Will a smart pension “reduce” my salary and affect tax rate?

hodd

I’ve just been offered a job paying a basic salary of £47000. The company has asked if I would like to opt in to their smart pension.

It makes sense to take advantage of the company’s pension scheme as they match my contributions and add a few percent. However, I also pay into a SIPP and would like to continue doing so.

I believe as the higher rate (40%) tax threshold is currently £46351, I can claim 40% tax relief on SIPP contributions with my salary of £47000. It is my understanding that a smart pension effectively reduces an employee’s gross salary although the nett pay would be the same or slightly higher. I’m concerned therefore that a smart pension may reduce my salary to below £46351 and I would then only be able to claim 20% relief on my SIPP pension contributions.

Am I right in thinking this? It’s easy enough to not opt in to smart and well worth doing so if the above is correct.

System

You can only claim 40% tax relief on £649 (£47000-£46351) of your (gross) pension contributions whether it is the company pension or the SIPP. You seem to want to have your cake and eat it twice!

AnotherJoe

What economic said, and to answer your question "am I right in thinking this " the answer is "no"

hodd

OK, just asking. I’ve never been over the 40% barrier before, but an online calculator confirms your reply. Thanks.

So being in a smart pension or not makes little or no difference to a employee it seems.

HappyHarry

hodd wrote: »

OK, just asking. I’ve never been over the 40% barrier before, but an online calculator confirms your reply. Thanks.

So being in a smart pension or not makes little or no difference to a employee it seems.

You save the 12%/2% National Insurance Contributions (NICs), and often with salary sacrifice schemes, the employer puts some of their 13.8% NIC savings into your pension too.

AnotherJoe

hodd wrote: »

OK, just asking. I’ve never been over the 40% barrier before, but an online calculator confirms your reply. Thanks.
So being in a smart pension or not makes little or no difference to a employee it seems.

It certainly does, not sure why you think that

cloud_dog

hodd wrote: »

I’ve just been offered a job paying a basic salary of £47000. The company has asked if I would like to opt in to their smart pension.

It makes sense to take advantage of the company’s pension scheme as they match my contributions and add a few percent. However, I also pay into a SIPP and would like to continue doing so.

It is sooo much more efficient to make contributions using the companies 'smart pension' (salary sacrifice). Consider stopping the SIPP contributions and maximising the SS option.

marlot

hodd wrote: »

...
So being in a smart pension or not makes little or no difference to a employee it seems.

That's not true! You're getting employer contributions, and reducing your NI bill. Depending on the scheme, the employer might also be giving you some of their saved NI.


I'm not in such a scheme - but when I was [in my last job] I made the most of it, and saved hard - the main reason I can now afford to retire at 55.

Sibbers123

Under the automatic enrollment rules, they should automatically enroll you into their pension scheme. You have an option to opt out if you wish (they shouldn't be asking if you want to opt in!) - unless you are under the age of 21 that is but that seems unlikely.

Currently, the employer has to contribute 2% and you 3% into the automatic enrollment pension - that 2% employer contribution is a 'win win' for you as it doesn't reduce your take home pay.

The 3% will reduce the amount of money you receive in to your bank account on a monthly basis, but the difference (plus a little bit) is paid into your pension.