Private Pension or Workplace via Salary Sacrifice?

Jaguar_Skills

Would it be more helpful if I disclosed my salary to work out if it is possible?

MallyGirl

I do the big lump sum contributions a couple of times a year as part of my 'keep below 40% tax' strategy. I sacrifice down to min wage (approx) so pay little/no NI that pay period. I am lucky that my employer lets me change the pension contribution online as often as I want. Sadly they don't pass on the employer NI but you can't have everything

Jaguar_Skills

MallyGirl wrote: »

I do the big lump sum contributions a couple of times a year as part of my 'keep below 40% tax' strategy. I sacrifice down to min wage (approx) so pay little/no NI that pay period. I am lucky that my employer lets me change the pension contribution online as often as I want. Sadly they don't pass on the employer NI but you can't have everything

The thing is I dont think I would be able to do this.

The lump sums would go over the pension deposit threshold i.e. there would be too much going in to make it tax benefical (if I understand it correctly). Can't you only put in up to £40,000 per annum?

Triumph13

Jaguar_Skills wrote: »

Would it be more helpful if I disclosed my salary to work out if it is possible?

It doesn't make much difference, other than in terms of how many times you can do the sacrifice to minimum wage route within your £40k AA.
You probably need to have a chat with your payroll dept to check a) how many times a year they will let you change your pension contribution rate; and b) to confirm that you still get the salary sacrifice benefits on these 'lump sum' contributions as long as you are still above minimum wage.
If you can change contributions twice per year then that would be enough to give you the maximum benefit - just so long as you can cope cashflow-wise with being on minimum wage for a few months before you go back up again!

lisyloo

The lump sums would go over the pension deposit threshold

You could adjust the monthly one downwards to account for this.
if you are talking about the £40K then I believe that's annual.
So put the lump sums up but monthly ones down.


Are you married and does your partner pay higher rate tax too?


I salary sacrifice close to min wage, then fill up my basic rate tax band with dividends from my partners limited company where tax is 7.5%.
I am also allowed to gift him the money back tax free - bonkers.


If you are married and your spouse pays basic rate or no tax there might be a way to take advantage of that.

Triumph13

Jaguar_Skills wrote: »

The thing is I dont think I would be able to do this.

The lump sums would go over the pension deposit threshold i.e. there would be too much going in to make it tax benefical (if I understand it correctly). Can't you only put in up to £40,000 per annum?

The whole trick is to put the £40k in in a lumpy way, not a smooth one. If employer contributions were £10k you could just contribute £2.5k per month for your £30k, but it is more efficient to do the minimum some months and the maximum allowed others - these are the lump sums MallyGirl is talking about.

michaels

AFAIK there is no upper limit on employers NI of 13.8% so if the employer is willing to share some or all of this then the sal sac route must win by miles regardless of fees and the lumpy payments is also second and order. I negotiated 10% with my employer. Looks like you may also need to worry about 40k annual allowance although there is up to 3 years carry forward.

It is possible to SAP sac to nmw and reduce hours to have a very low taxable income and benefit from all sorts of govt top ups such as tax credits using a low one year high the next approach.....

Jaguar_Skills

lisyloo wrote: »

You could adjust the monthly one downwards to account for this.
if you are talking about the £40K then I believe that's annual.
So put the lump sums up but monthly ones down.


Are you married and does your partner pay higher rate tax too?


I salary sacrifice close to min wage, then fill up my basic rate tax band with dividends from my partners limited company where tax is 7.5%.
I am also allowed to gift him the money back tax free - bonkers.


If you are married and your spouse pays basic rate or no tax there might be a way to take advantage of that.

I’m not married (yet) but my gf doesn’t work as she looks after our little one. I don’t think she will go back to work to be honest. I’m still not sure given how much I would need to sal sacrifice that I could get to near min wage.

But as I’ve said before I am a bit lost.

Triumph13

Jaguar_Skills wrote: »

I’m not married (yet) but my gf doesn’t work as she looks after our little one. I don’t think she will go back to work to be honest. I’m still not sure given how much I would need to sal sacrifice that I could get to near min wage.

But as I’ve said before I am a bit lost.

The key point I suspect you haven't grasped yet is that most of us are only talking about sacrificing to minimum wage for a small number of months. We are not talking about changing your overall taxable income for the year - you still earn the same amount and you still make the same amount of pension contributions. That means most months your income is higher than if you had flat contributions (and you pay 2% NI on that 'extra' monthly earnings), but some months your earnings are much lower than normal (and you avoid paying 12% NI on part of the 'missing' monthly wage).

Jaguar_Skills

Thanks Triumph - it is all quite confusing! I don't think my director would understand it either and because we don't have a payroll department as we are a small company there is noone to ask regarding it. I guess I could get my director to ask the accountants (who are external)? If I were to do that is there a set of simple questions I could ask.

If the above is possible, how much am I likely to save as it seems like quite a faff if there is not much to be saved.

Coming back to my original point, does anyone have any opinions on the SS vs PP contributions, as that seems a more simple calculation than decreasing wages for certain months to lower NI contributions???

I really do appreciate the help so thanks everyone for your comments, just want to try and make some progress on this.