Pension Contribution

woolly_wombat

MissHap wrote: »

What about if i make the contribution via a SIPP?

Then you will get a contribution of £2 from the government for every £8 that you put in.

Good explanation with diagrams:
https://www.moneysavingexpert.com/savings/discount-pensions/

Linton

MissHap wrote: »

I understand that i can contribute 100% of my salary to a pension.
If say i earn £10,000 gross and contribute this full amount, does that mean i will get the 20% government contribution, £2000, added to this amount?

The £10000 earnings are the gross amount you can contribute to a pension. You make the contribution to a personal pension by actually paying in £8K. The extra £2K tax rebate is added by HMRC even if you did not actually pay any tax.


If you are paying into an employers pension it may or may not work this way. The other option is that the employer deducts £10K from your salary before calculating tax. The effect is that if you are a non tax payer you dont benefit from the £2K tax rebate.

lisyloo

The other option is that the employer deducts £10K from your salary before calculating tax.

If you only earn £10K then they cannot do this as there is a requirement to pay minimum wage.
That's my understanding of "If say i earn £10,000 gross".

Linton

lisyloo wrote: »

If you only earn £10K then they cannot do this as there is a requirement to pay minimum wage.
That's my understanding of "If say i earn £10,000 gross".

No, that only applies if the payment is under "salary sacrifice" where your actual salary is reduced by the pension contribution. If it isnt under SS you still receive your salary but choose for it then to be paid into your pension.

lisyloo

But you said....

The other option is that the employer deducts £10K from your salary before calculating tax.

How does your employer pay you salary without calculating tax on it???
confused.....today

Linton

lisyloo wrote: »

But you said....



How does your employer pay you salary without calculating tax on it???
confused.....today

Forgetting NI which complicates matters...


You have a gross salary of £10K/year, £833 a month. So you have been paid at least the Minimum Wage. You ask your employer to put all your salary into your employers pension scheme. The employer takes that money from your gross salary each month before calculating tax which obviously comes to zero.


Under Salary Sacrifice you agree with your employer that your actual gross salary would be reduced by the amount of the pension contribution and in recompense he will pay the same amount of money into the pension scheme as an employers contribution. So you dont pay any pension and your lower salary means you and your employer pay less NI. But in this case your actual salary would be zero which would contravene the Minimum Wage laws.

MissHap

Thanks to everyone who has contributed to this discussion.
I've decided to open a SIPP as a means of obtaining the 20% government contribution.
Whilst i understand any contribution i make is based on gross earnings and i have to consider my contributions to my works pension, do i also have to consider my employers contribution to said pension also?
Also, someone asked the question whether my contributions are via salary sacrifice, they are not.

HappyHarry

MissHap wrote: »

Thanks to everyone who has contributed to this discussion.
I've decided to open a SIPP as a means of obtaining the 20% government contribution.
Whilst i understand any contribution i make is based on gross earnings and i have to consider my contributions to my works pension, do i also have to consider my employers contribution to said pension also?
Also, someone asked the question whether my contributions are via salary sacrifice, they are not.

No, you don't have to consider your employer's contributions to your works pension, unless the total gross contributions to your pensions from you and your employer exceeds £40,000 in a tax year.