Annual allowance question - first world problem

bompey

Hello,
Here's a question I dont know the answer to and I'm after help.
An employee is in the fortunate position of earning > £210k and hence has a £10k pension allowance. Under the new pension rules the company is saying either pay 9% (split 1/3 and 2/3 between employee and employer) to stay in the scheme or leave the scheme.
Given the employer contributes >50% it seems wrong to leave the scheme but this puts the employee in the position of paying into a pension and going over the annual allowance. What are the implications for the employee?
For what its worth there are no unused allowances from prior years, and the company is not interested in paying a cash alternative or allowing the employee to reduce contributions to get below the £10k. Payment is via salary sacrifice.
Thanks

Dazed_and_confused

If it is salary sacrifice how is the employee contributing anything themselves?

Salary sacrifice generally means you don't contribute to a pension. You agree to have a smaller salary and in return the employer contributes more into the pension.

lisyloo

https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/salary-sacrifice-facts/#section-0

We also need to be mindful of the fact that any ‘new’ salary sacrifices made after 8 July 2015 will be added back in the calculation of ‘threshold income’ for the purposes of the tapered annual allowance for higher earners.

bompey

Re the salary sacrifice question employees were given the choice years ago to switch from paying pension contributions net and claiming back tax via tax return or move to salary sacrifice so gross contributions went in. This is still in place.

jamesd

On a tax return the employee enters the excess and it's added to their taxable income to work out the annual allowance charge. In the unlikely event that the contribution exceeds £40k (not just 10k), pension scheme pays (out of the pension pot) can be used for the bit over £40k.

NI is calculated individually for each pay period. The employee can maximise their NI saving by sacrificing down to minimum wage for some months if the employer permits it. This puts much into the 12% instead of 2% employee NI saved range.

For those close to or over 55 the NI gain might be enough to make larger contributions useful. The tax free lump sum and NI saving could recover much of the charge.

lisyloo

bompey wrote: »

Re the salary sacrifice question employees were given the choice years ago to switch from paying pension contributions net and claiming back tax via tax return or move to salary sacrifice so gross contributions went in. This is still in place.

When?
As you see in the link there’s a date that crucial.