Maximising Pension Contribution

Old_Slaphead

Hi,

Say I have a salary of £20,000pa additionally my employer makes a pension contribution of £4,000pa under a salary sacrific arrangement.
What is the maximum amount I'm allowed to contribution to my pension plan for the year.....presumably it is either (a) £20,000 or (b) £16,000 ?

jem16

Old_Slaphead wrote: »

Hi,

Say I have a salary of £20,000pa additionally my employer makes a pension contribution of £4,000pa under a salary sacrific arrangement.
What is the maximum amount I'm allowed to contribution to my pension plan for the year.....presumably it is either (a) £20,000 or (b) £16,000 ?

£20,000 gross would be your maximum for tax relief. The employer's contributions don't count towards that. However the problem will arise when you get below your personal allowance as you won't get the benefit of the tax relief at that point. Technically though, with salary sacrifice, all of the contributions are your employers.

Your employer's contributions would count towards the annual allowance of £40k though.

Old_Slaphead

jem16 wrote: »

However the problem will arise when you get below your personal allowance as you won't get the benefit of the tax relief at that point.

Thanks jem.

Could you clarify above comment ?

Presumably if I paid in £16,000 it would get grossed up to £20,000 no ?

Lokolo

Old_Slaphead wrote: »

Thanks jem.

Could you clarify above comment ?

Presumably if I paid in £16,000 it would get grossed up to £20,000 no ?

I don't think so.... contributions via salary sacrifice aren't grossed up at all because it comes out of your gross pay.

jem16

Old_Slaphead wrote: »

Presumably if I paid in £16,000 it would get grossed up to £20,000 no ?

No - as Lokolo says, salary sacrifice gives you full tax relief as your taxable pay has been reduced so you pay less tax and NI.

Old_Slaphead

Thanks both.

I didn't mean the salary sacrifice bit.

I was suggesting that, to maximise my pension contributions this year, in addition to the SS - could I pay a net contrib of £16,000 which would get grossed to £20,000 (based on contributing 100% of earnings of £20,000) ?

jamesd

Old_Slaphead wrote: »

Say I have a salary of £20,000pa additionally my employer makes a pension contribution of £4,000pa under a salary sacrific arrangement.
What is the maximum amount I'm allowed to contribution to my pension plan for the year.....presumably it is either (a) £20,000 or (b) £16,000 ?

Unlimited but you will only get tax relief on the first £20,000 and will have to pay a penalty for exceeding the annual contribution allowance if the total exceeds £40k plus any carry-forward from the last three years.

So desirable limits are:

1. £6,480 via salary sacrifice. This is because it is illegal for your employer to pay you less than minimum wage and minimum wage is £6.50 an hour for I assumed 52 weeks of 40 hour weeks. Whatever allows minimum wage is the real limit.

2. Gross personal pension contributions of an additional £13,520, or whatever the applicable minimum wage is.

Or if not using salary sacrifice you could do £16k net, £20k gross. But salary sacrifice saves you NI so it's the better deal to the limit of what is permitted.

Old_Slaphead

What I meant to ask was based on a salary of £20,000, I could pay a maximum pension contribution, for tax relief purposes, of £16,000 net (£20,000 gross).

Is that maximum figure affected by the fact that in addition to the above salary my employer makes an additional £4,000 SS payment to my pension.

xylophone

The maximum tax relievable contribution to your pension across all pension arrangements in any one year is £40,000 (plus top up if applicable see here https://www.gov.uk/tax-on-your-private-pension/annual-allowance).

In your particular case, you have your occupational pension for which the employer/ government contribution is £4000 per annum and a PP/stakeholder/SIPP?

Your taxable income is £20,000. You can therefore contribute £20,000 gross (£16000 net) to your PP/stakeholder/SIPP outside your employer's arrangement and be well within the annual tax relievable allowance.

Old_Slaphead

xylophone wrote: »

In your particular case, you have your occupational pension for which the employer/ government contribution is £4000 per annum and a PP/stakeholder/SIPP?

No I don't have an Occupational Pension Scheme.

My employer pays £4,000 to my stakeholder by way of a salary sacrifice arrangement.
I have a salary of £20,000 - can I make a further net contribution of £16,000 (ie £20,000 gross)?

xylophone

You can make the contribution to your stakeholder of £16000 and the provider will claim tax relief of 20%.