Smart Pension Help

Jonesy1977

Hi All,

My wife is a member of a company stakeholder pension scheme (Scottish Widows) and this is a Smart Pension for contributions.

I was hoping someone might explain the benefits of SMART to us in the following circumstances.

Salary £32,000
Current Employee Cont 3%
Employer Cont 5%

She aims to increase her personal contribution to 15% and before she does this is keen to understand the effect.

1. Will her actual "salary" decrease? (This may not be a bad thing as she has other dividend income and tax threshold could be an issue in the future)
2. Is there any way of calculating what the net effect on take home pay may be for budgeting?

Any thoughts greatly appreciated.

Thanks!

Bimbly

Smart pensions are also known as Salary Sacrifice. In a nutshell, pension contributions are taken out of salary before tax and national insurance deductions, so you pay neither Income Tax or NI on contributions. A basic tax payer like you wife will save 12% NI plus 20% tax.

There is a calculator here:
https://www.legalandgeneral.com/workplacebenefits/employees/plan-for-your-future/salary-sacrifice/

In general, the only people who would not benefit from this arrangement are the low paid whose contributions take them out of NI entirely so they're not building up state pension years.

Her scheme should have information on Smart Pensions. Did they send her that? It usually says that nominal salary levels (for things like mortgage applications) are not effected.

Jonesy1977

Thanks very much, that is really helpful!