Increasing pension contributions to avoid 40% tax.

xylophone

Salary sacrifice of course means just that, so. A reduction in salary could have an impact on things like mortgage borrowing based on multiplier of salary.

But often the employer's "scheme reference salary" is used for this.

http://www.out-law.com/page-10285

grey_gym_sock

citricsquid wrote: »

Surely the relatively small amount of money the government loses to salary sacrifice is worth it when it encourages people to invest in building their pension?

but why give more encouragement to employees whose employers happens to have salary sacrifice pension schemes than to employees whose employers (foolishly) don't? and more encouragement to employees than to the self-employed?

i'd rather the encouragement (i.e. money) were spread around more equitably.

Downsizing__for_sanity

Hi, I have a similar query. My husband is in the £50-60k bracket so we are not sure how the Child Benefit changes will affect us exactly yet. He already salary-sacrifices the max into Childcare Vouchers (I am a full-time student so we do need Childcare although I am not yet earning). I spoke to the Self Assessment HMRC people today and they said he could pay into a pension and this would reduce his tax bill. However, he is lucky enough to still be in a non-contributory pension scheme still, in the military, and someone said that as the govt pension is so good, you can't put anything more into a pension. I find this hard to believe as although it's pretty good (now, there are changes ahead) can't you choose to save more for the future if you want? Grateful for any clear answers. I can't find anything detailed online.

Ellie (DFS)

atush

Yes, he could possibly make AVCs (if the arlmy does them) but if not he can put some into a personal pension and that will help.

As a guide, you get 100% of your CB if he makes 49,999 and you get none if he earns 60,000. So, it is on a sliding scale between those two points. So find out his actual salary and if it is say, 52K, you'd lose 20% of your CB etc.

As a side note, if you are not earning, any savings you both have, not in Isas, should be in your name as he would pay 40% tax and you pay nil. And you too can have a pension, you can contribute up to 2880 a year into a pension, and the govt will raise it to 3600.

Downsizing__for_sanity

Thanks Atush. Just to clarify: I started paying into a stakeholder pension when I left my job to study, so I could try not to lose pension years IYSWIM. But that is only receiving tax relief at basic rate as I'm a non-taxpayer. (However though, it comes out of our household income, earned by him) That's the reason we chose to carry on getting CB - to keep me up to date with NI while I am training.


I know the numbers re CB - however, it is the salary itself which is variable. He is out of the country just now and so gets paid a extra sum each day - small but it adds up, and even though its designed to either "reward" the guys for being in a dodgy environment, or to compensate for the extra costs of being away (eg we are a single parent family right now, no family to help out and increased Childcare costs). So that amount which is supposed to help -depending on the number of days away, which we don't know yet - could very well tip us over into the £60k area ironically.

Looks like the personal pension is the way to go then. Hopefully he can do this remotely unless I am able to sign him up with all the details.

Cheers for the reply.

xylophone

Maybe a SIPP? http://www.hl.co.uk/pensions/sipp

http://www.thisismoney.co.uk/money/pensions/article-2192562/Trick-avoid-losing-child-benefit-boost-pension.html

http://blogs.telegraph.co.uk/finance/ianmcowie/100020984/how-to-beat-the-child-benefit-rule-change-and-other-tax-hikes/

might be worth a look.

bilbo51

jem16 wrote: »

Why would it be 30%?

Sorry. 20%. I seem to remember a time when it was 30% - just living in the past I guess!

atush

Downsizing, you could help him apply for a PP or a Sipp online. Look at HL as mentioned, and cavendishonline.

SIPPs are required if you want to invest in single shares and some other assets but can be more expensive. If you will just invest in collective funds such as OEICS, trackers and Investment trusts, you can use a PP.

grey_gym_sock

you could make a more accurate estimate of his income near the end of the tax year, and then make a lump-sum pension contribution big enough to reduce his remaining income to £50k. or at least part way there.

zagfles

You just need to watch out for the annual allowance (£50k this tax year, £40k next year), which includes employer contributions. In the case of defined benefit schemes (final salary etc) these can be complicated to work out and a pay rise could result in a big deemed employer contribution. But you can carry forwards unused allowance from earlier years, up to 3 years.

See http://www.hmrc.gov.uk/pensionschemes/annual-allowance/pension-input.htm