Wage has increased but how much to invest?

Stroppypops

Brief histroy first. I am 27 and have recently moved from this wage:

£ 34,007 notional salary +
£ 2,040 flex benefits (can be invested in pension or other benefits or paid into my wage) +
£ 1,114 bonus +
£ 1,200 profit sharing
= £ 38,361
To this wage:
£ 36,625 +
£ 2,197 flex benefits +
£ 3,400 bonus +
£ 1,200 profit sharing
= £ 43,423
This has therefore moved me into the higher tax bracket and I am now wondering how much to invest into my pension scheme. Currently my employer pays in 3% of my salary and I pay nothing. For each 1% I invest they invest an additional 0.1% up to 6% personal contribution (which is what my flex benefits equals). To invest more it would come off my flex benefits entitlement which on my payslip is just below my normal salary. If it helps my personal allowance is £ 9,319.
I am also wondering if this is what is known as a salary sacrifice pensions or something else.
As I am young(ish) i know now is the best time to invest more plus I can avoid 40% tax so I just need some guidance on how much to invest.

HappyMJ

Do you own a house or do you rent? If you rent are you happy renting?

My calculator tells me with your tax code you don't quite pay 40% yet.

0.1% for every 1% isn't really a good deal for locking your money up for decades to come.

Lokolo

I don't know what your personal allowance will be next year (yours is high this year for some reason), but its likely you will fall into the HRT band.

If your flex options are anything like mine, you can reduce your tax liability by buying into some options such as additional salary sacrifice (also reducing NI), share scheme and some other small things.

Email your pension department and ask whether additional pension contributions go through salary sacrifice or not. It should also say in your pension booklet, mine does anyway.

Stroppypops

HappyMJ wrote: »

Do you own a house or do you rent? If you rent are you happy renting?

My calculator tells me with your tax code you don't quite pay 40% yet.

0.1% for every 1% isn't really a good deal for locking your money up for decades to come.

I own a house.

I think as of April I will be paying higher rate tax. Tax free allowance is 9319 so add that to 32,010 equals 41,329. I earn
£43,423 which is over this.

Am I wrong? Could well be to be honest.

jamesd

Stroppypops wrote: »

I am also wondering if this is what is known as a salary sacrifice pensions or something else.

A salary sacrifice scheme is one where the cost of pension and other benefits is deducted from gross pay before both tax and NI, in conjunction with restrictions on changing the non-pension parts during the year only due to lifestyle events of specific types, like marriage. If there is no mention of NI saving or lifestyle events in conjunction with restrictions on changing things during the year it is not a salary sacrifice scheme.

Benefits points and deducting costs before tax but not before NI don't make a scheme a salary sacrifice one.

In a salary sacrifice scheme an employer saves 13.8% NI on any money you sacrifice. So a 1% of pay contribution would save an employer 0.138% of pay in NI. It's common to share this with employees and that might be where 0.1% comes from, though it's not really from the employer but from HMRC and the NI saving.

It isn't necessary to use salary sacrifice to reduce tax liability. If it is salary sacrifice you tell HMRC the after-sarifice salary. If it's not salary sacrifice you tell HMRC the "gross" amount of pension contributions after basic rate tax relief is added and HMRC will adjust your basic rate band higher to give you the higher rate tax relief each month.

Stroppypops

So it looks like I've got a salary sacrifice and I should invest about 2k a year to bring me back down below the 40% threshold. Does this sound right?

jamesd

If it is salary sacrifice the amount looks right.

FatherAbraham

HappyMJ wrote: »

0.1% for every 1% isn't really a good deal for locking your money up for decades to come.

The need for sufficient income in retirement needs to be satisfied somehow. Free money for that is a bonus.

Warmest regards,
FA