Pension contribution - was is included in the £40k yearly limit?

martinsurrey

zagfles wrote: »

Yes it is. You can't salary sacrifice below NMW. You can pay in using "net pay" or RAS to below NMW but not sal sac.

HappyHarry wrote: »

I respectively disagree.

By using salary sacrifice, your employer is paying you less money and making a larger employers contribution on your behalf.

Your remaining salary must remain above minimum wage.

If you make a personal contribution, you are able to make as large a contribution as you want, up to the limits, with no regard for minimum wage.

and just to make sure the point is clear

https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

there it is from the Government in black and white

"A salary sacrifice arrangement can’t reduce an employee’s cash earnings below the National Minimum Wage rates."

you can put your earnings into a pension AFTER you have been paid it, (and claim the tax back) but you cant salary sacrifice below NMW.

ThinkingOutLoud_2

HappyHarry wrote: »

I respectively disagree.

By using salary sacrifice, your employer is paying you less money and making a larger employers contribution on your behalf.

Your remaining salary must remain above minimum wage.

If you make a personal contribution, you are able to make as large a contribution as you want, up to the limits, with no regard for minimum wage.

Agreed.

Salary Sacrifice has rules around minimum wage.

AVC do not.

BoxerfanUK

jamesd wrote: »

You can also carry forward unused annual allowance from the past three tax years provided you were in any pension scheme.

jamesd,

On that point, as far as I understand, in order to make use of the 3 year carry forward you first have to have paid to the limit (40K) in the current tax year. This tax year my OH will have paid in 20K including employer contribution and as this tax years end is fast approaching she's not going to be able to pay in anywhere near the 40K max.

She wants to increase Salary sacrifice for the coming 17/18 tax year for the next 3 years or so, but the amount she wants to sacrifice including employer cont' is around 55K pa which is 15K over the limit, so could she then apportion that 15K for the 14/15 tax year and then move on in the 18/19 tax year paying the extra 15K in that year from the 16/17 year and so on?

Hope that makes sense.

Triumph13

AA and carry forward are used up in the order:

1. Current Year
2. Year - 3
3. Year - 2
4. Year -1

So if she contributes £55k next year it would be £40k from 17/18 and £15k from 14/15 and so on.

jamesd

While she can't use salary sacrifice to achieve it this year, considering the use it or lose it state of any unused AA from 2013-14 it might be worth using personal pension contributions this year to use it and the rest of the 40k from this year.

Yes next tax year she can use unused allowance from 2014-15 and later years.

Using the 2013-14 bit in part might depend on how much longer she will keep working. If it's not many more years using it will matter more. But that has to be weighed in comparison to the higher gain from using the rest of this year's allowance for salary sacrifice. My guess is that preserving it for salary sacrifice and accepting the loss of unused 2013-14 will be best given how short she is this year.

jamesd

It's also worth noting that optimal salary sacrifice for a higher rate tax payer is lots of months just above minimum wage then the rest at full pay. This saves NI because NI is calculated for each pay period while income tax is over the whole tax year. So this way maximises the amount of pay on which 12% NI saving will be obtained, instead of the higher rate 2%.

LXdaddy

For the avoidance of doubt... it is assumed in the above that you are in a Defined Contribution scheme.

If you are in a Defined Benefit scheme then the increase in the value of your pension is taken into account, not simply the contributions that have been made.

Bootsox

martinsurrey wrote: »

and just to make sure the point is clear

https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

there it is from the Government in black and white

"A salary sacrifice arrangement can’t reduce an employee’s cash earnings below the National Minimum Wage rates."

you can put your earnings into a pension AFTER you have been paid it, (and claim the tax back) but you cant salary sacrifice below NMW.

If someone was sailing close to the wind re maxing out via salary sacrifice, could they exploit the government's (possible) typo in that they refer to cash earnings not going below National Minimum Wage rates?

Being over 25, I would ordinarily be entitled to the higher National Living Wage.

neilvw

Bootsox wrote: »

If someone was sailing close to the wind re maxing out via salary sacrifice, could they exploit the government's (possible) typo in that they refer to cash earnings not going below National Minimum Wage rates?

Being over 25, I would ordinarily be entitled to the higher National Living Wage.

No, because technically the National Living Wage is a premium to the National Minimum Wage.

Bootsox

neilvw wrote: »

No, because technically the National Living Wage is a premium to the National Minimum Wage.

Sorry, can you explain further.

..or can you link to a reference to this technicality?