Army Pension & Salary Sacrifice

Linton

13Kent wrote: »

Sorry to jump on this thread, but would someone mind explaining exactly how this works as hubby is in a similar position, he has a salary which is just hitting the 40% tax rate, but he also gets a monthly pension of which he loses 40% to the tax man before it goes into the bank. He is paying into a company pension (he thinks he's paying the most he can pay in pension contributions via his salary but maybe it's just the top amount that the company matches so he might be able to contribute more). If he was able to put more into his company pension how would that affect the amount of money he actually gets each month as we can't afford a drop in the amount that actually goes into the bank each month.

Hope that makes sense! Thanks in advance.

If he cant pay into his company pension he could set up a private pension and pay into that.

If he is being taxed at 40%, then for each £80 he contributes out of taxed income into a private pension £100 will go into his pension and £20 will be returned to him. So his take-home income (pension + earnings) is reduced by £60. If he contributes to his employer's pension then he would (probably) put in £100 with a loss to total income of £60 - it would work out the same. How the drop in total income is split between his earnings and his pension depends on where the money comes from and how HMRC sort out the two tax codes.

When he comes to take the £100 extra pension 25% is tax free, so if he is on standard rate tax when he retires the £60 net he contributed turns into £25 + 0.8*£75 = £85 net (a 42% return) even without any investment gains.

If you cant afford a drop in his take-home pay have you worked out how you will survive after retirement? Unless there are other factors, surely finances shouldnt be that tight for someone with total earnings + pension of more than £42K.

13Kent

Thanks for your advice.
We already have small amounts being paid monthly into private pensions.

Yes, there are other factors which include a hefty monthly CSA (child maintenance) payment.