Helping our daughter

downshifted

Our daughter, aged 32, is in her company pension scheme at the maximum amount, but we know it is no where near enough. It is a salary sacrifice scheme and she and the employer each contribute 3% (although it shows up only as an employer contribution). The employer will not contribute more.

The scheme is in Scottish Widows Pens Portfolio 2 and she has about £6k in the fund.

I have suggested a SIPP and we would put some money in for her every month (£100 to start with, and perhaps a small lump sum here and there). My questions are

- does that make sense?
- what platform would be the most economical to use?
- I would be suggesting Vantage Lifestyle 100 - any other suggestions?
- Would she have to open it and pay it and we send the cash to her, or can we pay it in direct?
- how would she claim the tax relief? She doesn't need to fill in a tax form at present

Thank you for any help you can offer.

xylophone

http://www.moneysavingexpert.com/savings/cheap-sipps

The provider will claim basic rate tax relief - if your daughter becomes a higher rate tax payer, then she will need to claim the additional tax relief from HMRC.

You should be able to make the pension contribution.

kidmugsy

If your daughter is a basic rate taxpayer, can contribute no more by sal sac, and can harvest no more employer contributions, then a LISA might suit her from 6/4/17 onwards.

If she is a basic rate taxpayer and could contribute more to the employment scheme by sal sac then it would be a better bet than either a SIPP or a LISA because she would then avoid 20% tax and 12% national insurance.

If she's a higher rate taxpayer then she should opt for either the sal sac route (42% tax plus NIC avoided) or the SIPP (40% tax avoided).

So it would be wise to establish unambiguously whether her employer will allow more sal sac by her, even when it will contribute no more itself. Allowing extra employee contributions by sal sac is quite common, I understand.

bigadaj

It would be slightly odd for the employer to limit the salary sacrifice contribution to a pension as they are obviously saving the employers NI contribution as well, this could be retained by the company, put wholly into the employees pension or split.

jamesd

downshifted wrote: »

Our daughter, aged 32, is in her company pension scheme at the maximum amount

So she's sacrificed all the way down to the point where she is now on minimum wage, the lowest the employer is legally allowed to let people go?

downshifted wrote: »

The employer will not contribute more.

Salary sacrifice in the basic rate band gives total of 32% in tax reliefs, 20% income tax and 12% employee NI. Many employers also contribute half or all of their own 13.8% employer NI saving. In the higher rate range the income tax saving is 40% and the employee NI saving is 2%. The employer NI saving doesn't change.

downshifted wrote: »

I have suggested a SIPP and we would put some money in for her every month (£100 to start with, and perhaps a small lump sum here and there). My questions are

- does that make sense?

Only if she has salary sacrificed all the way down to minimum wage or if her pay is so low after the salary sacrifice that it is all within the personal income tax allowance range. At basic rate she would get only the 20% basic rate income tax gain while in salary sacrifice with pay still over the personal allowance she'd get between 32% and 45.8%.

downshifted

Thank you for all your comments. I am having difficulty reconciling your views with the email I have seen from her HR Manager, in response to a number of questions we asked, that says:

What are the different options for contribution levels? There is only one contribution level which is 3%. The employee has to contribute 3% for (the employer) to match the 3%. Alternatively (the employer) has an Auto Enrolment group scheme with Scottish Widows. Currently (the employer) and the employee obligation is 1% matching. If you would like to discuss this further please give me a ring.

If we take this response at face value do the proposals I have outlined above make sense please? All the details in my first post are correct and she is a basic rate tax payer

bigadaj

downshifted wrote: »

Thank you for all your comments. I am having difficulty reconciling your views with the email I have seen from her HR Manager, in response to a number of questions we asked, that says:

What are the different options for contribution levels? There is only one contribution level which is 3%. The employee has to contribute 3% for (the employer) to match the 3%. Alternatively (the employer) has an Auto Enrolment group scheme with Scottish Widows. Currently (the employer) and the employee obligation is 1% matching. If you would like to discuss this further please give me a ring.

If we take this response at face value do the proposals I have outlined above make sense please? All the details in my first post are correct and she is a basic rate tax payer

It's probable that the hr manager doesn't have a good understanding and hasn't been asked this question before.

There should be nothing stopping her contributing additionally to the pension, with the company limiting their contribution to 3%, under salary sacrifice she should at least get her savings in national insurance even if the comoany don't add any of theirs, so it should be better than a sipp.

mark5

So your daughter has the option of paying a larger contribution into Scotish widows with a matched employer contribution?

pathtofreedom

I have salary sacrifice but not with scottish widows. My employer will match to 9% but I pay 16% right now as to keep me below the hrt tax threashold. I can change my percentage each month depending on what I feel like, I normally up it a little bit more if I know I'm doing a lot of overtime for a month or two.

So she'd need to find out can she change her's monthly like that, or is stuck with deciding a percentage across the whole of the year.

The other thing to consider though is what are the fee's for the scottish widow pension, as again depending if she is a hrt tax payer or not, that might mean you can find a sipp with cheaper fee's possibly although salary sacrifice should win over all as you're saving NI as well as income tax with that.

ischofie1

By far the best is to increase her contributions to the company scheme via S/sac (if she can). As previously mentioned, HR may not fully understand hence not giving clear instructions. The only thing that would stop additional contributions would be if the current pension contributions have brought your daughter down to Nat min wage.
Assuming she can contribute more, then puting £147 P/M extra (from gross pay) in to her pension will results in in a reduction of £100 from her take home pay (net). Then you could give her £100 P/M to make this up.

downshifted

mark5 wrote: »

So your daughter has the option of paying a larger contribution into Scotish widows with a matched employer contribution?

No idea where you get this idea? Nothing in the posts suggests this!