Pension limit - really 100% salary?

dunroving

Just wanted to say thanks to people who have responded. I'm a bit snowed under at the moment but do intend to come back and respond. I know sometimes it seems people post on forums and then disappear after everyone has tried to be helpful - I am definitely reading the responses, but to get my head around some of them, I need to go back and look at my payslips over the past 18 months or so.

I'll be back!

dunroving

To anwser some of the questions about effect of salary sacrifice, NI, etc., I pulled my two payslipps either side of when SS kicked in.

Pre-SS (Feb 2015):
NI: £332.19
Income tax £421.80
Pension: £385.66
AVC (this is MPAVC, plus a monthly added years AVC contract): £1813.33

Post-SS (Feb 2015):
NI: £324.48
Income tax £421.80
Pension: £385.66
AVC (this is MPAVC, plus a monthly added years AVC contract): £1813.33

- my take-home pay from Feb to March increased by only £7.71.

- these figures are why back then I had the impression that SS was really not making much difference to anything and IMO was only creating a more complicated situation regarding calculations for annual allowances, tax relief, etc.

zagfles

dunroving wrote: »

To anwser some of the questions about effect of salary sacrifice, NI, etc., I pulled my two payslipps either side of when SS kicked in.

Pre-SS (Feb 2015):
NI: £332.19
Income tax £421.80
Pension: £385.66
AVC (this is MPAVC, plus a monthly added years AVC contract): £1813.33

Post-SS (Feb 2015):
NI: £324.48
Income tax £421.80
Pension: £385.66
AVC (this is MPAVC, plus a monthly added years AVC contract): £1813.33

- my take-home pay from Feb to March increased by only £7.71.

- these figures are why back then I had the impression that SS was really not making much difference to anything and IMO was only creating a more complicated situation regarding calculations for annual allowances, tax relief, etc.

What's your pay period? The NI saving you're getting is only 2%, which would imply you earn above £43k pa, but the NI doesn't look high enough for that if this is monthly pay. Do you get paid 4-weekly?

jamesd

If you want to save more NI you could ask your employer whether you can change the amount you pay in during the year. If you can, pay in as much as possible for a while, all the way down to minimum wage, then go back to full pay. This way most of your sacrifice will get the 12% saving of NI instead of 2%.

dunroving

zagfles wrote: »

What's your pay period? The NI saving you're getting is only 2%, which would imply you earn above £43k pa, but the NI doesn't look high enough for that if this is monthly pay. Do you get paid 4-weekly?

It's a monthly payslip and yes, I earn over £43k. I remember looking at some illustrations at the time and realising that people at the higher pay scales would not really benefit. I didn't tick the box and return the opt-out form because at the time I had a lot of other stuff going on and as with these situations, just let it slip.

[ETA: I just ran a couple of salary calculators and you seem to be right - the level of NI seems to be lower than what the salary calculators give me ... odd]

jamesd wrote: »

If you want to save more NI you could ask your employer whether you can change the amount you pay in during the year. If you can, pay in as much as possible for a while, all the way down to minimum wage, then go back to full pay. This way most of your sacrifice will get the 12% saving of NI instead of 2%.

I need to go back and find the information sheet they sent us for Pensions Plus but my vague recollection is that SS only applies to the standard contributions to the DB portion of my employer-based pension (6%, or 8%, or thereabouts - it has changed recently). Even though from some sources of information, my employers have indicated that my MPAVCs were on a SS basis, I don't think they are, nor my AVC added years contributions. So even if I did increase my payments to MPAVC (in fact, I have been doing that recently), I don't think it affects my NI payments.

zagfles

dunroving wrote: »

It's a monthly payslip and yes, I earn over £43k. I remember looking at some illustrations at the time and realising that people at the higher pay scales would not really benefit. I didn't tick the box and return the opt-out form because at the time I had a lot of other stuff going on and as with these situations, just let it slip.

[ETA: I just ran a couple of salary calculators and you seem to be right - the level of NI seems to be lower than what the salary calculators give me ... odd]

Ah - just noticed they're from 2015, not this year, you were probably in a contracted out scheme pension scheme then? That would explain the lower NI.

Anyway the point is that NI is 12% up to £3583 per month (ie about £43k pa), but it's 2% above that. So if you sal sac you get 2% NI relief on income sacrificed down to £3583 a month but if you sal sac more than that you'll start getting 12% NI relief which is obviously a lot more significant.

dunroving

I just wanted to add some responses to the points made earlier, all much appreciated.

ThinkingOutLoud wrote: »

I note your caveat.
As James D says - only 75% the money coming out will taxable. So that is a 5% kickback.

Plus, it looks like the OP is now contributing a lot to retire early, but didn't necessarily contribute more than the scheme minimum before (assumption not fact).

If so and his salary is only now 40k - we might wonder if his sustainable drawdown pension will amount to over 11.5k, especially as taken early. If not, then he won't be paying tax on any of the drawdown and hopefully can use savings to supplement until state pension arrives to help.

That is exactly my situation. I plan to start a separate thread with some broader questions but yes, I have been maximising pension contributions this year and the past 3 years and plan to take early retirement. I'll have a DB pension, a TFLS that will be funded from my employer MPAVCs (this will pay off the mortgage), and funds saved in ISAs and SIPPs to get me through to state pension age (I am fast approaching 60).

jamesd wrote: »

If you want to save more NI you could ask your employer whether you can change the amount you pay in during the year. If you can, pay in as much as possible for a while, all the way down to minimum wage, then go back to full pay. This way most of your sacrifice will get the 12% saving of NI instead of 2%.

I really need to look into my employer SS rules. I think from my payslip that I am only getting SS for my regular payments into the DB section (so, on about £400 per month). My MPAVCs and added years AVCs don't show on my payslip as being SS. However an accountant I spoke with recently said she though my MPAVCs *were* subject to SS. Also, I spoke with payroll recently and they said regular MPAVCs were subject to SS but any lump sum MPAVC was not subject to SS. So, I am getting told different things by different sources at different times. The minimal changes in my NI indicate (to me) that I am not receiving SS for anything but my regular DB contributions.

zagfles wrote: »

Ah - just noticed they're from 2015, not this year, you were probably in a contracted out scheme pension scheme then? That would explain the lower NI.

Anyway the point is that NI is 12% up to £3583 per month (ie about £43k pa), but it's 2% above that. So if you sal sac you get 2% NI relief on income sacrificed down to £3583 a month but if you sal sac more than that you'll start getting 12% NI relief which is obviously a lot more significant.

Yes, correct, I was contracted out until recently. My NI payments are now higher than back in 2015. However, they appear to be only about £10 pcm lower than I just got on a salary calculator. If I subtract my regular DB contribution from my salary, the online calculator shows NI as being what I currently pay - so, that is further evidence that my employer only runs SS for my basic DB contributions.

ThinkingOutLoud_2

Thanks for the update.

It would be very odd for your employer not allow you to put in the maximum permitted / put in more via SS as they would save loads on employer NI (given you say they don't pass any of this on).

michaels

ThinkingOutLoud wrote: »

Thanks for the update.

It would be very odd for your employer not allow you to put in the maximum permitted / put in more via SS as they would save loads on employer NI (given you say they don't pass any of this on).

Sal sac does need to be a regualr commtited payment (for at least 6 months/a year? Requiring a contract amendement?) so perhaps the OP needs to investigate whether his extra contributions are not being treated as Sal Sac for administrative reasons.

ThinkingOutLoud_2

michaels wrote: »

Sal sac does need to be a regualr commtited payment

Good point...the fact they did try to persuade the OP to consider very carefully suggest this is a "normal" scheme with an unusual individual situation.