Help with workplace pension

Caspeia

Hello

I currently pay into a workplace pension. I pay in 5% (or well 4% with 1% tax relief) and my employer pays in 4%. This means all together £133.88 goes into my pension per month.
I'm getting a payrise this month to £20k a year and the overall amount that goes into my pension account will be £150.01.

My workplace offers a salary sacrifice scheme. I was thinking of doing this, I want to have £200 going into my pension pot per month. However I can't work out how I would get to this number and how much of my salary I would need to sacrifice to achieve this.

Other information that might help or might not. My tax code is S1250L, I'm 24 years old.

Is anyone able to point me in the direction of how I would work out how much to sacrifice and also explain the maths to me?

CookieMonster

https://forums.moneysavingexpert.com/discussion/174519/salary-sacrifice


on salary sacrifice

cloud_dog

Because your company operates salary sacrifice we (I) can assume everything is going in as 'gross', and I am assuming your £200 target includes the company contribution.

So, it is literally working out 4% of £20k for your company contribution (assuming they calculate on the full £20k; some calculate it on the difference between the LEL and your salary) -
£20,000 x 4% = £800; divide that by 12 = £66.67

Your basic contribution is 5% (have included TR):
£20,000 x 5% = £1000; divide that by 12 = £83.33

So your basic overall contribution is £150.

To round it up to £200, you would need to increase your contribution by £50 to £133.33

Now, that additional £50 you are contributing will only actually cost you £34, i.e. you contribute an additional £50 but your take home only reduces by £34. This is because of TR but also because you benefit with salary sacrifice by a reduction of national insurance of 12% on the amount.

If you could actually afford £50, i.e. reduce your take-home by £50 you would actually contribute an extra £73.53.

Caspeia

Brilliant thank you

Caspeia

Hopefully someone sees this.

Just spoke to HR and I have to give a % for what I want to sacrifice. My workplace will also give the employer national insurance saved to our pension pot and the personal national insurance saved is reflected in our pay apparently.

If I do 2% that will be £33 a month. I assume this will get me around £200 contributions. This is about 12% of my wage into my pension.

If I do 3% that will be £50 a month. I assume this will be £233 a month in contributions which will be just under 14% of my wage into my pension.

However I can't work out what my monthly wage into my bank account will be!

Woby_Tide

use a salary calculator online and it will show what the difference makes

cloud_dog

Caspeia wrote: »

Hopefully someone sees this.

Just spoke to HR and I have to give a % for what I want to sacrifice. My workplace will also give the employer national insurance saved to our pension pot and the personal national insurance saved is reflected in our pay apparently.

If I do 2% that will be £33 a month. I assume this will get me around £200 contributions. This is about 12% of my wage into my pension.

If I do 3% that will be £50 a month. I assume this will be £233 a month in contributions which will be just under 14% of my wage into my pension.

However I can't work out what my monthly wage into my bank account will be!

As Woby-Tide suggests you could use a salary calculator.

Based on what you have told us about your pay scheme it looks as though you should pay an extra 3% (£50) in to your scheme. Via SS and tax relief this additional £50 gross payment will only reduce you take home pay by £34.

You have confirmed that your company also 'gifts' their NI savings on to you so the impact on your take home pay will be even less. I think employer NI deductions are 13%, not 100% certain on this and it can be based on earning bands etc, but using this as a guide your take home pay may only be reduced by £27.50, for a £50 contribution in to your pension.

EDIT: Just had a quick look and it is 13.8%. It is banded but it appears all the bands use 13.8%.

Caspeia

I used MSEs income tax calculator and Im not sure how to put it in. I did it too different ways.

1st way: 20k salary with £50 a month deduction. £1365 a month

2nd way: 19.4k salary (£50 x 12 = £600. took it off gross salary) £1328 a month

not sure whats correct

BoxerfanUK

I use this one, you can put all details in ,tax code, salary sacrifice etc etc
https://www.thesalarycalculator.co.uk/salary.php

Linton

Caspeia wrote: »

I used MSEs income tax calculator and Im not sure how to put it in. I did it too different ways.

1st way: 20k salary with £50 a month deduction. £1365 a month

2nd way: 19.4k salary (£50 x 12 = £600. took it off gross salary) £1328 a month

not sure whats correct

The second way is correct for Salary Sacrifice as SS reduces Gross Salary. NI is charged on gross salary

cloud_dog

Caspeia... check with your payroll how frequently you can adjust your additional contribution percentage. Some may only allow you to do it once a year for example. If they are happy to accommodate changes, then I think you should request an additional 3% £50 is added to your pension. I think you will be pleasantly surprised by how little it impacts your take home pay. If it works out too much for you then you can simply reduce the percentage.

Yours is a very good company. I am a HRT payer with SS so I benefit to the tune of 40% TR and 2% NI reductions on my pension contributions (42% in total). My company doesn't offer us any of their savings

Based on what you have told us you are benefiting to the tune of 45.8% reduction in the cost, i.e. £100 goes in to your pension and your take home pay only reduces by £54.20.

I would grab that opportunity with all three of my hands