Pension Lump Sum contributions

MoneySavingUser

I have recently been made permanent in my current job and have joined the employers pension scheme which is a group SIPP with Hargreaves Lansdown and will be contributing 3% via salary sacrifice and my employer will contribute 2%.

I have never had a pension before/made any contributions.

My current salary is £16k. I am 25 years old and as I haven't made any pension contributions before I would also like to make a lump sum contribution.

I'd just like to confirm my understanding is correct:

1. The maximum amount of employer normal contributions + employer salary sacrifice contributions + my lump sum contributions must be less than 50K - so no problem here

2. The maximum amount of personal contributions cannot be more than my gross pay (after salary sacrifice has occurred) - as I am using salary sacrifice I assume this only applies to lump sums now?

3. If I pay in a lump sum of £5000 it will be grossed up to £6250 with tax relief

4. Is there anything else I need to consider? (I know I can't take the money back out like with an ISA etc.)

kidmugsy

Do I understand correctly that you can't make a bigger contribution by salary sacrifice and therefore are going for the less attractive option of a lump sum contribution? Are you quite sure that you can't salary-sacrifice more?

MoneySavingUser

I suppose I can probably salary sacrifice more but I'm more interested in making up for lost time i.e. the last few years since graduating that I haven't contributed anything as I have a pot of money that I can contribute straight away.

I guess if I salary sacrificed more I'd put in a bit more due to the NI saving being used but it would take longer to put in the full 5000

kidmugsy

MoneySavingUser wrote: »

I suppose I can probably salary sacrifice more but I'm more interested in making up for lost time ...
I guess if I salary sacrificed more I'd put in a bit more due to the NI saving being used but it would take longer to put in the full 5000

You'd be better off doing it by sal sac. Meantime keep the unused funds in an ISA where they'll grow tax-free. This is a winning combination.

ozzage

I wouldn't necessarily discourage the OP from putting in a lump sum to give the pension a head start.

Yes it will be grossed up due to the tax relief!

kidmugsy

ozzage wrote: »

I wouldn't necessarily discourage the OP from putting in a lump sum to give the pension a head start.

Yes it will be grossed up due to the tax relief!

What has a "head start" to do with anything? Isn't it rather a misleading analogy? After all if all he wants is more time for an investment to grow, he gets that by putting some of the money into an ISA.

zagfles

For salary sacrifice you usually have to commit for a year, also you can't sacrifice such that it takes you below NMW after the sacrifice.

Whichever you do, you may also be able to claim working tax credits, as they are based on income after sacrifice/pension contributions.