paying 40% tax - additional pension contributions?

Lokolo

Just to expand on cloud_dog.

The difference between that and a SIPP is that with the SIPP you do not get your NI contributions added. You only get the Income Tax (20%/40%) part added.

So you would lose out on the extra 12%/2% NI and the extra 6.9% NI employer contribution by putting money in via a SIPP rather than use your company's salary sacrifice scheme.

user1168934

cloud_dog wrote: »

The fundamental thing to understand with salary sacrifice is that the monies you sacrifice (pension contributions) are never paid or attributed to you. Your company promises to pay that money on your behalf in to a pension scheme.

This where the NI savings come in to it. As the money is never yours it cannot be liable for taxation or national insurance deductions as part of your salary. Earnings in the 40% tax bracket attract a NI rate of 2%. The 2% savings for a HRT payer is based on the amount you (sacrifice) pay in to your pension. If you paid £100 in to your pension your take home (net) pay would only be reduced by £58% (saving 40% tax, 2%NI). If you were a basic rate tax payer the cost (reduction in take home pay) for putting £100 in to your pension would be £68 (saving 20% tax, 12% NI; basic rate tax band attracts a NI rate of 12%).

You mention your company says you get a saving of 6.9%. I'm going to guess at this but, just as you pay NI contributions on your earnings so does your company. The company NI rate is 13.8%. I think what your company has done is to offer you half of their NI savings (6.9%).

The effect of this on your imaginary £100 pension contribution is that it only costs you, reduces your take home pay by £51.10 (40% tax, 2% employee NI, and 6.9% employer NI).

Basically £100 goes in to your pension and you are only paying just over £51 for that £100. Another way to look at it is that virtually double your cost (reduced take home pay) goes in to your pension!!!! I would suggest this is an opportunity not to be wasted.

Thank you very much, that makes much more sense.
Your assumption is correct about the 6.9%. I have trawled through the old emails I had and they state that the compnay will share half the NI savings.