiment with a higher-risk investment strategy. What investment options does it give you?

gazza26

I wonder if anyone can help. I have a salary sacrifice pension from work I pay a percentage and the company pay a percentage and I understand how the tax works and why it looks like it does on my payslip. What I don't understand is that I also pay a voluntary contribution of £100 in to pension it is not via salary Sacrifice and is taken from my pay after tax and NI. I do pay some tax at 40% although want to reduce it as much as possible via paying into my pension fund. All the tax Calculators I can find online only allow for one method of pension payment. How can I work out the minimum I can put into my pension before I get charged the 40% tax rate on my earning.
Also is it always the case, as with a previous pension company, that i have to pay the tax at 40% each month then claim it back at the end of each tax year.
If anyone can help me I would be most grateful.
many thanks

Paul_Herring

gazza26 wrote: »

All the tax Calculators I can find online only allow for one method of pension payment. How can I work out the minimum I can put into my pension before I get charged the 40% tax rate on my earning.

Where the tax calculator asks for your gross wage, put in your gross minus any salary sacrifice amount you contribute.

um5000

Does anyone know if the pension company needs to agree to a salary sacrifice being operated?

My wife pays in (and so does her employer) to a stakeholder pension scheme, but the pension provider has been claiming that she can't operate salary sacrifice (which she has only recently been offered by the employer) on this particular scheme. If she wants a new scheme she'll have to arrange it through a financial adviser, go through a transfer process, possibly incur fees etc etc and delay accepting the salary sacrifice option.

Surely it shouldn't matter as long as the pension continues to be funded one way or another?

Is salary sacrifice not just an arrangement between employer, employee and HMRC?

jamesd

With salary sacrifice the whole pension amount is paid in as an employer contribution.

It is possible that a pension company might have a pension product that has no provision for employer pension contributions and which always adds 25% to give basic rate tax relief, something that would break the law in the salary sacrifice context.

What scheme do the other employees use for salary sacrifice? She could presumably use the same one. She could also seek employer and pension company agreement to periodic transfers out to another pension to get access to additional investment options, if necessary.