Maximum Salary Sacrifice

Sheriff_Fatmen

Hi folks,

I'm considering making additional contributions to my employer's workplace pension scheme, which I already pay into by Salary Sacrifice / Salary Exchange means. So far I am aware of the combined contribution annual limit of £40k and also that I must leave myself with at least the UK's 'minimum wage'.

I would ordinarily be a higher rate tax payer if it wasn't for the chunk of my salary that I 'sacrifice', hence taking me into the basic rate band.

I discovered the following comment (highlighted red below) from The Telegraph's website, and although it is in relation to Sipps, is the comment correct and does it also apply to contributions to a workplace pension by salary sacrifice?

I was thinking of sacrificing all of my salary (but for the minimum wage) into my pension, but that would mean I would be seeking much more tax relief than I would effectively be paying income tax on circa the minimum wage. And if that wasn't permitted, I wouldn't bother sacrificing as much, which means there must be an optimum level of 'sacrifice'.Thanks in advance to anyone who can shed some clarification.
From the The Telegraph website:

I ALREADY HAVE A WORKS PENSION. CAN I HAVE A SIPP AS WELL?

Yes, there is no problem doing this, in fact you can have several Sipps (as well as multiple workplace pensions). The only restrictions are that you cannot contribute more in aggregate than the annual allowance, that their total value cannot exceed the lifetime allowance and you cannot reclaim more in tax relief than you have paid in tax.

kinger101

You're not claiming ANY tax relief on salary which has been sacrificed. Instead, you are telling your employer to pay it directly into your pension scheme.

Salary sacrifice would only be pointless if you dropped below both the personal allowance and NI thresholds. So it's only gonna be an issue if you work part time.

Sheriff_Fatmen

Thanks for the clarity kinger, sometimes I cannot see the wood for the trees......

michaels

Sheriff_Fatmen wrote: »

Hi folks,

I'm considering making additional contributions to my employer's workplace pension scheme, which I already pay into by Salary Sacrifice / Salary Exchange means. So far I am aware of the combined contribution annual limit of £40k and also that I must leave myself with at least the UK's 'minimum wage'.

I would ordinarily be a higher rate tax payer if it wasn't for the chunk of my salary that I 'sacrifice', hence taking me into the basic rate band.

I discovered the following comment (highlighted red below) from The Telegraph's website, and although it is in relation to Sipps, is the comment correct and does it also apply to contributions to a workplace pension by salary sacrifice?

I was thinking of sacrificing all of my salary (but for the minimum wage) into my pension, but that would mean I would be seeking much more tax relief than I would effectively be paying income tax on circa the minimum wage. And if that wasn't permitted, I wouldn't bother sacrificing as much, which means there must be an optimum level of 'sacrifice'.Thanks in advance to anyone who can shed some clarification.
From the The Telegraph website:

I ALREADY HAVE A WORKS PENSION. CAN I HAVE A SIPP AS WELL?

Yes, there is no problem doing this, in fact you can have several Sipps (as well as multiple workplace pensions). The only restrictions are that you cannot contribute more in aggregate than the annual allowance, that their total value cannot exceed the lifetime allowance and you cannot reclaim more in tax relief than you have paid in tax.

Is what the telegraph says even correct? When you contribute to a sipp you are not actually claiming tax back when the pension company applies for the relief - my understanding is that you would still get the uplift from sipp contributions even if you did not earn enough to pay income tax.

Also you can obviously exceed the annual allowance using carry forward if available and the actual cap is total income.

Dox

michaels wrote: »

Is what the telegraph says even correct? When you contribute to a sipp you are not actually claiming tax back when the pension company applies for the relief - my understanding is that you would still get the uplift from sipp contributions even if you did not earn enough to pay income tax.

Just found the relevant article (from 2015) and OP stopped reading a bit too soon. The Telegraph article covered both basic rate relief (as claimed by the pension provider) and then went on to talk about higher rate tax relief (the bit the member has to claim for themself) in the following terms:

But if you pay a higher rate of tax, the pension will still claim only basic-rate relief, so you will need to claim the rest yourself, via your self-assessment tax return. This will come to you, rather than being paid into your pension; you may want to bear this in mind when you decide how much money to send to the pension firm.

Paul_Herring

and you cannot reclaim more in tax relief than you have paid in tax.

Patently wrong, without context (article here for those who haven't seen it yet.)

Someone not earning at all, thus not paying tax, can put in £2,880, and get it bumped up to £3,600 (£720 tax refunded.)

Someone earning £12,500 - the personal allowance - and thus not paying tax, can put in £10,000 and get it bumped up to £12,500 (£2,500 refunded)

Someone earning £30,000, (3,498.20 income tax) can put in £24,000 and get it bumped up to £30,000 (£6,000 refunded.)

Dazed_and_confused

Another way of putting is which might make it easier to understand is that it isn't say £2,500 refunded.

It is £2,500 tax relief added.

jamesd

Sheriff_Fatmen wrote: »

the combined contribution annual limit of £40k and also that I must leave myself with at least the UK's 'minimum wage'. ... I was thinking of sacrificing all of my salary (but for the minimum wage) into my pension

No problem to do that.

To maximise your NI gain sacrifice down to minimum wage for as many months as possible while ensuring you do enough to get employer matching in every month. NI is calculated individually for each pay period and this maximises the amount of pay on which you're saving 12% instead of 2% employee NI.

While you're limited by minimum wage for salary sacrifice you can also make gross employee contributions up to our gross after sacrifice pay. You'll need to have enough annual allowance or carry forward available for your combined employer (sacrifice) and personal contributions. Your workplace scheme probably provides for this.

kinger101

jamesd wrote: »

No problem to do that.

To maximise your NI gain sacrifice down to minimum wage for as many months as possible while ensuring you do enough to get employer matching in every month. NI is calculated individually for each pay period and this maximises the amount of pay on which you're saving 12% instead of 2% employee NI.

While you're limited by minimum wage for salary sacrifice you can also make gross employee contributions up to our gross after sacrifice pay. You'll need to have enough annual allowance or carry forward available for your combined employer (sacrifice) and personal contributions. Your workplace scheme probably provides for this.

Are you aware of anyone doing this in practice? I'm asking as based on published guidance from HMRC, my employer has indicated it will only alter salary sacrifice agreements after significant life-changing events. I think they're more flexible in practice, but I think it's likely many payroll depts wouldn't allow employees to game the tax system this aggressively.

pensionpawn

Can I clarify, is the maximum SS (for over 25's) down to minimum or living wage?

Paul_Herring

pensionpawn wrote: »

Can I clarify, is the maximum SS (for over 25's) down to minimum or living wage?

National minimum wage.

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

https://www.gov.uk/national-minimum-wage-rates