70% Pension contribution relief

Bemma

Combining Tax, NI and HICBC, but what's the max relief anyone gets?

I get 70%.

Many of my work colleagues are ignorant of how our company salary sacrifice contributions work and have no idea of the uplift that can be had when Tax/National Insurance/Higher Income Child Benefit Charge (HICBC) are combined.

I've seen little about combining this relief, so I'll outline how I get 70% relief in case it might benefit anyone reading here.

40% tax
I earn a total of £60k a year - so I pay 40% tax

12% NI
You may think the 12% is a mistake and it should be 2%, but it's not. I get paid £50k salary and £10k bonus in April. NI is calculated per pay period, so every pay period apart from April, I earn £4166.67, so I'm paying 12% NI on most of my earnings.

18% HICBC
I never hear much about this, but it's a charge on people who earn over £50k and claim child benefit. I have 2 children, child benefit per year of £1,788.80. So every £100 over £50k I earn, I get charged 1% of that, £17.89, so I'll call that 18% and so I can do the calcs in my head.

So in total 70%, that I can mitigate through salary sacrifice. It's actually a little better than that, as my employer pays 7% of employer NI into my pension. So I get £1.07 into my pension for 30p. This works out it cost me a little over 28% for my pension contributions (not including employer contributions, as that's free money).

I realise that there are some particular circumstances that lead to this, so it might be fairly rare, but I'm definitely not a unique case. Someone with more children, could be getting more relief.

zagfles

It's not rare at all, it's just most people don't realise it. In some cases, the marginal deduction rate can be way over 100%, for instance if there's an entitlement to tax credits/UC as well, which is possible with a large family even at that income level. Similar applies to student loan assessments, also getting the marriage allowance transfer (if applicable).

See this thread for example (as often happens it started a bit of a moralising flame war...and the rules have changed a bit for instance the 2 child limit which applies to children born after April 2017)

https://forums.moneysavingexpert.com/discussion/3867541/child-tax-credits-child-benefit-going

I hope you've worked out that you shouldn't sal sac in April, best to spread the £10k sal sac over 11 months May - March

mpension

can i ask why you shouldn't sal sac in april?

Sorry for being dim

zagfles

mpension wrote: »

can i ask why you shouldn't sal sac in april?

Sorry for being dim

Because NI drops to 2% on monthly income over £4167. OP earns £4167 every month except April when he/she earns £14167 (normal salary plus £10k bonus). So sal sac in April will only get 2% NI relief, whereas sal sac every other month will get 12% NI relief.

For tax relief it makes no difference which months the sal sac is done as tax is worked out on an annual basis, whereas NI is worked out on a pay period basis.

Of course he/she will need to budget, and also account for the fact that the initial tax hit in April will be massive, as it's the first month in the tax year OP will initially get clobbered at 45% tax, but will get it back in later months.

WillowCat

If my company did salary sacrifice (sadly they don't) then I'd be at 84%.

On earnings above the student loan threshold I have deductions of:
20% tax
12% NI
9% student loan
and my UC is reduced by 42.84% (63% of the earnings after tax and NI).
Leaving 16.16% in my hand if I take as salary.

As it stands, with no salsac, I'm pushing salary into pension after tax, NI and student loan, and getting basic rate tax relief on the contributions. It works out at 73.75% relief.

Bemma

I did sal sac last April, but I now know that was a mistake, so I missed out on a bit. I'm sal sac'ing 20% of my salary every month, which takes me down to £50k adjusted net income including bonus. I only recently took a much keener interest in this and how to maximise my relief, which would be 0% sal sac in April and about 22% on the other months to be optimal.

ex-pat_scot

I have 4 children, so the marginal tax rate in the £50,000 to £60,000 range is somewhere near 80%

I earn a little over £130,000 total and sal sac down to £100,000.
All of this pension contribution is at 62% marginal rate/relief.
It also attracts company contributions of £10,000 so the overall impact of foregoing £11,400 of take home pay means I get £40,000 pension contribution. That gives me a 71.5% effective rate of relief.

ratechaser

That got me thinking... so my total employer/employee cons are 23.15% of pensionable salary. I sacrifice 7% of gross salary to achieve that, which in reality only costs me 3.71% in net pay terms.

So I make it that I'm hitting about 84% effective relief on what's being paid in overall. No rugrat benefits, naturally...

(And no, I won't get away with this much longer, just burning through a couple of years of carry forward allowance before tapering hits me...)