10 year pension plan

Albermarle

Those are very strange ratios 8%/9%

Well my employer contributes 9% and I could contribute anything from 5% upwards , so not sure 8 and 9% has any significance .

My employer doesn't give me back any of their NI saving, but infer its been factored as part of their contribution"

Mine does not give back any of their NI saving and if I remember came up with a similar BS excuse.

poochops

Bemma said:

This may be way off…  but mention you contribute 8% and your company 9%.  You £420, total £900.

You also mention "My employer doesn't give me back any of their NI saving, but infer its been factored as part of their contribution"

Those are very strange ratios 8%/9%:  Are you sure it's not 8% matched contribution plus 13.8% employer NI top up?

£420 * 13.8% = £57.96

£420 + £420 + £57.96 = £897.96

 It can very unclear with SS what savings you're making and where it's coming from.

Thanks but I think it’s just coincidence and confused by me rounding up to £900 tbh, my statement says 8% and 9% respectively, £420 and £472.50, or  £892.50 combined. 

I need to know if the whole £892.50 is subject to tax relief though, which if it is would give a combined contribution of £892.50x12 = £10710/.58 = £18465.
The annual £40k limit - £18465 = £21535x.58= £12490 max extra contribution before I max the 40k/year assuming 42% tax/ni relief.  Or £12490/12=£1040pcm max extra contribution. 

Checking £10710+ £12490 = £23200 but I only have £20600 taxed at 40% so I know I have to adjust and recalculate for the portion that would get tax relief at 20% which I can do. But it’s all balls if the employers contribution doesn’t attract tax relief! So does it or doesn’t it? I see conflicting wording on various websites and two different replies on here, hence my wanting to be sure. Sorry if I’m coming across as a bit thick! and thanks so much for helping. 
 

Linton

There appears to be great confusion in your mind and in some of the various comments here.  Were you not on Salary Sacrifice, as an employee in what I assume is a large company pension scheme, your pension contributions wiould probably be taken before the calculation of tax.  SInce you would not have paid tax on the pension contribution you can hardly expect  to get any tax relief.

You said in your first post that your pension contributions are by Salary Sacrifice.  Salary sacrifice means that your employer agrees to increase their contribution in exchange for you getting a lower salary.  As you are not paying into your pension you do not get any income tax relief.  However as you get a lower salary than otherwise you pay less income tax, oddly enough by exactly the same amount as the relief you would get if you were due any.  Also by having a lower salary you pay less NI but that is a completely different matter.

Obviously you dont get any tax benefit from contributions your employer makes.  So what goes into your pension is just the total of your employers contribution and the contribution you have salary sacrificed.

poochops

Linton said:

There appears to be great confusion in your mind and in some of the various comments here.  Were you not on Salary Sacrifice, as an employee in what I assume is a large company pension scheme, your pension contributions wiould probably be taken before the calculation of tax.  SInce you would not have paid tax on the pension contribution you can hardly expect  to get any tax relief.

You said in your first post that your pension contributions are by Salary Sacrifice.  Salary sacrifice means that your employer agrees to increase their contribution in exchange for you getting a lower salary.  As you are not paying into your pension you do not get any income tax relief.  However as you get a lower salary than otherwise you pay less income tax, oddly enough by exactly the same amount as the relief you would get if you were due any.  Also by having a lower salary you pay less NI but that is a completely different matter.

Obviously you dont get any tax benefit from contributions your employer makes.  So what goes into your pension is just the total of your employers contribution and the contribution you have salary sacrificed.

Breakthrough! Thank you! Yes I was indeed confused and probably confusing some of the others with my questions. So for max benefit I just sacrifice everything coming in over 50k, and pot the rest into Mrs Poo's account. Suddenly some of the other replies make more sense. Thanks again and thanks for everyone’s patience and replies. 

Albermarle

It can be confusing because there are three different ways that an employees pension contribution can be taken from their salary and it varies from employer to employer . However as it is clear that yours is using salary sacrifice then the comments above are valid .
Maybe worth being aware that salary sacrifice is a kind of loophole to avoid NI . So maybe will not last forever as it costs the Treasury quite a lot of money.

BuildTheWall

Hi Albermarle, on that note, can you share what the other two forms of pension contribution from salary are? And how do we identify them?
my employer asks us to choose a % of salary to be paid into pension, so thats salary sacrifice then? 

Dazed_and_C0nfused

BuildTheWall said:

Hi Albermarle, on that note, can you share what the other two forms of pension contribution from salary are? And how do we identify them?
my employer asks us to choose a % of salary to be paid into pension, so thats salary sacrifice then? 

Salary sacrifice means you don't contribute to a pension, you agree to a lower salary in return for your employer contributing to your pension.

The other two are where the individual does pay the pension contribution.

Net pay is where your contribution is taken before tax is calculated i.e. salary £30,000 and you contribute 10% so your taxable pay (the amount on your P60) is only £27,000.  You still pay NI on £30,000 though.  This method is often used on DB pensions.

Relief at source is where tax and NI is calculated on your gross salary and then the pension contribution is deducted from your net payment.  The contribution is paid over to a pension company and they add 25% which means you get basic rate tax relief added to your pension fund i.e. you contribute £200/month and the pension company adds £50 so you have a pension fund of £250.  This is usually used for DC pensions.