How much should I be paying into a pension?

Lokolo

jem16 wrote: »

He's quoting yearly figures, not monthly figures.

He also seems to think that by changing the tax figures that it's going to make my figures wrong.

Oh! Makes sense.

85% tax rate on £10k is £1.5k a year. Got it.

Racheldevon

Ok, thanks..

Gross 2685.82
Deductions: 893.78 (tax 412.40, NI - A £250.06, Pension £102.32, Student loan £129)
Tax code 747L/0
Net pay 1792.04

ffacoffipawb

jem16 wrote: »

No it isn't. ( and saying it umpteen times dioesn't make it true either )



Nobody is denying what you are saying. Again doesn't make it correct.



Which would mean you get 85% tax relief.



So far so good.



Of course you would. Take home pay has reduced by £150 which is 1.5% of £10,000. Just the same as an 85% tax rate would would mean that you would pay 15% of 10% pension contribution which is exactly 1.5%.



Yep absolutley correct as i have shown.



I think you had best give up.

Pension contributions ( in the case of most company pensions ) are paid gross. Tax relief is paid on gross contributions. Your net pay reduction is based on gross figures.

We have no doubt that your net pay comparisons are perfectly mathematically correct and if that's the way you want to think about it then great.

However to make sense of what is happening and to make sure figures paid into a pension are correct you have to look at the gross figures.

If he had said that net pay had reduced by 4% of gross pay that would be correct.

He didn't say that.

He said net pay had reduced by 4% and, in the absence of any other info, this would be taken to mean reduced by 4% of net pay (as that is what he mentioned), which is wrong. Clearly.

Jeez.

jem16

Racheldevon wrote: »

Ok, thanks..

Gross 2685.82

So your gross salary is actually £32,229.84?

Deductions: 893.78 (tax 412.40, NI - A £250.06, Pension £102.32, Student loan £129)
Tax code 747L/0
Net pay 1792.04

It looks like your 5% is being taken from net pay and not gross pay.

£2685.82 - £412.40-£250.06 = £2023.36. 5% of that is £101.16

Racheldevon

Yes that's right re gross salary

Is it usual practice for pension to come out of net pay rather than gross? Presumably my student loan comes out after Tax and NI too in that case?

jem16

ffacoffipawb wrote: »

If he had said that net pay had reduced by 4% of gross pay that would be correct.

Well at leat we agree on that.

He said net pay had reduced by 4%

Which it has.

and, in the absence of any other info, this would be taken to mean reduced by 4% of net pay (as that is what he mentioned),

No it wouldn't. In the absence of any other info, any IFA, accountant or indeed anyone who knows anything about pension contributions and tax relief, would see it exactly as he meant it - net pay is reduced by 4% of gross pay.

dunstonh

£1000 income with 5% contribution is £50.
50/1000 = 0.05
0.05*100 = 5

However, the take home pay is not reduced by £50 but by £40 as £10 of that £50 is tax relief.

40/1000 = 0.04
0.04*100 = 4

So, someone paying 5% contribution is not going to see their take home pay reduced by 5%. They are going to see it reduced by 4%.

He said net pay had reduced by 4% and, in the absence of any other info, this would be taken to mean reduced by 4% of net pay (as that is what he mentioned), which is wrong. Clearly.

You are over complicating it.

A common misconception is that someone paying 5% (lets say £100pm) into a pension through their payslip will be £100 better off if they stop it. They are not. They will only get £80 (4%)

Is it usual practice for pension to come out of net pay rather than gross? Presumably my student loan comes out after Tax and NI too in that case?

Gross pay (as shown above)

jem16

Racheldevon wrote: »

Is it usual practice for pension to come out of net pay rather than gross?

Final salary pensions always come out of gross salary. Most company pensions also come out of gross salary but some do not - not sure which to be honest. Perhaps Dunstonh can help you there. Private personal pensions are always paid from net but not through your salary.

Presumably my student loan comes out after Tax and NI too in that case?

NI is paid from gross figures.

I have no idea abouit student loans - never had to pay one. Lokolo might be able to help you on this.

Lokolo

jem16 wrote: »

I have no idea abouit student loans - never had to pay one. Lokolo might be able to help you on this.

Gross unfortunately.

(suppose I shouldn't complain really!)

Racheldevon

I think i'll be paying my student loan for the rest of my life at this rate!

At the point I joined the company the final salary scheme stopped. I haven't yet opted into the salary sacrafice scheme, at the time the tool they sent round to calculate whether or not you'd be better off suggested it wouldn't make any difference really. Not sure if this has changed with incremental increases in pay