Smart Pension Help

Jonesy1977

Hi All,

I wonder if someone might be able to help me with this.

Background - Wife (40) has SMART pension and with salary sacrifice and company contribution now pays around 25% into her Scot Wids pension.

If she were to increase her contribution to around 60% of her salary which we could afford, it looks like she would take home just over £12,500 per year and as such pays no income tax.

1. Does this sound correct?
2. Will this effect negatively NI and state pension?

Many Thanks in advance for any light you may shed!

xylophone

https://www.gov.uk/guidance/salary-sacrifice-and-the-effects-on-paye

A salary sacrifice arrangement must not reduce an employee’s cash earnings below the National Minimum Wage (NMW) rates. Employers must put procedures in place to cap salary sacrifice deduction and ensure NMW rates are maintained.

Jonesy1977

Ah I see...... Thanks for this!

Dazed_and_confused

If she were to increase her contribution to around 60% of her salary which we could afford, it looks like she would take home just over £12,500 per year and as such pays no income tax.

1. Does this sound correct?
2. Will this effect negatively NI and state pension?

If National Minimum Wage wasn't an issue and she doesn't have any other non savings or non dividend income then she could salary sacrifice down to £11,250 and,

apply for Marriage Allowance, potentially reducing your tax liability by £250,

still pay no tax,

pay a little bit of National Insurance,

get a qualifying year for her State Pension

have the whole of the £5,000 savings starter rate of tax (0%) available.

jamesd

Jonesy1977 wrote: »

1. Does this sound correct?
2. Will this effect negatively NI and state pension?

Yes, somewhat, but minimum wage law must be followed by her employer.

Somewhat is because some working age benefits use after sacrifice pay. No effect on state pension except for part timers who might not pay enough NI for a year to count.

She can open a personal pension and pay in gross her whole after sacrifice pay. No income tax on most of it but she still gets tax relief. This might be wasteful from a whole family finances view, though, since most will be tax free money for the household budget.

Jonesy1977

Thank you, that is really helpful.

She does have some dividend income, but essentially we are trying to use her SMART pension to boost our combined pension pots in the most efficient way.