Increase salary sacrifice - stop mortgage O/P's??

BoxerfanUK

Ok so,

Me age 57 her age 55

Me: Currently drawing DB pension from PCSPS (retired @ 55) but re-employed and accruing additional DB pension, will achieve max 45/80 by 03/18 approx 22K pa by then, just accruing additional 3/80 LS pa after that.

OH: currently has very modest DC pot which will be approx' 48K by 31/3/17

Objective: We both want to quit work by 31/3/20 where plan is she will take 25% TFLS and drawdown approx 1K per month tax free to tide us both through until state pension age. I will be 61 she will be 58 by then.

She already has state pension forecast of £162 per week. I plan to pay class 3 NI between Apr 2020 to 2022 to qualify for max new State pension.

If we continue with current arrangements Mortgage paid by Nov 2020 through O/P ing £1300 pm and with her current SS (20K pa) her pot estimated to be 127K by 03/20 including employer contributions (excluding any growth in the fund) This pot would last just under 8 years after TFLS (31K) taken, when it would be exhausted.

IF she increased SS to £45,740 pa (£55,114 pa with employer contrib's) her pot would be approx £213K, so 86K higher. After TFLS of 53K pot would be 160K which would last 13 years 4 months assuming DD at a flat 1K pm.

By not O/P ing mortgage and increasing SS still further we would owe approx' 41K motgage of which we could use bulk of higher TFLS to pay it off.

Current mortgage fix comes to an end next month and we are considering 2 yr fix @ 1.73% or 3 yr fix @ 2.04%

Current salary (from 1/1/17) 80K + 2x 6 monthly bonuses approx 4-5K each

Her previous earnings;

2013/14 Gross £53,598 pa
2014/15 Gross £71,654 pa
2015/16 Gross 72,093 pa
2016/17 Gross £77,246 pa (projected)

Question is, have I got this right? How do we best do this? Or, and suggested alternative ideas welcome.

Thanks again.

RickyB2000

zagfles wrote: »

Even if no other taxable income, she could still get 52% relief on part of the contributions by making uneven contributions throughout the year, since tax is assessed on annual income and NI is assessed on pay period income.

For instance on £80k with £37k sal sac contribution, she'd get 42% relief if evenly spread contributions.

But if the £37k sal sac was spread over 7 months of the tax year instead of 12, tax would be the same but NI would be £1541 less.

Of course need to watch out for min wage and also any min employee conts to get max employer conts.

How 'legitimate' is this? If you have been making uneven contributions for the sole purpose of saving extra NI could you see HMRC come after after you for the NI (assuming you have done it for a few years)?

jamesd

Good grief, you're both 55 or older! Using higher tax free lump sum with salary sacrifice makes sense. Even someone who didn't want to do that and wait could give up the NI gain, use a personal pension and benefit that way, more quickly.

Some work schemes will allow transfers out and if hers will allow that she could do it every year or two.

jamesd

RickyB2000 wrote: »

How 'legitimate' is this? If you have been making uneven contributions for the sole purpose of saving extra NI could you see HMRC come after after you for the NI (assuming you have done it for a few years)?

No hint of illegitimacy. Nobody is required to take even pay.

There is a proposal to change the NI handling but the reason given was to remove the way a person with two part time jobs would pay less NI than one one the same income in a single job, and help seasonal workers.

RickyB2000

jamesd wrote: »

No hint of illegitimacy. Nobody is required to take even pay.

There is a proposal to change the NI handling but the reason given was to remove the way a person with two part time jobs would pay less NI than one one the same income in a single job, and help seasonal workers.

Could someone also exceed the annual allowance and pocket the NI savings? Say if you were approaching retirement age with a high income?

jamesd

I'm not quite sure what you mean but I am using salary sacrifice downtown a little over minimum wage and using annual allowance carry-forward to contribute more than £40k into pensions this tax year. Since I also have a lot of investment income I'm getting 12% employee NI saving and 40% income tax saving on a fair chunk of my pension contributions. Plus half of my employer's saved employer NI. I'm not varying my income through the the year, at least not deliberately, because I now have enough savings and non-work income to try to be just above minimum wage all year. The fruits of a decade with a savings ratio above 60%.

RickyB2000

What I mean is assume I don't have any carry forward but plenty of income. I salary sacrifice £40k and get the tax and NI relief. However I decide to salary sacrifice another £40k. As I understand I have to pay tax on this at my marginal rate. But do I have to pay back the employee and employer NI saving? If not, then I would gain the NI in my pension (though pay tax on it at marginal rate that waters the benefit down). As long as I take this money out within my allowance.