Pension health

pensionConfusion

Can any one give me an answer to this question please.
My annual salary is 35000.
My employer contributes 6.5% pension. What is the maximum % and amount I can contribute ?

MK62

pensionConfusion wrote: »

Can any one give me an answer to this question please.
My annual salary is 35000.
My employer contributes 6.5% pension. What is the maximum % and amount I can contribute ?

You may contribute up to 100% or £35000 gross (which includes any tax relief)........or £28000 net of tax relief, if you prefer.

pensionConfusion

I thought I cannot go below minimum wage.
Then I got confused calculating what yearly/monthly minimum wage is.

If I contribute 100% will that be 35000 + 6.5% company cont. = 37275 ?
Someone also said i cannot contribute more than I earn

I plan on contributing to my company pension plan. Not a SIPP.

Linton

pensionConfusion wrote: »

I thought I cannot go below minimum wage.
Then I got confused calculating what yearly/monthly minimum wage is.

If I contribute 100% will that be 35000 + 6.5% company cont. = 37275 ?
Someone also said i cannot contribute more than I earn

You cannot go below minimum wage if you are paying your pension contributions by salary sacrifice, because salary sacrifice is actually an employers contribution and what remains is your actual wage.



If you pay into your employers pension and the pension is taken before the tax is calculated it would be pointless to contribute below your tax allowance since would not get a tax rebate for that part of your contribution. So in those circumstances you would take the tax allowance as your wage and put 80% of it into a personal pension. HMRC would refund the missing 20% into your pension as a tax rebate even though you did not actually pay any tax. This is not quite as good a deal as it may sound since you will probably pay tax when you take the pension, but it's better than not getting the rebate.


If your employer takes your pension after calculating tax then you can put 80% of the gross into your pension and HMRC will refund the rest directly into your pension.

pensionConfusion

Below are the current contributions Annually and Monthly from my pay slip
Employer Contribution 6.50% £2,275.00 £189.58
Salary Sacrifice Contribution 4.50% £1,575.00 £131.25

I also read below statement in the company pension FAQ. I should have read this earlier.
People who are adversely affected.
Those people who, by salary exchanging, would reduce their earnings to below the National Insurance
Contributions Lower Earnings Limit £6,032 (2018/2019) p.a. If your earnings drop below this minimum
level you will not be building up an entitlement to State pension benefits.

Below is the simulation from my company's website if I contribute 78%.
Annual Salary Sacrifice Contribution £27,300.00
Your Tax Saving £5460.00
Your NI Saving £3276.00
Total Saving £8736.00
Total Cost To You £18564.00

Below are my own calculations
My current take home pay is 2175 and monthly pension contribution is 320.8
With 78% contribution take home pay is 718 and monthly pension cont. is 2464
Reducing take home pay by 1457 increases my pension cont. by 2143.75

I can afford to reduce the take home pay by this amount as this is my mortgage outgoing. I am in a position to pay off my mortgage of 162000. The remaining term for my mortgage is 12 years.
By changing my pension contribution I will have a 304700 more in my pension pot after 12 years (2143.75*144) but (162000 + earning from investing/interest) less

Am I missing something?

MK62

pensionConfusion wrote: »

I thought I cannot go below minimum wage.

Only if you contribute via salary sacrifice.......in that case you make no pension contribution at all - you sacrifice part of your salary for increased employer's contribution......however your employer is legally obliged to ensure you get paid at least the minimum wage, so you cannot salary sacrifice below minimum wage (and in practice some schemes may place a higher limit on SS)

pensionConfusion wrote: »

If I contribute 100% will that be 35000 + 6.5% company cont. = 37275 ?
Someone also said i cannot contribute more than I earn

You would only be contributing £35000, the other £2275 is from your employer........the 100% of earnings limit applies only to your contributions.......but yours and your employer's contribution combined are subject to the Annual Allowance limit, currently £40000.

pensionConfusion wrote: »

I plan on contributing to my company pension plan. Not a SIPP.

If you will be using your company scheme's Salary Sacrifice option (and you should), then you won't be able to contribute the whole £35000 using the company scheme, unless it also allows AVCs (Additional Voluntary Contributions). If not you will need a Personal Pension in order to pay max contributions (ie SIPP, stakeholder etc)

MK62

pensionConfusion wrote: »

Below are the current contributions Annually and Monthly from my pay slip
Employer Contribution 6.50% £2,275.00 £189.58
Salary Sacrifice Contribution 4.50% £1,575.00 £131.25

I also read below statement in the company pension FAQ. I should have read this earlier.
People who are adversely affected.
Those people who, by salary exchanging, would reduce their earnings to below the National Insurance
Contributions Lower Earnings Limit £6,032 (2018/2019) p.a. If your earnings drop below this minimum
level you will not be building up an entitlement to State pension benefits.

Below is the simulation from my company's website if I contribute 78%.
Annual Salary Sacrifice Contribution £27,300.00
Your Tax Saving £5460.00
Your NI Saving £3276.00
Total Saving £8736.00
Total Cost To You £18564.00

Below are my own calculations
My current take home pay is 2175 and monthly pension contribution is 320.8
With 78% contribution take home pay is 718 and monthly pension cont. is 2464
Reducing take home pay by 1457 increases my pension cont. by 2143.75

I can afford to reduce the take home pay by this amount as this is my mortgage outgoing. I am in a position to pay off my mortgage of 162000. The remaining term for my mortgage is 12 years.
By changing my pension contribution I will have a 304700 more in my pension pot after 12 years (2143.75*144) but (162000 + earning from investing/interest) less

Am I missing something?

The minimum wage for a 37.5hr week is about £16010 (for over 25s)......AIUI your company should not allow you to salary sacrifice below this level.

So the SS pension contribution would be £35000-£16010=£18990, +£2275 = £21265 total.
Your gross pay would be £16010pa, which paid monthly, should work out at £1334 gross, minus £59 in tax and £74 NI, leaving £1201 take home.
Of this £16010 gross (£14412 net, (£1201x12)), you could pay £12808 into a personal pension, to which HMRC would add £3202 in tax relief, to make £16010 (ie 100% of earnings).


PS - so your total pension contribution would be £21265+£16010 = £37275

pensionConfusion

MK62 wrote: »

The minimum wage for a 37.5hr week is about £16010 (for over 25s)......

Why is this not available via a simple google search?

you could pay £12808 into a personal pension,

you mean a SIPP?

Atleast I am on the right track.

Linton

pensionConfusion wrote: »

Why is this not available via a simple google search? Can you show me how you calculated this?

Minimum wage is specified as £x/hour. You then have to make assumptions as to the number of working hours in a year.

you mean a SIPP?

A SIPP is the most flexible but not necessarily cheapest form of Personal Pension. There are others available from the pension fund managers.

pensionConfusion

I have created this sheet to calculate pension contribution % and amounts. Any suggestion welcome.