MPAA - Tax relief included?

pensionpawn

dunstonh said:

Trying to find the answer to a situation like person A earns £45k and is a member of his firms DC pension. His employer matches contributions up to 10%. What happens to his personal £4k5 contribution via salary sacrifice if he triggers MPAA? 

What personal contribution?  Are you talking about an additional amount on top of the salary sacrificed amount?

By personal contribution I mean the amount the individual elects to deduct from (before) their pay (yes, they never received it in the first place...) as distinct from the employers contribution.

Dazed_and_C0nfused

pensionpawn said:

dunstonh said:

Trying to find the answer to a situation like person A earns £45k and is a member of his firms DC pension. His employer matches contributions up to 10%. What happens to his personal £4k5 contribution via salary sacrifice if he triggers MPAA? 

What personal contribution?  Are you talking about an additional amount on top of the salary sacrificed amount?

By personal contribution I mean the amount the individual elects to deduct from (before) their pay (yes, they never received it in the first place...) as distinct from the employers contribution.

I think referring to a personal contribution is confusing things as salary sacrifice specifically means you aren't contributing, you are agreeing to a lower salary in return for your employer contributing more to your pension.

That is why there is no pension tax relief with salary sacrifice.

Are you actually contributing to a pension?

Marcon

pensionpawn said:

Marcon said:

pensionpawn said:

Thrugelmir said:

pensionpawn said:

xylophone said:

https://www.pensionsadvisoryservice.org.uk/about-pensions/saving-into-a-pension/pensions-and-tax/the-annual-allowance

The £4000 is gross - you would contribute £3200 and the provider would claim tax relief of £800.

Or am I missing something here? 

Dredging up an old thread perhaps. 

Yes it's not current however it cropped up when I searched for tax relief / triggering MPAA / employers contribution. Thought I'd search before starting a new thread.

Trying to find the answer to a situation like person A earns £45k and is a member of his firms DC pension. His employer matches contributions up to 10%. What happens to his personal £4k5 contribution via salary sacrifice if he triggers MPAA? 

If he triggers MPAA, same answer as before: total contributions whether made personally (plus any tax relief), or by the employer (whether via salary sacrifice or a straightforward employer contribution), are limited to £4,000 per annum. The MPAA is triggered from the day you trigger it (i.e. contributions made earlier in the tax year aren't subject to the MPAA, so if you're planning to make hefty contribution, do so before triggering the MPAA).

Ah, didn't see your post before I replied to Dazed and Confused. So, what happens if by triggering MPAA an employee has to reduce their salary sacrifice below the minimum level stipulated by the company scheme? I suppose they would have to leave the scheme?

You either make your contribution as a true personal contribution (i.e. not by salary sacrifice) or you have a chat with the employer and point out you have an issue resulting from triggering the MPAA and ask if they can help.

jamesd

pensionpawn said:

dunstonh said:

Trying to find the answer to a situation like person A earns £45k and is a member of his firms DC pension. His employer matches contributions up to 10%. What happens to his personal £4k5 contribution via salary sacrifice if he triggers MPAA? 

What personal contribution?  Are you talking about an additional amount on top of the salary sacrificed amount?

By personal contribution I mean the amount the individual elects to deduct from (before) their pay (yes, they never received it in the first place...) as distinct from the employers contribution.

In pension regulation terms, a personal contribution is one paid by an individual and an employer contribution is one paid by an employer. Salary sacrifice is employer contribution even though the employee is taking a reduced income. The difference doesn't matter in salary sacrifice but it does when the limit on personal contributions being no more than gross pay comes into play, which it doesn't with salary sacrifice since that has no employee contributions.

jamesd

pensionpawn said:
what happens if by triggering MPAA an employee has to reduce their salary sacrifice below the minimum level stipulated by the company scheme? I suppose they would have to leave the scheme?

They stay in the scheme and declare the excess over the MPAA to HMRC which will add the excess to their taxable income when working out their income tax bill.

This means that going over the MPAA is likely to still be profitable for salary sacrifice arrangements and/or for the money that is getting an employer match. A negative is that the benefit appears in the pension while the tax cost has to be paid for using today's cash flow.

A person who is subject to the MPAA is also required to tell all of their DC schemes that they are subject to the MPAA.