Work Pension and SIPP and that lump sum in SW.

Dazed_and_C0nfused

lookatbowen said:

I like your name Dazed and confused. I should be called Dazed and confused 2 Thanks for explaining the different pension contributions. I am definitely not on salary sacrifice. In answer to Cloud_Dog, I log into a pension portal and I am able to adjust my pension contribution percentage any time of the year, as well as pick and choice from the 12 funds available. 
I set the pension contribution to 22% and my company has to pay a minimum of 3%.

If you aren't on salary sacrifice then how is this happening???

I understand what you are saying in answer 5 because of the slight savings regarding the NI and yes my employer does contribute theirs as well, so that makes sense.

NottinghamKnight

OP if your employer operates a SMART pension then it is salary sacrifice.

lookatbowen

Dazed_and_C0nfused said:

I suspect you are getting confused with the different types of pension contribution.

Relief at source (typically a SIPP or personal pension) - this is where you contribute the net amount and the pension company, courtesy of HMRC, add the 25% uplift.  For example you contribute £1,000, the pension company adds £250 giving you a fund of £1,250.

Net pay (typically a defined benefit scheme) - this is where your contribution is deducted before tax (but not NI) is calculated.  For example you earn a salary of £35,000 and contribute 10% under a net pay arrangement so your taxable pay (the amount shown on your P60) is only £31,500.

Salary sacrifice/smart pension (typically an employer's defined contribution scheme) - you aren't contributing anything to the pension.  You are agreeing to a lower salary in return for your employer contributing to the pension.  That is why there is no pension tax relief with salary sacrifice.  The tax (and NI) saving comes from having less salary to be subject to tax and NI in the first place.

Good morning, 
I spent some time reading my (RFPM) pension manual. ;-) 
I can confirm my smart pension is Net Pay  
We accept contributions through a net pay arrangement. This means contributions are taken from your pay before tax has been

calculated. This means you only get taxed on what’s remaining, so you are able to get any tax relief straight away. As we operate a net pay arrangement, this means that you get full tax relief unless you don’t pay tax.

-
NottinghamKnight, With regards to Salary Sacrifice, the manual says "Employers may make available". I've confirmed with my HR that we don't do Salary Sacrifice.

NottinghamKnight

OK it's not a SMART pension then as you stated in your OP. This makes NI irrelevant, so only differences will be charges and investment choice.

zagfles

lookatbowen said:

Dazed_and_C0nfused said:

I suspect you are getting confused with the different types of pension contribution.

Relief at source (typically a SIPP or personal pension) - this is where you contribute the net amount and the pension company, courtesy of HMRC, add the 25% uplift.  For example you contribute £1,000, the pension company adds £250 giving you a fund of £1,250.

Net pay (typically a defined benefit scheme) - this is where your contribution is deducted before tax (but not NI) is calculated.  For example you earn a salary of £35,000 and contribute 10% under a net pay arrangement so your taxable pay (the amount shown on your P60) is only £31,500.

Salary sacrifice/smart pension (typically an employer's defined contribution scheme) - you aren't contributing anything to the pension.  You are agreeing to a lower salary in return for your employer contributing to the pension.  That is why there is no pension tax relief with salary sacrifice.  The tax (and NI) saving comes from having less salary to be subject to tax and NI in the first place.

Good morning, 
I spent some time reading my (RFPM) pension manual. ;-) 
I can confirm my smart pension is Net Pay  
We accept contributions through a net pay arrangement. This means contributions are taken from your pay before tax has been

calculated. This means you only get taxed on what’s remaining, so you are able to get any tax relief straight away. As we operate a net pay arrangement, this means that you get full tax relief unless you don’t pay tax.

-
NottinghamKnight, With regards to Salary Sacrifice, the manual says "Employers may make available". I've confirmed with my HR that we don't do Salary Sacrifice.

You said earlier they contribute their NI saving. Net pay does NOT save them any NI. If they save NI then it is definitely salary sacrifice. HR might not call it that, they might not even understand what it means, but if the employer (and you) save NI it must be sal sac. But SMART invariably means sal sac IME.

Work out how much income you are being charged NI on. NI is 12% on monthly earnings over £792. If you're being charged NI on your full earnings it's net pay. If you're being charged NI on your earnings minus pension conts it's sal sac.

lookatbowen

NottinghamKnight said:

OK it's not a SMART pension then as you stated in your OP. This makes NI irrelevant, so only differences will be charges and investment choice.

Okay, so then back to my original question, given the investment choices in the SIPP, would it be better if I contributed less to the workplace pension (say 3% to match my employer contribution), knowing that the full tax relief is taken care of and 19% to SIPP, then I can still request the extra 20% tax relief via my self-assessment? 

Dazed_and_C0nfused

There is no "extra 20%" tax relief.

A relief at source contribution to a SIPP simply increases your basic rate tax band which may mean you save tax, paying more at 20/21% and less at 40/41% but it all depends on your overall taxable income.

lookatbowen

Dazed_and_C0nfused said:

There is no "extra 20%" tax relief.

A relief at source contribution to a SIPP simply increases your basic rate tax band which may mean you save tax, paying more at 20/21% and less at 40/41% but it all depends on your overall taxable income.

Okay, thank you! 

NottinghamKnight

Dazed_and_C0nfused said:

There is no "extra 20%" tax relief.

A relief at source contribution to a SIPP simply increases your basic rate tax band which may mean you save tax, paying more at 20/21% and less at 40/41% but it all depends on your overall taxable income.

I believe the OP is talking about a separate contribution to a SIPP from post tax income. They seem to have confirmed that they earn in excess of £65k so they would be able to reclaim the higher rate tax through self assessment but the OP did say they were in a SMART pension originally so I'm not certain y interpretation is correct.

lookatbowen

NottinghamKnight said:

Dazed_and_C0nfused said:

There is no "extra 20%" tax relief.

A relief at source contribution to a SIPP simply increases your basic rate tax band which may mean you save tax, paying more at 20/21% and less at 40/41% but it all depends on your overall taxable income.

I believe the OP is talking about a separate contribution to a SIPP from post tax income. They seem to have confirmed that they earn in excess of £65k so they would be able to reclaim the higher rate tax through self assessment but the OP did say they were in a SMART pension originally so I'm not certain y interpretation is correct.

Yes, post-tax income, whatever is leftover. Normally when I receive my salary and have paid off all my direct debits or standing orders I have around £1300 remaining, which I use to buy stocks in my Stocks and shares ISA. 
Yes, I am talking about a separate contribution into a SIPP. I don't want to give up my work pension because the company is paying in 3%, which is better than nothing. I just want to know if it will be worthwhile reducing my workplace pension contribution from 22% to 3%, and putting the difference (19%) into a monthly SIPP contribution, as I want to keep up the 22% pension contribution. 
Using the tax calculator on https://listentotaxman.com/ I can see I will be worse off post-tax income, if I reduce the pension contribution to 3%, but will HMRC take into account the 19% contribution I will be making to the SIPP? That is what I want to know? I am not sure how to work that out!
The reason I want to also pay into a SIPP is that there are more choices available for me to invest the monthly contribution versus the workplace pension. The workplace pension doesn't allow me to invest in stocks, only funds and the funds are limited to 10, or even less if I want more adventurous funds. Although at present I've stuck to 2 funds in my workplace pension. 
Also looking at my salary slip, my current deductions are only Pension, National Insurance and the PAYE Tax. (I only mentioned Employer NI before because I can see it right at the bottom of my payslip, under the heading "This Period", but I have no idea how those affect me).