Pension Contribution Question

westv

Last month I changed jobs due to being in a TUPE transfer and the new work location being pants.
On the downside it's a big cut in salary but on the upside the new place offers sal sac. Also only 15 month fixed term contract but that fits in with possibly going for a life of leisure at 57.
Pay = £35k annual.
They pay 12% contribution.


Am I correct in saying I can sal sac down to min wage and then contribute 100% of my remaining salary to non sal sac pension contributions?
In other words a total of £35k + employer 12% contributions?


Most of the contribution will be funded from savings intended to pay off mortgage when the fix ends next year so I was going to put the new contributions in an ultra cautious fund.

Brynsam

If this is a relief at source arrangement (i.e. the pension provider reclaims 20% tax on your behalf and pays it into your pension pot in respect of personal contributions), remember that counts towards the maximum personal + employer contribution of £40,000 a year which is tax-relievable. Sounds as if you might be just over the limit - you need to do the sums quite carefully:

employer contribution (which includes any salary sacrifice element) +
your personal contribution +
20% tax reclaimed on your personal contribution.

Linton

westv wrote: »

Last month I changed jobs due to being in a TUPE transfer and the new work location being pants.
On the downside it's a big cut in salary but on the upside the new place offers sal sac. Also only 15 month fixed term contract but that fits in with possibly going for a life of leisure at 57.
Pay = £35k annual.
They pay 12% contribution.


Am I correct in saying I can sal sac down to min wage and then contribute 100% of my remaining salary to non sal sac pension contributions?
In other words a total of £35k + employer 12% contributions?

Yes, as can pay up to all your income into a non sal sac pension .



Some details...
It is likely to be better if you pay the extra into a personal pension rather than your employers scheme as that will ensure you get tax relief on your total contribution, including the tax allowance tranche on which you did not actually pay any tax.
Is the £35K inclusive of the SS or in addition? You can only contribute up to the net of SS figure ie your actual gross earnings ( in you proposed case that would be min wage), SS being regarded as an employers contribution Also note that if you want to contribute say £10K you actually pay in 80% = £8K. The missing £2K will be paid into your personal pension by HMRC as a tax refund.

Linton

Brynsam wrote: »

If this is a relief at source arrangement (i.e. the pension provider reclaims 20% tax on your behalf and pays it into your pension pot in respect of personal contributions), remember that counts towards the maximum personal + employer contribution of £40,000 a year which is tax-relievable. Sounds as if you might be just over the limit - you need to do the sums quite carefully:

employer contribution (which includes any salary sacrifice element) +
your personal contribution +
20% tax reclaimed on your personal contribution.

The OP should be OK as £35K X 1.12=£39200. In any case he is likely to have sufficient carry forward from previous years.

Paul_Herring

westv wrote: »

Am I correct in saying I can sal sac down to min wage and then contribute 100% of my remaining salary to non sal sac pension contributions?
In other words a total of £35k + employer 12% contributions?

Short answer: Yes.

Longer answer:
There are two limits you need to be aware of, which are usually conflated.

The most you personally can contribute (after rebates) is your gross wage. In this case £35K.

The most that can be contributed, including employer's contributions, is £40K. (12% of £35K being £4.2K to get an upper limit.)

You would appear to fall under both of those limits.

So, presuming 2019/20 minimum wage of £8.21/hr, with 40 hour weeks, comes to £17,076.80.

So (rounding) you sacrifice (£35K-£17k) £18K, with employer contribute 12% = £2.16K for a total of (rounded) £20.2K in pot so far.

The £17K remaining will result in net pay (after income tax and national insurance tax, using 2019/20 levels) of £15,095.84.

(Again, rounding) putting £15K into a personal pension will attract a further £3.75K tax rebate for a total of £18.75K (yes, this includes rebate on money that technically didn't get taxed due to personal allowance.)

For a total of (after rebates and employer contributions) £20.2K+£18.75K=£38.95K

Any perceived discrepancy between that and gross wage+12% lies in:
- National Insurance paid on salary not sacrificed
- Rebate on wages that fall under the personal allowance so weren't technically taxed to begin with.

westv

Linton wrote: »

It is likely to be better if you pay the extra into a personal pension rather than your employers scheme as that will ensure you get tax relief on your total contribution, including the tax allowance tranche on which you did not actually pay any tax.

That is what I was going to do


12% of salary employer contribution into company scheme
55%* of salary employee into company sal sac scheme
45% of salary employee into personal pension


* or whatever % brings salary down to min wage.

Pennysmakepounds

westv wrote: »

In other words a total of £35k + employer 12% contributions?

Very impressed with your contributions.


Can I enquire what age you are now and what you expect to achieve as a income from the age of 57?

westv

Pennysmakepounds wrote: »

Very impressed with your contributions.


Can I enquire what age you are now and what you expect to achieve as a income from the age of 57?

55 - 56 in March.
Perhaps around £20k gross + wife's salary.

Pennysmakepounds

westv wrote: »

55 - 56 in March.
Perhaps around £20k gross + wife's salary.

Congrats


Now if I could just get the wife to do the grafting whilst I retire...HMMMM...LOL

bluenose1

Pennysmakepounds wrote: »

Congrats


Now if I could just get the wife to do the grafting whilst I retire...HMMMM...LOL

That's what my husband has me doing. I am up at 6:30am for work then come home to hear how tired he is from playing golf etc😟 Though he does have my meal ready and tidy the house (in his own inimitable style) 😏
To be fair he was always going to retire a lot younger as was in the police. We are maxing out on my Contributions to allow me to be able to go at 55. Just 2 years and 4 more pay days to go, not that I am counting.