Private Pension or Workplace via Salary Sacrifice?

Jaguar_Skills

lisyloo wrote: »

There are 2 types on NIC.
Employees NI (which you will definitely save just by not paying it in the first place) is 12% at basic level and 2% at higher level.


Employers NI - which they can choose to pass on in full or in part or not at all, is 13.8% basic and 0% higher.


You might in fact make greater savings if you get down into the basic rate tax band.


As an example I save 20% income tax + 12.2% NI plus 13.8% employer NI = total = 45.8% !!!


But my employer is generous in passing on all of their savings.

Without trying to sound arrogant, there isn't anyway I could get down into the basic bracket.

Jaguar_Skills

atush wrote: »

Why in God's name would your employer use SJP?

I know it is irritating a little but I don't think me trying to get them to change will happen. His personal pension is with them and got suckered into the marketing.

We are a relatively little company and he just likes the ease of it.

Which makes me come back to my original question, would it be beneficial to keep paying the same into my PP and just leave my work as it is?

lisyloo

Jaguar_Skills wrote: »

Without trying to sound arrogant, there isn't anyway I could get down into the basic bracket.

Not arrogant at all.
I was just pointing out that the additional NI benefits are a lot lower (as you're not paying much in the first place at that level, so can't save it).
As always the devil is in the detail.
The tax relief is good but you'd get that whichever way you do it.

Jaguar_Skills

lisyloo wrote: »

Not arrogant at all.
I was just pointing out that the additional NI benefits are a lot lower (as you're not paying much in the first place at that level, so can't save it).
As always the devil is in the detail.
The tax relief is good but you'd get that whichever way you do it.

I must admit, I don't really hugely understand it all other than putting away as much as possible into my PP.

I deposited around £38k last year into my PP but just never know whether I should put more into my workplace one as that is just whatever the standard rate is + NI contribution.

Am trying my best though, just get lost with all the tax rules and advantages.

lisyloo

Do you do a tax return to reclaim the higher rate tax on your personal pension?

Jaguar_Skills

lisyloo wrote: »

Do you do a tax return to reclaim the higher rate tax on your personal pension?

Yeah I had an accountant do that for me, he has done it for the last couple years. Had a rebate of just over £7k :j

Triumph13

Jaguar_Skills wrote: »

Without trying to sound arrogant, there isn't anyway I could get down into the basic bracket.

Wrong!
Although tax is calculated annually, NI is calculated monthly. By using the lump sum facility to sacrifice down to minimum wage in those months, you can get 12% employee's NI relief on a decent chunk of the contribution. If the employer is also passing on their 13.8% then this route is WAY better than your PP.

lisyloo

By using the lump sum facility to sacrifice down to minimum wage in those months

I didn't know that, but it does assume the employer is willing to be flexible.
My employer does not allow that kind of flexibility to put it up/down every month.

Jaguar_Skills

Triumph13 wrote: »

Wrong!
Although tax is calculated annually, NI is calculated monthly. By using the lump sum facility to sacrifice down to minimum wage in those months, you can get 12% employee's NI relief on a decent chunk of the contribution. If the employer is also passing on their 13.8% then this route is WAY better than your PP.

Are you able to explain this a little more please? Does it not depend on what I earn?

Triumph13

The amount of flexibility offered by employers varies a lot. Mine lets me change my pension contributions every month. Lisyloo's doesn't. Yours allows 2 lump sums and may or may not allow other changes.
If you do have the flexibility then easiest to explain with an example. Lets say you earn £6k per month and, for the sake of keeping the numbers simple, lets assume the cutoff point for higher rate tax is £4k per month. If you were to sacrifice £1k every month then all of that would be from higher rate band so 40% tax and 2% NI. If instead you sacrifice the minimum to keep your employer's contributions in some months then you could instead contribute £4.6k some other months to get you down to minimum wage. In those months the first £2k is still getting you 42% relief, but the next £2.6k gets 52% relief as you are avoiding paying 12% NI and 40% tax.
If your employer hands over their savings too then add another 13.8% on top.
The more your earn, the bigger the slice above the cut-off you have to contribute before you get at that nice band between minimum wage and higher rate tax threshold in your major contribution month admittedly, but it is still the most efficient way to go - if your employer allows it.