pension advice please

oysterman

An IFA has suggested to put as much of my wages into my work pension scheme through salary sacrifice. My basic pay is £26,846,20 & i pay in 12% at the moment through salary sacrifice. Company pays 5% & pension contributions are on basic only.


On my basic, how much could i pay in before it goes below the minimum wage?



He has suggested using tax free money from 2 of my other pensions to make up the difference, preferably drip feeding(if possible) it to me monthly. It seems like a good idea, but are there any pitfalls to doing this way.


I haven't spoken to the two pension companies yet, they are Legal & General & Aegon.



If anyone requires anymore info, just ask. Cheers in advance.

Dazed_and_confused

Your age would be a start.

oysterman

Dazed_and_confused wrote: »

Your age would be a start.

sorry dazed and confused, 56. 57 in april

tacpot12

The IFA should be aware of the Money Purchase Annual Allowance (MPAA) and how this works to limit how much you can put into a money purchase pension (like your works pension). The limit will either be your taxable pay (so basic + any other taxable pay like bonuses) or £4,000. This link shows your the circumstances when the £4,000 limit will be triggered:
https://www.moneyadviceservice.org.uk/en/articles/money-purchase-annual-allowance

To answer your question about minimum wage, we need to know your basic hours.

oysterman

tacpot12 wrote: »

The IFA should be aware of the Money Purchase Annual Allowance (MPAA) and how this works to limit how much you can put into a money purchase pension (like your works pension). The limit will either be your taxable pay (so basic + any other taxable pay like bonuses) or £4,000. This link shows your the circumstances when the £4,000 limit will be triggered:
https://www.moneyadviceservice.org.uk/en/articles/money-purchase-annual-allowance

To answer your question about minimum wage, we need to know your basic hours.

40 hrs per week.

tacpot12

You should be able to pay in around £10,560 pa (or 39%) of your basic salary. This will leave you will taxable income of around £16300 pa, which is what you would earn on NMW.

Note that £10,560 is above the MPAA limit of £4,000, so you need to be careful about how you take money from the other pensions to ensure that this limit does not apply to you.

Paul_Herring

Minimum wage for 2019/20 is £8.21.

For a 40 hr week, that produces an annual salary of (8.21*40*52)£17,076.80.

This means you can sacrifice (26,846,20-17076.8) £9,769.4 which works out as 36.39% (in addition to whatever your employer is adding, which is anything between 5%*(26,846,20-5,876)=£1,048.51 and 5%*26,846,20=£1,342.31)

That leaves you with £17,076.80 gross which (using defaults) gives you £14,994.90 net.

You can then put in up to 80%*(17,076.80)=£13,661.44 into another pension as an employee contribution, and get the rebate of 20% back (which does include any personal allowance that didn't technically get taxed at 20%) for a total of another £17,076.80 added to your pension funds.

So:
SS: £9,759.40
Employer: £1,342.31 (or maybe £1,048.51)
From net pay+rebate: £17,076.80

Total: £28,178.51 (or £27,884.71)

oysterman

Paul_Herring wrote: »

Minimum wage for 2019/20 is £8.21.

For a 40 hr week, that produces an annual salary of (8.21*40*52)£17,076.80.

This means you can sacrifice (26,846,20-17076.8) £9,769.4 which works out as 36.39% (in addition to whatever your employer is adding, which is anything between 5%*(26,846,20-5,876)=£1,048.51 and 5%*26,846,20=£1,342.31)

That leaves you with £17,076.80 gross which (using defaults) gives you £14,994.90 net.

You can then put in up to 80%*(17,076.80)=£13,661.44 into another pension as an employee contribution, and get the rebate of 20% back (which does include any personal allowance that didn't technically get taxed at 20%) for a total of another £17,076.80 added to your pension funds.

So:
SS: £9,759.40
Employer: £1,342.31 (or maybe £1,048.51)
From net pay+rebate: £17,076.80

Total: £28,178.51 (or £27,884.71)

Cheers Paul_Herring. Can you explain why there two different amounts from my employer?
If i understand correctly i could put almost all my money into pensions. If only i could afford to do it thou.

oysterman

tacpot12 wrote: »

The IFA should be aware of the Money Purchase Annual Allowance (MPAA) and how this works to limit how much you can put into a money purchase pension (like your works pension). The limit will either be your taxable pay (so basic + any other taxable pay like bonuses) or £4,000. This link shows your the circumstances when the £4,000 limit will be triggered:
https://www.moneyadviceservice.org.uk/en/articles/money-purchase-annual-allowance

To answer your question about minimum wage, we need to know your basic hours.

Cheers tacpot12. To advoid MPAA, one of the things it says i can do is take the tax free amount & have a flexi-access drawdown scheme but don't take any income from it.

Is that a good scheme? What happens to the pot, until i take income at a later date.

Paul_Herring

oysterman wrote: »

Cheers Paul_Herring. Can you explain why there two different amounts from my employer?.

The absolute minimum an employer must contribute is 5% of any wages from £5,876 to £45,000.

More generous employers will contribute 5% from £0, and some will contribute from over £45,000.

The two different amounts I listed represent the two possibilities, and I mentioned the possibility because of your use of the ambiguous phrase "basic only," in your OP. You may want to confirm with your employer (or work out from your payslip and/or contributions) which they're doing.

What happens to the pot, until i take income at a later date.

Nothing special simply because you've withdrawn part of it.

Depends on what you 'leave' it invested in. If you take no steps to change what it's invested in when you withdraw the PCLS, it'll just carry on doing whatever it was doing before you made the withdrawal. If you leave it in the stock market it'll go up and down with whatever specific things it's actually invested in. If you move it all to cash, it'll be at the whim of inflation.